Rural Americans have long relied on the postal service more than their peers in cities and the suburbs. In many regions, towns are small enough that they cannot support standalone government offices, let along private institutions like banks or office supply stores. Many of these places play host to post offices, making them a hotbed of agitation for expanded postal offerings.
In part as a response to this pressure, Sen. Kirsten Gillibrand, D-N.Y., introduced legislation that would lead the U.S. Postal Service to re-enter the banking business decades after ending these services. The bill would create a “public option” in banking, deploying the infrastructure of the postal service’s retail operations toward the twin goals of extending financial-services access to small communities and raising revenue for an agency in search of new lines of business to make up for falling mail revenue.
Expanding the offerings of the Postal Service to specific new lines of competitive products is tempting to policymakers. The Postal Service is the largest unified retail operation accountable to Congress. It has storefronts in every congressional district. Any change in postal product offerings can be framed as giving new options to consumers in every part of the nation. That feels far less perilous than trying to balance the agency’s financial ledger by reducing its expenses. Proposals to reduce mail delivery to fewer than six days per week or to close post offices inevitably get shouted down by interest groups.
Yet policymakers would err by imagining the Postal Service will make money on any given new product, and postal banking is an especially worrisome line of business.
Basic banking service, like check-cashing and small-sized money transfers, are not big moneymakers because the fees charged to consumers are low. The Gillibrand bill would get the USPS into these lines of business and direct it to offer small loans. This latter provision is an explicit effort to take business from much-derided short-term lenders (AKA payday lenders).
For loan-making to turn a profit, lenders must be able to appropriately assess the risk of borrowers not repaying money lent to them. As a company specializing in delivering letters, risk assessment is not a field where the post office has any particularly competitive advantage. There is simply no guarantee the Postal Service will make money on small lending.
The concept of a loan-making postal bank also implies a dual mandate, not unlike the dual mandate the Postal Service already faces – providing universal mail service while not losing money. In this case, the mandate would include cross-subsidizing existing postal labor and infrastructure as well as making loans at rates that outcompete specialized short-term lenders while turning a profit.
Adding new postal services could take away resources from the agency’s core products. One of the main assumptions for expanding the Postal Service into new lines of business is that the agency has existing “slack” in its labor force and capital stock such that costs would not increase as much as existing businesses. But expertise at sorting, pricing and delivering mail is not the same as expertise to provide financial services. Indeed, a U.S. Postal Service Office of Inspector General report suggests that USPS would need to outsource any banking service it provides to a private company.
Staff time spent assessing loan risk is staff time not spent ensuring wait times for retail customers are low. Adding new product lines while maintaining current service levels means either hiring more people or increasing labor productivity. The former adds costs both now and in the long run when these workers collect postal pensions, requiring still more profits to account for. As for the latter, Bureau of Labor Statistics data show that productivity at the Postal Service has fallen four of the last five years, including 8 percent between 2015 and 2016 alone.
Postal banking today is a solution in search of a problem. It relies on a faulty logic that entering the financial services business will necessarily bring profits to the Postal Service while extending credit access to those not served by the nation’s myriad existing financial institutions. This dangerous dual mandate has risks that parallel the dual mandate that put the Postal Service in its precarious financial state in the first place.
In the end, taxpayers may end up on the hook for existing debt, as well as a new portfolio of loans with nothing to show for it beyond longer lines at the post office.
Image credit: Orla