The following is a lightly edited transcript of the full episode:
BRENDAN PEDERSEN: All right, Today is August 23. Sunday, I think. And we are walking through the Kalorama Park neighborhood of Washington DC and we are going to the Postmaster’s house. Apparently.
JOHN HELTMAN: That’s my colleague Brendan Pedersen, and he’s covering a protest organized by ShutDownDC, a group that has put on public demonstrations on a range of issues including climate change and public health since its creation in 2019. But today, this protest is about the Post Office.
The Post Office isn’t usually a controversial government agency — a
DEMONSTRATOR 1: This is a party demonstration. And they're gonna hear it.
PEDERSEN: Why'd you come out tonight?
DEMONSTRATOR 1: Because I want to make sure they don't sabotage the election sabotage, sabotage the Post Office. Clearly that's what they're doing. The only way Trump can win is through that kind of subversion and sabotage. Democracy. We gotta stop 'em.
HELTMAN: The uproar around the Post Office and its ability to process ballots is in the news right now, but it has highlighted longstanding funding challenges that this popular federal agency has faced for many years. And it raises the possibility that one idea — allowing the Postal Service to provide banking services — could gain traction.
DEMONSTRATOR 2: For people who have traditionally been disenfranchised by the financial system, so we're talking about rural people, people of color, especially living in densely and racially affected areas of cities, sometimes the post office is the best option they have to pay their bills, to receive their paychecks, to just handle the financial needs that they have in their daily lives. I think it's something that a lot of us, especially those of us who grew up and I live in positions of privilege, are familiar with, but it's a huge part of life.
PEDERSEN: How many people here do you think know postal banking is?
PROTESTER 2: I'm going to be brutally honest. Not most of them, but that's why we need things like your podcast. That's why we need people like our incredible speakers tonight who are going to share why the Post Office is important to them.
HELTMAN: From American Banker, I’m John Heltman, and this is Bankshot, a podcast about banks, finance, and the world we live in.
The Postal Service is one of the oldest government institutions — Benjamin Franklin
MIKE CALHOUN: It is one of several things that overlap that could address what is remarkable, persistent problem that so many households today still do not have access to a basic transactional account for a variety of reasons.
HELTMAN: That’s Mike Calhoun.
CALHOUN: I'm Mike Calhoun, I'm president of the Center for Responsible Lending. We're a nonpartisan policy and research group that focuses on financial services. And in particular, how they can provide greater economic opportunity.
HELTMAN: According to a 2017
CALHOUN: The unbanked would be people who don't have a transaction account. And then underbanked is typically … they are using fringe services. Check cashing, payday lenders, is usually the definition of the underbanked — that they are not able to get primary banking services through that banking account, and have to turn to these other, much more expensive sources for those services.
HELTMAN: The reason that’s a problem is because unbanked and underbanked households tend to be lower-income households, and when you don’t have a lot of money, getting things done — like paying your bills, cashing your check and sending money — cost more, or take more time, or both.
CALHOUN: There is just huge costs, both financial and disruption of your life. You know, one group has done this experiment, have told people, “Here, go cash some checks, and pay some bills. And you can't use your bank to do it.” And you will spend your day carrying out those tasks, which is a big deal for everybody. So part of this is recognizing we have a government-supported banking industry, and it should be part of that in postal banking, particularly filling in the areas where there are not traditional bank branches, which are huge parts of the country. Postal banking can play an important role in filling this in.
HELTMAN: Postal banking as a concept is somewhat straightforward: the same post office where you send a package or get a money order or apply for a passport could also be a place where you deposit your checks or make a withdrawal. And it’s an idea that has been around for a long time.
STEVEN SPRICK SCHUSTER: I'm Steven Sprick Schuster. I'm an assistant professor at Middle Tennessee State. So at least germane to this, I study primarily a lot of postal history around the turn of the 20th century. And so recently the past few years has really drifted a lot of my research towards postal savings. It actually started in England in the 1860s. The idea was to offer banking to low income-savers. So that could help them — so as a paternalistic component, in terms of the policy — but also it could reintroduce money into circulation.
HELTMAN: Back in the 19thcentury, money worked pretty differently, but the basic notion of postal banking gave both the government and consumers something they wanted: a low-risk way of saving money for consumers, and a way of keeping more currency in circulation for the central bank. And this idea spread across the world. But by the time the United States adopted a postal banking system — known then as Postal Savings — the political calculus was slightly different.
