It is easy to overlook the problem of the unbanked and underbanked in the United States — if for no other reason than it is far from the endemic problem here that it is in other parts of the world. However, depending upon the exact data set one is using, a full 10 percent of American adults are unbanked, with another 17 percent of them underbanked (meaning they have some basic banking services but are not using the full suite of financial services available to the average consumer).
While having a financial system that is 73 percent inclusive is actually pretty good news, particularly when one looks at the global rankings in this area, it’s not great news and means that almost a quarter of the adult population is insufficiently banked. And that literally adds up to tens of millions of people.
However, integrating that last 25 percent into the financial mainstream is challenging, as there are a myriad of reasons why they are outside. A one-size-fits-all solution is hard to come by.
Some consumers have incomes so low that interacting with financial services is too expensive. Others receive income too irregularly to mesh well with the sort of monthly fee schedule imposed by mainstream financial services. Some lack physical access, while others lack awareness and education about the types of financial services available to them. Then, there are those who just straight up don’t like or trust banks.
Assuming that the only solution for that last group is some combination of gold, guns and bitcoins, those first three sets of consumers are where the bulk of interest lies in solving the problem of the un- or underbanked in the U.S. There has been progress, but progress is slow.
But Democratic presidential nominee Bernie Sanders has an idea that he thinks will take a big bite out of the problem that he’s been banging the drum on for at least the last half-decade. Sanders’ solution for the un- and underbanked in America in three words?
That Bastion Of Innovation: The Post Office
Sanders’ logic is simple, and it isn’t his alone. Sen. Elizabeth Warren (D-MA) likes it, as do many left-leaning progressives, as a possible banking solution for underrepresented populations. In short, USPS needs something to do since people don’t send letters anymore. There’s a post office everywhere, and so if we give post offices some minor banking powers, that will open up banking access for the masses. If we make USPS a lender, it might even be able to crush the horrible, evil payday lenders of the world.
So, party hats for everyone? Problem solved?
Well, using USPS as a lender isn’t a new idea; it’s a really old idea that is still in fashion in some parts of the world — Europe and Asia, namely. It is not an idea without merit and has been used to quite useful effect.
It may, however, be an idea past its time, as it is not clear that throwing the 19th century’s best ideas for financial inclusion for the masses against 21st century problems is necessarily the prudent recourse, especially when there might already be better options available or under development in the digital ecosystem.
The Good News About The Post Office
Bernie Sanders is known for many things, not the least of which are his rather colorful ideas on the economy, banking and money in general. It is generally taken for granted that the bulk of Sanders’ economic views represent the most left-leaning wing of the Democratic party. Sanders is a registered Socialist, and his ideas are thus taken with the appropriate grain of salt by more moderate people. A long way of saying, when Bernie Sanders starts talking about banking, the average person is more likely to admire the forcefulness of his convictions than they are to necessarily agree with him.
Unless he is talking about postal banks — a financial subject where a surprising number of extremely normal people are feeling a bit of the Bern.
Sanders’ argument is pretty simple and intuitive. The majority of underbanked or unbanked consumers find themselves in that condition because they lack access and knowledge of products. Post offices are everywhere — by design, they pretty much have to be — and by building basic banking functions in them, one has an easy and relatively inexpensive way to bring banking access to the masses.
“If you are a low-income person, it is, depending upon where you live, very difficult to find normal banking. Banks don’t want you,” Sanders notes in his stump speech. “And what people are forced to do is go to payday lenders who charge outrageously high interest rates. You go to check cashing places, which rip you off. And, yes, I think that the postal service, in fact, can play an important role in providing modest types of banking service to folks who need it.”
The idea, it should be noted, is not without precedent. Only 7 percent of postal systems globally have no banking functions incorporated into them, according to The Atlantic, and postal banking is fairly common in a variety of European countries. Some estimates put global postal banking figures at around 1 billion people who have used them for banking needs.
It also used to be part of the USPS’ core function; between 1910 and 1967, the Postal Service ran a savings account program for new immigrants and the poor. To this day, money orders (postal checks) are available for purchase.
And the idea has gotten some pretty high-profile support. Hillary Clinton has expressed openness to the idea, and Elizabeth Warren is a longtime booster, as are several dozen academics.
“The basic idea of modern postal banking is a public bank offering a wide range of transaction services, including financial transactions, remittance, savings accounts and small lending. These institutions would remain affordable because of economies of scale and because of the existing postal infrastructure in the U.S. Plus, in the absence of shareholders, they would not be driven to seek profits and could sell services at cost,” wrote Mehrsa Baradaran, a professor at the University of Georgia School of Law.
So, if everyone else is doing it, it serves a population that capitalism is leaving behind anyway and it will make the lives of the working poor better, why isn’t everyone signing on to this idea with their sparkliest pen?
Well, as always, the devil is in the details…
Banks Are Actually Kind Of Hard To Run
While boosters of postal banking all agree that the post office as bank should offer a “basic menu” of services, there is not a lot of specific agreement on that menu.
Basic deposit services — savings accounts, with either access to basic checking services or prepaid products — are often offered up as necessary ingredients that would neither be high cost nor high complexity for USPS to deliver. It is worth noting, however, that “not high” cost or complexity is not the same as “no” cost or complexity, and given that banking is a new function or series of functions, the assessment that this is “not difficult” is probably a bit relative.
This is likely much less difficult than the post office trying to deliver packages to the International Space Station, for example, but is probably a bit harder than, say, instituting Sunday delivery with Amazon was.
Also, consumers dropping off cash regularly means post offices suddenly become much more desirable physical locations to rob, and if they are moving large sums of money through brand new digital systems, they will be attractive to hack.
Meaning the hidden cost of turning a post office into a bank is security, because we secure money much more than we secure the mail.
Moreover, it might be worth wondering that if USPS going to all that trouble to offer these services alone is that useful given the plethora of digital savings accounts. Consumers who have avoided banking so far would have no huge reason to rush to the post office, unless its offerings were at zero cost or extremely low cost.
And there is good reason to think that might not be possible.
But the interest in the problem — and the willingness to hear out some weirdness — highlights just how real the problem is. The underbanked need services, and the solutions are getting extreme in the absence of progress.
Which means while 2016 should perhaps not be the year we turn banks into post offices, it should be the year we find a better fix for the quarter of adults without financial services than nothing or a 19th century solution.