Revenue & Spending
Re-Imagining Government: Affordable Banking
by Scott Klinger, 2/25/2014
For the last 30 years, various political leaders have launched efforts to "Reinvent Government." Done in the name of making government more efficient, these initiatives have most often centered on reducing the size of the government workforce, by handing over to the for-profit sector services that have long been provided by government employees. The goal was to save money, but all too often, unintended consequences have included a troubling lack of accountability and deteriorating public services.
Last month, we caught a glimpse of a different way of looking at public services: having the government step in and provide vital services in areas abandoned by corporate providers. The Inspector General (IG) of the United States Postal Service (USPS) published "Providing Non-Bank Financial Services for the Underserved," in which he imagines how the Postal Service can successfully provide financial services in communities abandoned by traditional banks. He "re-publics" the space abandoned by commercial banks and in so doing creates a win for citizens in low-income communities and a win for the Postal Service by generating new revenues to offset declines in mail volume.
Banking for the Underserved: The "Best New Opportunity" for the Postal Service
More than a quarter of Americans – 34 million households – live in communities that have been abandoned by traditional banks. These families must rely on high-priced check-cashing stores, wire transfer services, and payday lenders for simple banking services that other Americans take for granted. They spent an estimated $89 billion in 2012 – an average of $2,412 per family – on interest and fees paid to alternative financial service providers. On average, under-banked families spend nearly 10 percent of their income on alternative banking services. These high banking fees often contribute to family bankruptcy: "people who filed for bankruptcy in 2012 were just $26 per month short of meeting their expenses," according to the IG’s report.
Thirty-eight percent of the nation's post offices are located in ZIP codes in which there are no banks, and an additional 21 percent of post offices have just one banking option within their ZIP code. Serving the needs of Americans living in these banking deserts could result in an additional revenue stream of $8.9 billion for the Postal Service if just 10 percent of residents use the post office for affordable banking services like check cashing, bill paying, surcharge-free ATMs, and small loans instead of payday lenders and check-cashing stores.
The Postal Service provided similar financial services in the past. Between 1911 and 1967, the Postal Savings System was offered at 8,100 post offices throughout the nation. More than 4 million Americans took advantage of the service, which managed $3.4 billion in savings at its peak. The service was particularly popular among immigrants, according to the Inspector General. The Postal Savings System limited the amount of deposits to $500 and paid an interest rate that was capped at two percent. The Post Office then loaned these deposits to community banks at a rate of 2.25 percent, with the understanding that these funds would be used for lending to small businesses and local residents within the communities where the deposits were gathered.
Central to the Inspector General's recommendation is a strong vision of the public benefit to the overall economy that it would provide:
"By offering non-bank financial services, the Postal Service could fulfill an essential public purpose, increasing the level of financial inclusion in the United States and expanding the number of alternatives for all consumers. Promoting the financial health of all citizens and meeting the needs of the unbanked are longstanding federal priorities. Postal financial services could assist underserved families in making steps toward the mainstream financial system, possibly building up savings and eventually embracing offerings from traditional retail banks. Moreover, postal financial services would fit well with the Postal Service's founding mission to serve citizens and support the growth of commerce."
The Public Is Open to the Idea
The American public has given the idea of Postal Service banking a fairly warm reception. According to a YouGov/Huffington Post national scientific poll, 44 percent of Americans favor the idea of the Post Office offering basic banking services. The proposal was favored by 56 percent of those self-identifying as Democrats and 33 percent of self-described Republicans. And almost a third (31 percent of the 1,000 people surveyed) said they would "often" or "sometimes" use these publicly provided banking services if they were available. Postal services throughout the world often provide basic banking to customers, including in some cases, savings accounts.
Using Postal Vehicles to Gather Information to Protect Communities
The Postal Service has another idea for leveraging public assets to serve the community: use postal vehicles to collect a wide variety of information that could be used to protect public health and improve the quality of life in communities.
The United States Postal Service has a fleet of vehicles that traverse regular routes over the entire country; no other institution has a broader footprint. This makes it an ideal candidate for collecting uniform information from communities across the nation. A 2010 paper by the Chief Council to the Chairman of the Postal Regulatory Commission outlined a range of ways postal vehicles could be used to monitor public health and safety conditions, including:
- Testing for Natural Gas Leaks
- Monitoring Chemical/Biological/Radiological Agents and Air Quality
- Recording Radio/Television/Wireless Signal Strength
- Pothole Mapping
- Electric/Magnetic Field Mapping
The information gathered would then be provided to other public agencies like the Department of Homeland Security, National Weather Service, Nuclear Regulatory Commission, Federal Communications Commission, and local public works departments so they can provide better services and protections to Americans across the country.
Re-Imagining the Role of Government Can Fill Gaps and Build Support for the Public Sector
In the current climate of austerity, the default of public officials is too often to hunker down and try to preserve as much of their work as they can with the limited resources provided. Instead of continuing to "reinvent" government by trying to do more with less, we need to reclaim a vision of government that acknowledges it as an essential tool for fostering social inclusion and expanding the quality of life in our communities. Let's think creatively about how to utilize the public structures we've built over generations to address emerging and future needs.