SPRICK SCHUSTER: So in the United States, essentially, for a couple generations, there were always these calls to introduce some sort of postal banking — especially as we were seeing it and the results were, sort of, in across the world, and they seem to be doing more or less what they thought it was going to do. And basically was, like, every time there was a panic, there was more push, every time, you know, as we sort of forgot about it, the calls for postal savings would subside. 1907 rolls around, there's a giant panic. And so what's interesting, sort of politically, was, essentially, by the 1908 election, it was clear that something was going to have to happen. And so you had Taft versus Bryant. Bryant was a big fan of deposit insurance, and Taft was pushing for postal savings. And so he actually did stump on that. And so he won, and very quickly, that became ushered in. And what was interesting in terms of the banks' components, was the banks were consistently against any kind of regulation. Eventually when it came down to, “Well something's … something's in the works, it's going to either be postal savings, or it's going to be deposit insurance.” They sort of begrudgingly ... I wouldn't say got on board with postal savings — or postal banking we can call it — but they stopped sort of their opposition to it. And actually they ended up being ... really influential in the structure of the program in some really profound ways.
HELTMAN: So the postal savings program, which was started in 1911, arrived in the United States as something of a political compromise and as an alternative to deposit insurance. Postal savings were de facto insured by the federal government because the federal government couldn’t fail the way private banks can. We don’t have reliable data about what proportion of the country was unbanked in 1911, but we do know that it caught on, particularly among immigrant communities, many of whom came from countries that already had postal savings programs of their own. And those postal savings customers weren’t drawn in by competitive interest rates or anything else — they were drawn into the program because it was safe.
SPRICK SCHUSTER: You see these spikes in, like, Florida during the real estate bust in the ‘20s. In Iowa and different places where you would have crop failures, or different types of spikes and bank failures, you saw a huge flood into postal savings. And the reason that's interesting, especially early on, was the interest rate on, let's say, a short term loan and postal savings was functionally 0%. You actually — I don't know exactly the date when they changed it, but I think, you know, for the first decade of the system, you had to keep your money in the system for an entire year before you earn any interest. And so but you ... you saw a lot of activity in and out of the system, which shows that most people are using the system for short term investment ... for short term savings. So they were only using it for the security — they were getting no interest. And this is a time where the competing interest rates would be 6-7%. So they're actually paying a lot for that security.
HELTMAN: One other thing about the U.S. postal savings program was that the Post Office did not become a bank — it didn’t have a bank charter and it didn’t make loans.
SPRICK SCHUSTER: The vast majority of funds that went into post offices then were rerouted immediately to local banks, especially what they call "qualifying" ... or, you know, banks that qualified. And so this was typically national banks or state banks or there were members of the Fed. And so, that ended up being something that, if you read some bank reports or ... some of the anecdotal evidence from especially the ‘20s, banks actually ended up liking postal savings. The ... the idea was, well, it's, this is a really cheap way of getting of getting, getting deposits. It’s one customer who's representing 100 people, and if all those people come in, you know, for their money, I don't have to deal with the headache of all of them. It’s the Post Office is coming to me to clear … to clear their sheets at the end of the day.
HELTMAN: The postal savings program carried on until 1966, and part of the reason it was discontinued was because a lot of things had changed in 55 years. The banking industry, which had been very localized in the early part of the 20thcentury, became more nationalized, with banks being allowed to open branches across state lines. And the advent of deposit insurance and the creation of the FDIC in 1933 undermined much of the original benefit of the program. But in recent years, the idea of bringing postal banking back has gained traction.
MEHRSA BARADARAN: Yes. I'm Mehrsa Baradaran, author of The Color of Money and How the Other Half Banks, and a law professor at UC Irvine School of Law. So I started writing articles, you know, early on in my career as an academic, and I wrote this article called "
HELTMAN: There are a few things we
BARADARAN: A lot of areas are banking deserts. And what that means is they don't have a bank in that town, they have to drive 40, you know, 30 miles, 20 miles just for an ATM that charges upwards of you know, $6 for each transaction. So there's geographic barriers.
CALHOUN: One of the problems we have about access is that the banks have not adequately provided that access, both in terms of the type of accounts, and if you look at their physical footprint, they have been contracting the number of branches. That has occurred disproportionately in rural and
HELTMAN: One thing the Post Office has — kind of its defining feature, really — is a lot of locations, including in low-income areas. So if post offices can also be bank branches, that could reduce that barrier for unbanked households to become banked. But that isn’t the only barrier.
