Postal Banking: What Is It?

Postal banking is common in much of the world and was once available in the United States. Now some advocates believe bringing it back could be a low-cost solution for the country’s large unbanked population.

KEY TAKEAWAYS

•Postal banking is common in other countries but hasn’t been seen in the United States for decades.

•Advocates believe that bringing it back could make low-cost banking services available to low-income Americans.

•Approximately 7.1 million American households don’t have checking or savings accounts.

•High fees and account minimums often prevent people from opening accounts.

•Unbanked individuals rely on retailers for basic financial services like check cashing or bill payments, which can be expensive.

How Postal Banking Works

With postal banking, the local post office also serves as a sort of bank branch. For example, it might provide check cashing, bill payment processing, and even small loans.

Today, U.S. post offices do not typically provide these services, although they may sell postal money orders, a convenience for people who need to pay a bill or want to send money safely to someone but who don’t have a checking account. Recipients can also cash money orders at a post office location.

Generations ago, post offices weren’t that limited. From 1911 through 1967, the U.S. had a Postal Savings System, where Americans could deposit their money in government-backed, interest-earning accounts. But as commercial banks raised their interest rates on savings accounts, demand for the Postal Savings System declined, and the program came to an end in 1967.

Postal Banking and the Unbanked

In the U.S. in 2019, the most recent year for which figures were available, more than 5% of households (about 7.1 million in all) were unbanked, meaning that no one in the household has a checking or savings account at a bank or credit union. For these households, basic banking services like cashing a check can be prohibitively expensive.

According to a 2019 survey by the Federal Deposit Insurance Corp. (FDIC), most unbanked households are low-income and lack access to a bank or credit union for reasons that include:

•High account minimums. The most commonly cited reason was that the household didn’t have enough money to meet banks’ minimum balance requirements.

•Lack of trust. Many people said they didn’t trust banks to handle their money.

•Fees. Unpredictable (and often excessive) fees—such as overdraft fees, monthly account fees, and withdrawal fees—prevent some people from opening or keeping accounts.

Without access to a checking or savings account, unbanked households turn to services like check-cashing stores and payday loan centers to conduct financial transactions like cashing paychecks and paying utility bills. At one check-cashing chain in California, for example, fees can range from 1.79% to 14.99% of the face amount, depending on the type of check.

Postal banking advocates say that a postal banking system would not only allow low-income individuals to cash checks at cheaper rates but also keep them away from predatory lenders. Being able to go to a post office for small loans could end their reliance on high-cost alternatives, such as payday lenders.

Current Status of Postal Banking Proposals

In 2014, postal banking saw renewed interest thanks to a white paper released by the U.S. Postal Service Office of Inspector General. The paper stated that underserved households spent more than $2,400 a year on average on interest and fees from alternative financial sources, and that postal banking could cut that dramatically.

The white paper started new conversations about options for underserved Americans. In 2020, Sen. Kirsten Gillibrand (D-N.Y.) sponsored a bill—the Postal Banking Act—that would allow the Postal Service to provide basic financial services. She was joined by co-sponsors Sen. Bernie Sanders (I-Vt.) and Sen. Jeff Merkley (D-Ore.).

In October 2021, the Postal Service, in partnership with the American Postal Workers Union, launched a small pilot postal banking program in four cities. At select locations, post offices would provide services like cash checking, bill payments, and ATM withdrawals.

The Postal Banking Act and the postal banking pilot program have faced significant opposition from both Republican leadership in Congress and the banking industry. The American Bankers Association (ABA) released a statement that said, “The American Bankers Association has long been a vocal opponent of postal banking, and has previously noted that it could be perceived as a government-endorsed provider competing with taxpaying banks and would create risks that USPS is ill-suited to manage.”

The ABA maintains that, rather than the Postal Service, the answer to the problem of the unbanked is to be found at its own branches. “It’s easier than ever to open a bank account in this country, including Bank On-certified accounts, which are now available in more than half of all U.S. bank branches, and feature low costs, no overdraft fees, robust transaction capabilities such as a debit or prepaid card, and online bill pay,” the ABA says.

What is postal banking?

Postal banking refers to providing basic banking services at local post offices. That might include things like check cashing, bill paying, and even small loans.

What is the advantage of postal banking?

Advocates argue that postal banking could make financial services available to the millions of Americans who are currently unbanked, giving them a low-cost alternative to expensive check-cashing stores and payday loan providers.

What is the argument against postal banking?

The U.S. private banking industry maintains that the U.S. Postal Service is ill-equipped to add banking to its other services and that many banks now have low-cost programs that could better serve the currently unbanked population.

The Bottom Line

Postal banking is increasingly cited as a potential solution for low-income households that don’t have access to traditional banks or credit unions. While postal banking has gained some traction in Congress in recent years, it still faces significant opposition from the banking industry. Unless postal banking becomes widespread, most people will continue to rely on banks and credit unions (or check-cashing stores and payday loan purveyors) for banking services.

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