The Breakdown | Explaining Southern California's economy

How to save the US Postal Service: Bank the 'unbanked'

In the last week, we've all learned just how dire the outlook is for the U.S. Postal Service. The Postmaster General, Patrick R. Donahoe, has been pleading for federal assistance in helping the USPS overcome not just a problem with meeting an impending $5.5 billion pension payment, but also a looming $10 billion fiscal deficit.

The post office is such a fixture of American life that the story was immediately picked up by pretty much everybody. On the left-hand side of the political spectrum, Tom Hartmann argued that Republicans have always hated the post office and that this latest crisis is a manufactured one to enable mail delivery to be privatized. On the right, GOP Congressman Darrell Issa of California had already introduced legislation in June to implement "sweeping, structural reforms" of the USPS.

Meanwhile, in the econo-blogosphere, a debate emerged about how to fix the post office. At Reuters, Felix Salmon raised the idea of the "post bank" — a plan to empower the USPS to offer financial services to the public. At the Atlantic, Megan McArdle questioned whether this idea has real legs:

Maybe I'm thick, but I don't really see what problem this solves.  Most of the Post Office workforce is people who sort, process, or deliver mail, which does not map very well onto what a bank workforce does; moving the physical pieces of paper is hardly the mainstay of their job....It's not even clear to me how they make money: as Felix himself recently noted, it appears that there aren't huge economies of scale in retail banking, and the service itself is a thinly remunerated commodity.  The customers that the Post Office can expect to get are the ones who happen to live or work closer to a Post Office than any other bank . . . and again, many of those will be expensive-to-serve people in rural areas, where the post offices are already losing money.  They could probably do at least as well by entering the convenience store market in those areas.

I'm going to suggest a Third Way: enable the post office to offer regional financial services in place like…Southern California, where there is a large "unbanked" Latino population. My colleague Leslie Berestein Rojas has written extensively about Latino financial issues at her Multi-American blog and today offers this point of view:

[Latinos] are…one of the groups least likely to invest in that most basic entree to the American financial mainstream, a bank account....Not doing so deprives of them of opportunities and, when they patronize check-cashing stores, payday lenders and other non-banking financial services, also of hard-earned cash....First, the statistics: In the results of a 2009 survey, the Federal Deposit Insurance Corporation (FDIC) reported that an estimated 7.7 percent of U.S. households, approximately 9 million, were “unbanked,” i.e. lacking checking or savings accounts. Certain minority groups were more likely to be unbanked, notably black Americans (21.7 percent of black households), Latinos (19.3 percent), and Native Americans/Alaskans (15.6 percent). Meanwhile, only 3.5 percent of Asian American households were estimated to be unbanked, and only 3.3 percent of white households....Then there are the “underbanked,” described in the FDIC survey as those who “have a checking or savings account but rely on alternative financial services.” [My emphases]

Getting the USPS into the retail banking business might not make sense in rural America, where the issue is really more the loss of delivery services. But in a city like Los Angeles, providing basic financial services to unbanked and underbanked Latinos who already use the post office to obtain things like money orders could open up a useful new revenue stream. I mean, 20 percent of Latino households could represent a nice chunk of change!

In fact, if the USPS can offer banking that's cheaper than what most retail banks are now selling, what with the arrival of higher fees on everything from debit card transactions to checking accounts, it could turn out to be popular not just with the unbanked, but with the fully banked who, you know, kind of hate their bank right now.

Photo: Karen Bleier/Getty Images