Transforming Post Offices into banks
The U.S. postal service inspector general put out a report last week suggesting an intriguing way to shore up the ailing institution’s finances: Let the mailman double as a bank teller.
The plan? The post office would offer services designed to appeal to America’s unbanked and under-banked — the more than 50 million adults who either have no checking or savings account, or use high-cost, predatory services like payday loans to supplement traditional banking needs.
This sounds like a win-win. Americans — particularly low-income Americans — clearly need greater access to low-cost financial services. At the same time, many financial institutions have been complaining for years that providing banking services to low-income Americans is costing them money. So much so that they can barely bring themselves to open bank branches in anything less than well-heeled neighborhoods.
Surely, they would embrace any plan that could help rid them of these undesirable customers, while offering a new-found opportunity to make money.
Not so fast.
The banking sector immediately threw a hissy fit. “This would be like the banking industry moving into running the airlines,” Richard Hunt, the president and chief executive of the Consumers Bankers Association told American Banker last week. Another executive compared the plan to the Ford Edsel.
What gives? Is it just that bank archenemy Senator Elizabeth Warren (D-Mass.), whose relationship with financial services most resembles Batman’s with the Joker, said she liked the scheme almost immediately?
Let’s take a look.
If the plan went through, in addition to selling stamps and processing mail, the post office would offer prepaid cards — one that would allow users to pay bills online, and withdraw money at ATMs. The post office would also develop services to let customers save and borrow money.
It’s not like the banks would be on the outside looking in. There is a continuing role for them in the inspector general’s plan. Not only could they handle the back office support for these new financial products and services, they could even buy the loans from the post office.
What could the financial services world possibly object to in this? Well, as I say to my children: Just because someone says something, doesn’t mean it’s true.
Turns out banks are not actually losing money on low-income Americans. In fact, the less than wealthy have turned into a nice little profit center for the big banks. If these customers want to stay, the banks make them pay.
The median overdraft charge is $34 at large banks and $30 at smaller financial institutions, according to a report from the Consumer Financial Protection Bureau. The result? Moebs Services, a financial research firm, estimated banks took in $32 billion in overdraft fees in 2012.
That’s not all. Until a recent threat of crackdown by the Consumer Financial Protection Bureau, any number of banks offered something called “deposit advance products.” These were, in essence, a payday loan available at the bank, with annual interest rates of more than 300 percent.
Moreover, many banks see their walk-in customers as an easy source of sales, pitching them on everything from auto loans to high-cost, less-than-well-performing mutual funds. How much so? Well, the Los Angeles Times reported last month that Wells Fargo threatened to fire employees who didn’t meet stringent sales goals:
“Wells Fargo branch manager Rita Murillo came to dread the phone calls.
Regional bosses required hourly conferences on her Florida branch’s progress toward daily quotas for opening accounts and selling customers extras such as overdraft protection. Employees who lagged behind had to stay late and work weekends to meet goals, Murillo said.”
“Wells Fargo & Co. is the nation’s leader in selling add-on services to its customers. The giant San Francisco bank brags in earnings reports of its prowess in ‘cross-selling’ financial products such as checking and savings accounts, credit cards, mortgages and wealth management. In addition to generating fees and profits, those services keep customers tied to the bank and less likely to jump to competitors.”
This sort of borderline predatory behavior doesn’t exactly make for great customer service. It might, in fact, leave customers searching for alternatives.
As Felix Salmon pointed out, if the post office could somehow get congressional approval to offer up banking services, there is nothing to stop it from attracting a more financially fit crowd.
No wonder the banks don’t like the plan.
PHOTO (TOP): U.S. Post Office and Court House in Larado, Texas. Courtesy of LIBRARY OF CONGRESS
PHOTO (INSERT): The entrance of a United States Post Office is seen in Manhasset, New York, August 1, 2012. REUTERS/Shannon Stapleton