One More Sign that the Post Office Isn't Interested in Banking

At a private-sector bank, if a long-standing product suffered a five-year sales decline of 25%, its woes would likely have the full attention of top executives.

Management's focus would probably be even more intense if the product in question was among the bank's more profitable offerings.

But the story is different at the U.S. Postal Service, one of the country's largest sellers of personal money orders. Last year Americans purchased just 93 million postal money orders, compared to 233 million in 2000. In the face of this rapid erosion, the post office is providing only benign neglect.

"When it comes to the money order business, the Postal Service appears to prioritize managing the day-to-day operations over strategizing about how to improve or build upon it," the postal inspector general's office wrote in a report earlier this month.

The little-noticed report makes suggestions for how to bring postal money orders into the modern age – either by allowing consumers to order the product through digital channels, or by introducing a fully electronic version.

"The longer the Postal Service waits to take action and modernize this important product, the smaller the impact of that action will be, and the fewer people and businesses that will benefit," the report argues.

The conclusions suggest that advocates of expanded postal banking services, including Democratic Sens. Bernie Sanders and Elizabeth Warren, face an uphill fight. After all, the USPS is not showing much interest in even protecting its existing money-order franchise, much less expanding into new financial products.

For bankers, the growing obsolescence of postal money orders offers the latest reminder about the need to adapt to rapid changes in technology and shifting customer preferences.

"There are so many skulls on poles," said Mark Schwanhausser, a digital banking consultant at Javelin Strategy & Research. "The Postal Service is just one more."

Postal money orders date all the way back to the Civil War, when Union soldiers were looking for a safe way to send money to their families.

Today there are many more payment options – from debit cards to PayPal to fledgling options for real-time payments. So it is tempting to think that money orders, which are essentially prepaid checks, are on the road to extinction.

But if you exclude the Postal Service, which accounts for less than 30% of the overall market, the money order business has actually been rather stable in recent years, according to the inspector general's report.

Western Union and MoneyGram sell money orders through large retail chains like Walmart, 7-Eleven, CVS and Rite-Aid. Other sellers of the product include banks, payday lenders and check cashers. In 2013, an estimated 384 million to 430 million money orders were sold in the U.S.

Why do millions of households still rely on this 150-year-old payment method? Some consumers want to avoid bank overdraft fees. Others do not have a bank account and therefore cannot write checks. Still others are responding to the preferences of landlords and other billers who want to avoid the possibility that personal checks will bounce.

The Postal Service charges $1.25 for money orders of up to $500, which is more than some of its competitors. But the inspector general's report notes that the postal product has some advantages over private-sector money orders, and it does not blame the product's decline on uncompetitive pricing. Instead, it argues that the Postal Service needs to do more to promote its offering.

"While the Postal Service has devoted virtually no marketing or strategic management resources to money orders, it remains among the Postal Service's more profitable businesses," the report states.

Perhaps the simplest way to modernize the business would be to allow consumers to buy money orders online or through a mobile app – using a debit card, a prepaid card or an electronic transfer from a bank account. Simultaneously, the consumer could pay for postage and have the money order sent automatically to the biller.

Within five years, this change would boost the product's annual revenue by 59%, if it were accompanied by improvements in product management and marketing, the inspector general's office estimated.

The more ambitious option would be to introduce fully electronic money orders.

In that scenario, customers could go online and select from a menu of participating billers, much like they do today with online banking payments, and there would be no need for a paper money order. Post offices in Israel, Switzerland and Italy already offer these sorts of digital payment services.

But the Postal Service, which has been focusing on its core delivery services, has shown little interest in saving the money order. Two earlier inspector general reports on expanding postal banking services sparked a lot of interest among progressive politicians, but led to little action from the USPS.

Analysts offered differing views about the Postal Service's potential to update its money-order business.

Ben Jackson, an analyst at Mercator Advisory Services, noted that the Postal Service has a strong reputation, a nationwide distribution network, and a built-in user base. He said that a digital money order would potentially open new markets for the USPS.

"It would provide a way for people to make online payments without needing to put their credit or debit card out on the Web," Jackson said in an email.

Schwanhausser at Javelin expressed greater skepticism.

He noted that private-sector firms have an advantage over the Postal Service with respect to consumers who do not have bank accounts, since they offer a wider selection of financial products.

He also argued that online sellers on sites like eBay and Etsy, who sometimes ask to be paid by money order, are shifting to electronic payments.

"This has got be about how to make everything digital, and as close to real time as possible, to truly compete," Schwanhausser said.