Michael Brochstein/Sipa USA via AP Images
Sen. Kirsten Gillibrand (D-NY) speaks at a press conference about the postal banking pilot program, April 15, 2021.
Cautious optimism has followed the U.S. Postal Service’s announcement that it has begun a test of new products that take small steps toward re-establishing a postal banking program. Customers can now convert business or payroll checks of $500 or less onto a single-use gift card for a $5.95 purchase fee.
Members of Congress and advocates generally hailed the move. “This pilot is a step in the right direction to help struggling families build economic security,” said Sen. Elizabeth Warren (D-MA), one of the early champions in Congress of restoring postal banking, which offered accounts from 1911 to 1967. Warren also stressed how the pilot could grow into something that increased financial inclusion in America. “Millions of Americans are shut out of the traditional banking system and, as a result, pay much more than other families for basic financial services. USPS has the infrastructure, the experience, and the well-trained employees needed to help address this problem.”
But Rep. Bill Pascrell (D-NJ), another postal banking advocate, touched upon an apprehension that some have shared upon hearing the news. “With proper planning and execution, millions of unbanked Americans could come to rely on the Post Office in their daily lives rather than predatory payday lenders, reinvigorating this great institution in the process,” Pascrell wrote. Those initial words—“proper planning and execution”—have some concerned.
Nobody would argue that what’s being tested right now equates to a successful postal banking system. The rollout is taking place in only one post office location in each of the four participating pilot cities (Washington, D.C.; Baltimore; Falls Church, Virginia; and the Bronx, New York). The gift cards are single-use rather than reloadable. The $500 limit could restrict many people with larger checks. And the $5.95 fee is relatively high compared to where the American Postal Workers Union (APWU), a key driver of the project, wanted the price point. Walmart, for example, charges just $4 for cashing checks up to $1,000.
“While any movement toward postal banking is progress, the size and scope of the pilot is not enough,” said Porter McConnell of the Save the Post Office Coalition, a key outside advocate. “If the bank lobbyists are going to come down like a hammer for the smallest steps toward postal banking, and they will, why not help more people sooner and make the program harder for them to destroy?”
THE BEST ANSWER for this comes from APWU President Mark Dimondstein, who paraphrased the Emergency Broadcast System by saying, “This is really just a test.” The $5.95 price point was the existing fee to purchase gift cards at post offices. Those gift cards already for sale are single-use, with a $500 limit. The test really only adds one innovation: It lets you pay for the card with a payroll or business check. That’s an easy transition for postal workers.
“It may not be the final product, and may not be the final cost,” Dimondstein said. “We look at it as a very small, very positive beginning. And we have the commitments from leadership; they want to make this work.”
In the future, you can layer more changes on top of this. Among the first will be rolling out the product to all the post offices in each pilot city, while implementing some of the lessons of the tests. It’s those that should be seen as the actual pilot programs, which will launch sometime after the holidays. Crucially, it will include a marketing plan to let people know about the new services.
That could alleviate fears about which locations were selected for the tests. For example, the Bronx location, at Baychester Station, is in one of the more prosperous parts of a low-income borough in New York. Average rent in Baychester is around $3,300 a month. The neighborhood’s residents likely have bank accounts and don’t use check-cashing stores. Moreover, there was no signage at the location that this product was an option.
By contrast, the post office in the Bronx’s Tremont neighborhood, a more densely populated and low-income area, would actually have a demonstrated need.
Of course, if you see this as a test, it might make sense to roll it out in a low-traffic environment to work out the kinks before moving to a higher-traffic area. Alternatively, if you are skeptical that USPS Postmaster General Louis DeJoy prioritizes financial inclusion and wants to see postal banking succeed, then the Baychester selection could confirm your skepticism. The eventual rollout to all locations in a region with real marketing muscle behind it could allay those concerns.
WITH REAL PILOTS, other new facets could be gradually introduced. One idea is to allow the purchase of multiple gift cards with a payroll or business check, enabling customers to go over the $500 limit. The fee for all of them would still be $5.95. You could see that happen rather quickly, as it’s a priority for Dimondstein. “It has to be upped in terms of the amount; right now it’s not a useful product for most people,” he said.
Subsequently, there is a desire to get that price point down at some point. And you could see reloadable, USPS-branded cards that customers can put their paychecks on with no-fee, USPS-branded ATMs, peer-to-peer services to transfer money from one postal location to another (or eventually, card to card), even a connection between postal banking and the popular concept of giving all Americans a bank account at the Federal Reserve. That’s part of a bill sponsored by the chairs of the banking committees in the House and Senate, called the Banking for All Act.
All of that is probably a while off.
One reason the Postal Service is going slow reflects the sensitivities (many of them absurd) about implementing new products. The Postal Accountability and Enhancement Act’s Section 102 forbids the Postal Service from providing “non-postal” services, except those that were already in place prior to January 1, 2006.
Fortunately, that grandfathering clause gives the USPS a decent foothold in financial services. In addition to gift cards, post offices offer money orders, which can be used to pay rent or bills; 77.1 million money orders were sold in 2020. The Postal Service also executes international money transfers to nine Latin American countries through a program called DineroSeguro (Sure Money).
All of these products can be expanded to create what amounts to a postal banking system. Bundling gift cards and money orders could allow people to use their paychecks to pay bills. The money transfer program could extend to create the peer-to-peer service. And the gift card program has a lot of potential for a bank account–like product.
But right now, it’s in the proof-of-concept stage. And a deliberate approach both ensures that the system actually works and postal workers know how to use it, and that each legal hurdle can be easily surmounted. In-house ATMs, for example, might require legislative action, although renting space inside post offices for a bank ATM that as part of the deal waives fees on postal debit cards could pass muster.
DEMONSTRATING PUBLIC SUPPORT for postal banking, even during the early iterations of the product, could inspire congressional action down the road. “This is a great first step toward creating a postal bank,” said Sen. Kirsten Gillibrand in a statement. “While the products it will offer are not as expansive as those contained in my legislation, the Postal Banking Act, a pilot program will demonstrate the value to these communities, and show that the USPS can effectively service underbanked urban and rural communities.”
Over two-thirds of all census tracts that have a post office have no bank branch. And about one-quarter of all households in America have little or no access to financial services. That creates a need for integrated financial services at the post office. But you’d need more than four pilots to demonstrate that need.
Dimondstein believes the postal leadership wants to get there. “This post office is willing to try new things,” he said. “Their approach is, let’s put our toes in the water and move forward.”
A recent House appropriations bill included $6 million for postal banking pilot programs in five rural and five urban ZIP codes. Rep. Pascrell, who successfully pushed the appropriation, sees the concept as one that “will unite the interests of rural and urban communities.”
McConnell, of the Save the Post Office Coalition, thinks the USPS can go even bigger. “Given that there are 31,000 post offices in this country, the pilot should really be rolled out in thousands of post offices.”
While Pascrell ultimately called the pilot “a welcome start we must see expanded,” he made no bones about who should do the expanding, reflecting the determination of many liberals who don’t trust DeJoy to successfully engineer this transformation. “It remains my hope,” Pascrell said, “that we see these pilots enacted and carried out under a new postal board and postmaster general.”
