Garnet Capital Advisors Blog

July 16, 2015

The 'post office bank' hits obvious roadblock

You drop your mail off at the post office, but would you deposit your check at the post office too?

This proposal has been floating around for about a year now. Initially, the idea was to allow the U.S. Postal Service to provide budget banking for customers. This would become the alternative to payday lenders and check-cashing stores for underbanked Americans, all while bolstering the revenue for the drastically struggling USPS.

However, when you stop to think about what is really being suggested - the post office bank - do you really want to the people who deliver your mail handling your savings account? How often do you get someone else's mail?  What if that happened to your deposit?

Idea an attempt to widen revenue stream
While the initial proposal does seem like a noble one for underbanked Americans, the real impetus for the push was to help widen the revenue stream for the USPS.

When looking at the second quarter of 2015, the USPS reported a net loss of $1.5 billion. Overall mail volume was also on the decline. While the USPS did see an uptick in operating revenue, the government organization is still hurting for funds. This has some people thinking outside the box, which is where the banking idea first came from.

According to the Daily Finance, the post office bank was a proposal quickly supported by U.S. Sen Elizabeth Warren, D-Mass. The USPS would still deliver mail and packages, but it would also offer financial services in-house. Warren cited the high number of underbanked Americans as a reason for the support, pointing out that it would save them money while bringing in more revenue for the USPS. It is interesting that Sen. Warren's opinion is that the USPS, which loses billions of dollars a year in a business where it has a monopoly, can compete in the competitive financial product marketplace.

However, it seems that the push for the post office bank has been delayed.

Post office bank encounters problems
Even with the support of high-profile politicians like Warren, the post office bank has been put on hold. This is partly due to a reason that all members of the financial services industry saw coming - regulations. Banks are tightly regulated for a reason, and creating a hybrid bank-post office is a slippery slope from a legal perspective.

According to American Banker, the need for new legislation was a key reason cited by the inspector general for why the post office bank is on hold. Specifically, rules surrounding deposit products and small-dollar loans.

For starters, though, the USPS could include ATMs, provide check-cashing services or other, more minor, financial services. All that would be required in these cases is approval from the Postal Regulatory Commission. For more in-depth products and services, Congress would have to weigh in.

Even so, the motivation remains for a post office bank. The inspector general and members of the USPS believe that financial services are what is needed to bolster revenue for the organization. Instead of pushing for it right now, the idea is to wait until the regulatory elements are better understood.

Of course, this doesn't completely address another problem with the post office bank: consumer confidence. Would you be willing to open an account with an organization whose stereotype is running from dogs and dropping off damaged packages? In time, we may have our answer.

While the USPS and regulatory bodies continue to ponder this novel idea, members of the financial services industry looking to explore the loan sale marketplace can do so by speaking with Garnet Capital Advisors, a loan sale advisory firm that can leverage its network of contacts to establish appropriate relationships in this sector.