CALHOUN: I mean, a lot of people leave banks because of the overdraft trap model that dominates transaction accounts at many banks. Where the bank succeeds ... you become a good, quote-unquote “good” customer for the bank through getting hit with dozens of overdraft fees at $35 a pop, and that tends to drive people out of the banking system. And in fact, overdraft fees are one of the main reasons people get pushed out of the banking system, because it crashes their bank account and leaves a deficit balance that makes them ineligible to get an account in the future at that or another bank.
HELTMAN: And related to that problem is the problem of
The Clearing House has been
BARADARAN: The fact that you have these payday lenders and check cashers and nonbank financial service providers operating outside is, like … they're actually the only ones operating under a market of, you know, payments and credit. And a lot of them institutionally are actually using the banking system as their service providers. I think it's just evening the playing field. The Post Office was built over time, and has that the footprint that they don't have to build up. So a lot … a large portion of the fees that you pay to a check casher is, like, their overhead fees, and you don't have that you're not going to have that with the Post Office.
TODD ZYWICKI: I think that financial inclusion is really a moral imperative, that it provides the vehicle for people to make their way in life ... to, to accumulate funds. Some people said money is energy money is like frozen energy unless you have access to banking services, it's really hard to make your way through life. I think at the margin, having more outlets for … for any sort of financial services is going to improve inclusion a little bit. But I think that there's other ways you can think of this and this is … really my main objection is I just don't think it is going to … going to do much.
HELTMAN: That’s Todd Zywicki.
ZYWICKI: Todd Zywicki, George Mason University Foundation, professor of law at Antonin Scalia Law School, and senior scholar at the Cato Institute.
HELTMAN: When people say Postal Banking, what they have in mind is a program whereby people could go to the post office to fulfill certain needs and perform certain tasks that they currently fulfill at a bank. But none of those proposals envision making the Post Office a full-service bank, where you can get a car loan or a home mortgage or talk to someone about annuities. The vision is to have the Post Office serve people who are not currently bank customers or give existing bank customers additional choice —supplementing, rather than competing with, the private banking system. But the problem with that, Zywicki said, is that it means any unbanked households that might open an account at the post office would not have access to a full range of banking products and services.
ZYWICKI: It's not a financial empowerment in any meaningful sense, which is giving people tools -- not just a simple place to kind of, to put money. And, you know, the way I think of it is, you know, this sort of fixation on postal banking seems to me, it's sort of offering ... just because people don't have a lot of money, it's basically saying, “You get post office banking and the rest of the world can FedEx banking.” Right? It's basically the rest of us get modern, innovative, um, banks where we can do a lot of things, where we get real customer service, and the like. And basically, the idea here is, “Well, you don't have a lot of money. So it goes down the line at the post office.” That just doesn't seem like financial empowerment to me. That doesn't seem like financial inclusion, in terms of giving people tools — giving people access to electronic payments, giving people the ability to do bill paying, to do a lot of those sorts of things. And, you know, maybe, maybe this will be the one place where the Post Office will be innovative in in taking on this whole new line of business, and all of a sudden, be able to create electronic payments and all the things that people want.
PAUL MERSKI: The Postal Service has lost over $75 billion, with a “B,” over the past 12 years and keeps hemorrhaging money, billions a year.
HELTMAN: That’s Paul Merski.
MERSKI: Paul Merski, the Executive Vice President for congressional Relations at the independent community bankers of America. And the federal government has stepped in and loan them money and granted them money to keep them viable. And really, they have no expertise in financial services, nor the capacity to deliver very complex financial products and services that require a lot of scale and require a lot of attention to data security, privacy, things that the Postal Service has been lacking.
HELTMAN: This brings us back to where we began, and that is the state of the Postal Service itself. The Post Office historically has been one of those rare government agencies that funds itself — for most of its history, the sale of stamps and its Congressionally-mandated monopoly on first-class mail has funded its operations. But in recent years that dynamic has been reversed, with the Post Office running a deficit of over 200% of its revenue, according to a
MERSKI: I just don't see how the Postal Service could even step up to that challenge. Their challenge financially of doing their core mission of providing postal delivery, and don't have any expertise in taking on savings accounts, checking accounts, financial transactions with the infrastructure that already exists in thousands of other financial providers nationwide. So it seems to be a bad idea to even get the camel’s nose under the tent in this area and be throwing money at it. It really seems to be a more of an attempt to repurpose the Post Office to do something different because they're floundering in their core mission and losing money. So it seems to be a simple repurposing the Post Office. And if you want to repurpose, what, you know, the post offices do and what … what these buildings are going to be used for around the country, you could convert them into a coffee shop, you can convert them into a Jiffy Lube. You could convert them into other things besides highly complex and highly regulated financial services.
