Expanding Post Offices into Financial Services

01272014_Chart_Post_OfficeHouston     The United States Postal Service is looking for a way to become more self-sufficient in an era where email has increasingly replaced stamped letters and bills more than love letters flood mailboxes.  In a recent report, they have suggested that providing financial services to the “underserved” might be the ticket, and I for one am not sure they are wrong to look in that direction.

            There’s a demand for short term loans and the marketplace is now filled with predators, so I’m an “any port in the storm” guy and the rain, shine, sleet or snow crew would work for me.  There are in fact many national post office systems that handle financial products.  In Japan, postal savings are huge.  In Canada, ACORN has worked closely with the postal workers’ union to try and lower the costs of sending remittances from migrant workers and immigrants back to their home countries, and have only been thwarted by the long term contract signed between the Harper Administration and MoneyGram, one of the biggest players with Western Union in this field.

            The Post Office has the staff and god knows they have the location, location, location that everyone talks about because they are everywhere.  Payday lenders seem to be popping up like weeds as well, but that’s only in lower income and minority areas where traditional banking services are squeezed and, let’s tell the truth, loans of almost any kind, short or long, have dried up especially since the Great Recession.

            A professor of management at the New School, Lisa Servon, wrote an op-ed in the Wall Street Journal skeptical of the ability of the post office to either compete or do better in this area.  One of her points was very New York City, arguing that post offices would not be open 24 hours like a check cashing place where she pulled some shifts.  Frankly, I’m not sure that payday lending operations should be allowed to be open 24 hours.  The kind of loan negotiated at 3 AM in the morning is so desperate that the interest rate is the least of the borrower’s concerns.  She also pointed out that the Post Office was talking about charging more for money orders than some of these outfits, but, hey, that was their proposal, not what they might do in a competitive environment.

            The Postal Service’s main play seems to be the Postal Card, a reloadable prepaid card and the Postal Loan, an alternative payday loan product.  The fees they are talking about are much, much less than what you find with the predators, so hurray for that.  Professor Servon wonders how they are going to “develop risk scorecards” and handle collections.  Admittedly, all of the details aren’t worked out, but the one thing certain about Post Offices and postal workers are that they are imbedded in a community, and everything we know about successful loan collection for lower income populations indicates that the deeper the community involvement and commitment, the better the rate of repayment.

            So, there are rough edges dragging.  I get that, but the Post Office is talking about a direction that we need to travel, and that regular financial institutions have abandoned except for their slice of the profits in factoring to the predators.  The Post Office is working on a route that we need to travel.

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