Use the Post Office to Help the Unbanked

Would you like a loan with that?

Photographer: Justin Sullivan/Getty Images

Millions of Americans lack access to reliable, reasonably priced financial services. Perhaps the U.S. Postal Service can help.

The U.S. financial system does a poor job of serving people with low incomes. Their meager balances don't justify the cost of extra staff and branches. Hefty charges and overdraft fees (sometimes equivalent to interest rates exceeding 3,000 percent) turn such customers away.

As a result, more than a quarter of households, some 68 million adults, turn to a hodgepodge of more or less regulated suppliers of payment, savings and credit services. Choices include prepaid debit cards such as RushCard, which left hundreds of thousands without access to their money last month, as well as payday and title lenders, many of which deserve to be called predatory. All told, fees and interest typically eat up about a tenth of such families' incomes. It's a financial poverty trap.

The market is starting to use new technologies to respond to this unmet need. Prepaid cards such as Bluebird, a partnership of Walmart and American Express, offer pretty much all the features of a bank account, including federal deposit insurance, for minimal fees. (AmEx presumably hopes to make money by charging retailers for transactions.) Others aim to help people avoid getting trapped in high-interest loans. Payday-loan alternative LendUp, for example, uses big-data methods to build credit histories for its customers, so it can lend at lower rates and still turn a profit.

Such initiatives, though, will struggle to scale up. Fragmented regulation is one obstacle. Nonbank financial-service companies must register in every state where they intend to operate, a heavy burden for new ventures. And many of the existing payday lenders are well-entrenched.

How to reach more of the unbanked sooner? Senator Elizabeth Warren and others have suggested that the U.S. Postal Service could help. They'd like post offices to provide basic banking services, such as small loans and savings accounts.

In this form, the idea has drawbacks. Lacking the technological savvy to develop new credit algorithms, the USPS would probably require subsidy to make any significant volume of cheap loans to low-income customers. Responsible competitors might then be driven out of the market altogether, stunting the development of new models.

There's a better way. Instead of competing with the private sector, the postal service could offer a curated selection of third-party financial services, of the Bluebird and LendUp variety. This would shelter customers from predators and help new initiatives reach the scale required to make a real difference. Mainly, it would capitalize on the post office's biggest advantages: an unparalleled network of more than 30,000 branches nationwide and a relatively good reputation among the unbanked (even for customer service, believe it or not).

Turning the post office into a financial marketplace would require legal and regulatory changes. Congress would have to authorize it to offer a broader range of services, beyond the money orders and international transfers it already provides. Also, it would be best to give nonbank institutions operating through the post office a national charter, so they could serve customers in all 50 states. Legislators can look to various countries, such as the U.K., where the post office already offers financial services.  

Being poor in the U.S. is a lot more expensive than it needs to be. The postal service can help to put that right.

To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net.