In postal banking, your native put up workplace provides some primary monetary providers, very similar to a industrial financial institution. Postal banking is widespread in a lot of the world and was as soon as accessible in the US. Bringing it again may very well be a low-cost answer for the nation¡¯s massive unbanked inhabitants.
Actually, in 2021, the US Postal Service (USPS) dipped its toes again into banking providers, providing prospects in Washington, D.C., Falls Church, Virginia, and the Bronx, New York to money payroll or enterprise checks (as much as $500) on to a debit card.
Key Takeaways
- Postal banking is widespread in different nations however wasn't seen in the US?for many years till 2021 when the USPS began providing some banking providers in sure areas.
- Advocates consider that bringing it again may make low-cost banking providers accessible to low-income People.
- Roughly 7.1 million American households don¡¯t have checking or financial savings accounts.
- Excessive charges and account minimums usually forestall folks from opening accounts.
- Unbanked people depend on retailers for primary monetary providers like examine cashing or invoice funds, which could be costly.
Investopedia / Julie Bang
How Postal Banking Works
With postal banking, the native put up workplace additionally serves as a form of financial institution department. For instance, it’d present examine cashing, invoice cost processing, and even small loans.
At this time, U.S. put up workplaces don’t present all of those providers on a big scale, though they might promote postal cash orders, a comfort for individuals who have to pay a invoice or wish to ship cash safely to somebody however who don¡¯t have a checking account. Recipients also can money cash orders at a put up workplace location.
Generations in the past, put up workplaces weren¡¯t that restricted. From 1911 by 1967, the U.S. had a Postal Financial savings System, the place People may deposit their cash in government-backed, interest-earning accounts. However as industrial banks raised their rates of interest on financial savings accounts, demand for the Postal Financial savings System declined, and this system got here to an finish in 1967.
In 2021, the USPS rolled out small deposit-to-card providers in sure areas however ideally want to supply prospects the flexibility to pay payments, deposit and withdraw money, and ship cash to different put up workplaces.
Postal Banking and the Unbanked?
Within the U.S. in 2019, the latest 12 months for which figures had been accessible, greater than 5% of households (about 7.1 million in all) had been unbanked, that means that nobody within the family has a checking or financial savings account at a financial institution or credit score union. For these households, primary banking providers like cashing a examine could be prohibitively costly.
Based on a 2019 survey by the Federal Deposit Insurance coverage Corp. (FDIC), most unbanked households are low-income and lack entry to a financial institution or credit score union for causes that embrace:
- Excessive account minimums. Essentially the most generally cited motive was that the family didn¡¯t manage to pay for to satisfy banks¡¯ minimal stability necessities.?
- Lack of belief. Many individuals mentioned they didn¡¯t belief banks to deal with their cash.?
- Charges. Unpredictable (and infrequently extreme) charges¡ªequivalent to overdraft charges, month-to-month account charges, and withdrawal charges¡ªforestall some folks from opening or conserving accounts.?
With out entry to a checking or financial savings account, unbanked households flip to providers like check-cashing shops and payday mortgage facilities to conduct monetary transactions like cashing paychecks and paying utility payments. At one check-cashing chain in California, for instance, charges can vary from 1.79% to 14.99% of the face quantity, relying on the kind of examine.
Postal banking advocates say {that a} postal banking system wouldn’t solely permit low-income people to money checks at cheaper charges but in addition hold them away from predatory lenders. With the ability to go to a put up workplace for small loans may finish their reliance on high-cost alternate options, equivalent to payday lenders.
Present Standing of Postal Banking Proposals
In 2014, postal banking noticed renewed curiosity due to a white paper launched by the U.S. Postal Service Workplace of Inspector Normal. The paper said that underserved households spent greater than $2,400 a 12 months on common on curiosity and costs from different monetary sources, and that postal banking may minimize that dramatically.
The white paper began new conversations about choices for underserved People. In 2020, Sen. Kirsten Gillibrand (D-N.Y.) sponsored a invoice¡ªthe Postal Banking Act¡ªthat will permit the Postal Service to offer primary monetary providers. She was joined by co-sponsors Sen. Bernie Sanders (I-Vt.) and Sen. Jeff Merkley (D-Ore.).
In Oct. 2021, the Postal Service, in partnership with the American Postal Employees Union, launched a small pilot postal banking program in 4 cities. At choose areas, put up workplaces would offer money checking providers.
The Postal Banking Act and the postal banking pilot program have confronted important opposition from each Republican management in Congress and the banking business. The American Bankers Affiliation (ABA) launched a press release that mentioned, ¡°The American Bankers Affiliation has lengthy been a vocal opponent of postal banking, and has beforehand famous that it may very well be perceived as a government-endorsed supplier competing with taxpaying banks and would create dangers that USPS is ill-suited to handle.¡±
The ABA maintains that, somewhat than the Postal Service, the reply to the issue of the unbanked is to be discovered at its personal branches. ¡°It¡¯s simpler than ever to open a checking account on this nation, together with Financial institution On-certified accounts, which are actually accessible in additional than half of all U.S. financial institution branches, and have low prices, no overdraft charges, sturdy transaction capabilities equivalent to a debit or pay as you go card, and on-line invoice pay,¡± the ABA says.
What Is Postal Banking?
Postal banking refers to offering primary banking providers at native put up workplaces. That may embrace issues like examine cashing, invoice paying, and even small loans.
What Is the Benefit of Postal Banking?
Advocates argue that postal banking may make monetary providers accessible to the hundreds of thousands of People who’re at present unbanked, giving them a low-cost different to costly check-cashing shops and payday mortgage suppliers.
What Is the Argument Towards Postal Banking?
The U.S. non-public banking business maintains that the U.S. Postal Service is ill-equipped so as to add banking to its different providers and that many banks now have low-cost applications that might higher serve the at present unbanked inhabitants.
The Backside Line
Postal banking is more and more cited as a possible answer for low-income households that don¡¯t have entry to conventional banks or credit score unions. Whereas postal banking has gained some traction in Congress lately, it nonetheless faces important opposition from the banking business.
Until postal banking turns into widespread, most individuals will proceed to depend on banks and credit score unions (or check-cashing shops and payday mortgage purveyors) for banking providers.?