Serving up a legitimate head-scratcher this week was a report from the Washington Post providing an update on the United States Postal Service’s (USPS) pilot program for check cashing, and intention to roll-out additional retail banking services. Per the report, the USPS began “quietly” testing the check cashing program in early September at a handful of east coast locations including Washington DC, Baltimore, Virginia, and the Bronx, New York. The program allows consumers to cash payroll checks of up to $500 in exchange for pre-loaded Visa gift cards. Although light on mechanics of how the USPS is moving money from a third-party check issuer to a VISA branded gift card, the story was sufficiently ‘meaty’ on intent: a politically driven initiative, supported by the likes of Vermont Senator, Bernie Sanders and New York Senator, Kirstin Gillibrand, to provide basic financial services and retail banking to the nation’s nonbanked and underbanked, which the FDIC estimates to be upwards of 14.1 million persons. In addition to facilitating greater financial inclusivity, politicians and USPS upper management believe that by embracing these new financial offerings, which they plan to extend to bill payment and ATM access, “Postal Banking” will generate a new revenue stream to help bolster the USPS’ precarious financial situation, which if you haven’t heard, isn’t good. In fact, it’s dire. The US Government Accountability Office estimates the USPS’ outstanding obligations at the end of fiscal year 2020 at $188 billion between debt and unfunded pension liabilities, seriously calling into question the Postal Service’s chances for long-term viability.
Though I’m glad to see the government getting back into the ideation business, and trying to solve problems creatively, I’m simply at a loss to make sense of this initiative. Striving for a more inclusive banking system and attempting to save a useful government institution are, on their face, noble endeavors. But the methods by which they’re trying to solve for these objectives fall well short of thoughtful policy.
We live in a time that could arguably be deemed the dawning of the golden age of financial services, fintech, and banking. Everywhere we look, new and innovative technologies are driving us faster towards a fully digitized, contactless world of money movement. From cryptocurrency to NFC, neo banking to in-app payments, we are transitioning away from our technologically inefficient, less-secure, and kludgy physical mediums of financial interaction, and rapidly towards a completely virtual future.
Beyond the technological advancements, we as a society have already recognized the importance of inclusive financial services and are executing initiatives to address these issues, in both the non-profit and for-profit spheres. In the non-profit sphere, the Cities for Financial Empowerment Fund (CFE) was launched back in 2012 with the goal of assisting cities and municipalities, through funding technology advancements, with the express objective of greater inclusivity for the non-banked and underbanked. The CFE now funds the Bank On program, whose mission is to “leverage municipal engagement to improve the financial stability of households with low and moderate incomes by embedding financial empowerment strategies into local government”. As of July, 11, 2021, the Bank On program has certified more than “100 bank and credit union accounts nationally” to meet their Bank On National Account Standards which will allow financial institution (FI) partners to deliver safe banking options to the under-served.
On the for-profit front, look no further than the Walmart – GreenDot partnership, whose business model was designed to address similar objectives.
So, the question is, with all of the progress that continues to be made towards the dual objectives of more inclusive and more efficient banking, why do we need to experiment with Postal Banking?
The answer is we don’t. And we shouldn’t.
One of the primary reasons that the USPS is in the financial position it is today lies with its inability to embrace technologies that would have it run more efficiently. From software and AI to automation and robotics, the USPS has failed at self-governing its way into the 21st Century and long-term economic viability. And to the extent that the USPS’ future is tied to the policy prescriptions of elected officials, these officials have failed too. The notion that an old, stodgy and inefficient institution like the USPS can be enhanced by expanding its business model to include retail banking in 2021 is nonsense.
Inclusive banking and more efficient banking will be achieved through systematic financial technology innovation, of which there’s plenty to go around these days. We ought not to be seeking solutions that promote the continuation of cash and paper-based money movement, or physical, brick-and-mortar retail banking. In some ways, what the USPS is undertaking with its banking pilot will in the best-case scenario, retard progress, and in the worst case, reverse it. The USPS would be better served by embracing a strategy that integrates AI and automation technologies for its core business, and leave financial services to the fintech and banking ecosystem.
Inclusive and efficient banking means virtual banking, and virtual banking means open banking. A more inclusive banking system to serve the unbanked and underbanked needs to be 100% digital and operate within a financial information sharing (open banking) architecture. We don’t need more physical storefronts via US post offices. Instead, our elected leaders should be working overtime to build a clear regulatory framework for open banking, and revisiting what it means to be a bank, within a regulatory context – not just in 2021, but 20 years from now.