Why the US Post Office needs to compete with banks

Feb 05 2014, 04:54 IST
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SummaryAs a non-banking organisation, it would be unable to compete with the likes of Western Union, as non-banks compete on convenience, not costs

Back in 2011, I said that “the only way to save the Post Office will be to allow it to move into financial services”, seeing as how “banks in the US are mistrusted and disliked and many people would love to be able to just bank at the Post Office instead”.

That’s still true, and has been given a lot more salience since the Post’s Office inspector general released a 33-page white paper, last week, saying that the Post Office should move into what it calls, in its headline, “Non-Bank Financial Services for the Underserved”.

The report has been warmly greeted by Elizabeth Warren, on its own terms:

“If the Postal Service offered basic banking services—nothing fancy, just basic bill paying, check cashing and small dollar loans—then it could provide affordable financial services for underserved families, and, at the same time, shore up its own financial footing.”

Warren also, however, praises David Dayen’s article about the white paper, which has an unambiguous headline: “The Post Office Should Just Become a Bank”. And Adam Levitin, who used to be Warren’s co-blogger at Credit Slips, also uses the paper to push the idea of postal banking.

So let’s be clear: there’s a very important difference between postal banking, on the one hand, and what the inspector general is proposing, on the other. And while postal banking is a good idea, the non-bank proposal from the inspector general is simply not going to fly.

Indeed, it’s rather worrying and disconcerting—not to mention disingenuous—that the inspector general goes out of its way to say that the Post Office should be a non-bank, rather than a bank:

“The Postal Service is well positioned to provide non-bank financial services to those whose needs are not being met by the traditional financial sector. It could accomplish this largely by partnering with banks, who also could lend expertise as the Postal Service structures new offerings. The Office of Inspector General is not suggesting that the Postal Service become a bank or openly compete with banks. To the contrary, we are suggesting that the Postal Service could greatly complement banks’ offerings.”

This is a bit weird, since the centerpiece of the inspector general’s proposal, the Postal Card, seems to do nearly all of the things that a bank account does.

The inspector general, it seems, wants the Post Office to partner with a real bank, which would ensure that the funds on the Postal Card were FDIC insured:

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