HELTMAN: Representatives of the U.S. Postal Service declined an interview for this podcast, but the agency’s
STEPHEN DEMATTEO: So we're confident in the ability of our members to do more. I think that's an important place to start. My name is Steven DeMatteo. I'm the Executive Assistant to the President at the American Postal Workers Union. We represent the people that work the counters and post offices, and pretty much everybody that you don't see at the postal service as well, the folks that sort of mail, fix the machines, fix the trucks, drive the trucks, clean the post offices, etc.
HELTMAN: DeMatteo said postal workers could provide banking services if they were asked to do so, and could do so efficiently. And in fact, the Post Office already provides some financial services already — you can get a money order and
DEMATTEO: We're absolutely proponents of postal banking. But what we want to do now is start with a pilot program that would sort of set us along that path, give us time to work out some of those operational kinks, figure out what actually addresses the needs of the public, and maybe what doesn't do so quite as much as we might have thought. And those are pretty modest things. So we talk a lot about paycheck cashing, putting ATMs into post office lobbies, allowing folks to pay bills for utilities, cell phones, things like that. The underbanked the underserved people could have an arrangement with the postal service to pay bills there, and really expanding the money transfer a system that already exists in a lot of post offices, and expanding that nationwide and getting more involved in the international network of money transfers that exist, really, in post offices all around the world. So those are things a lot of our folks are already doing already. You know, we're selling money orders. We're cashing some checks from Treasury. We're handling money. An ATM would be a relatively hands-off service for the clerks. But we're confident in these are things that our folks could do well could do efficiently and really be complimentary to their … to their daily workload.
HELTMAN: And the Post Office is also a popular institution, both collectively and in the communities they serve. If that trust could help unbanked people gain access to services that save them time and money, that’s all for the good, DeMatteo said. And if it helps the Post Office shore up its funding, that’s all for the good as well.
DEMATTEO: The postal clerk at the post office and the letter carrier that you see at your door every day. These are bedrocks of their communities, their people that their neighbors know and trust. There's a survey year after year where postal workers are named the most trusted federal employees, the Postal Service is the most trusted federal institution. You know, I'm hopeful that that doesn't change in the future given where we are in the moment, and the sort of political football that the Postal Service has become. But we think that augurs really well for the success of an expansion of the type that we're talking about, because people trust their postal worker, and they trust the postal service, and we think that would be a real advantage for the postal service if they were to go and pursue some of these additional financial services. And … and to the extent that it, you know, backstops the Post Office's financial sustainability, that's all for the better, and to the extent that it entrenches the role of the post office in communities all across the country, we're all for that.
HELTMAN: This is where the details get important. There are several proposals out there, but let’s start with
RYAN DONOVAN: The first question is, is that going to be … are those deposits going to be insured? I presume that they will be. Will they be insured by FDIC or NCUA? Not clear. Hi, this is Ryan Donovan. I am the chief advocacy officer at the Credit Union National Association.
HELTMAN: CUNA is a trade group that represents state- and federally-chartered credit unions. And he says the problem with this bill’s line of reasoning is that it bundles together a suite of services that are notably unprofitable for banks that are already providing them.
DONOVAN: You know, debit cards, direct deposits, online banking services. So, you know, again, not things that generally make money for a financial institution. And then low-interest in small-dollar loans. So it seems like it's a very limiting suite of services, which, you know, may be a nod back to previous postal banking concepts, that, if you were just running a bank or credit union, and you'd say, “Well, if you're only offering these services, it probably isn't sustainable. It might call into question the safety and soundness of the institution.”
ZYWICKI: Where things start to go a little kind of ... unrealistic is perhaps the best word is when people start thinking about a relatively souped-up postal banking system that would make small dollar loans, for example, and somehow or another be able to compete against payday lenders, installment lenders and the like. And I think that nobody's really kind of come up with a feasible way in which the Post Office is going to be able to compete with the private sector, in terms of doing small dollar loans at a reasonable price, when you consider the inherent risk and cost problems of trying to reach that … that group.
HELTMAN: So if the scope of a postal banking program is inherently limited — no one is talking about turning the Postal Service into Goldman Sachs — and those limited services are ones that private companies already don’t earn much of a profit from, which is to say nothing of the potential risks involved in small dollar lending, how can that make money for the Post Office?
In other words, if the goal of a postal bank is to expand access to essential services even if that access costs the government money, that’s one thing. But there is reason to be suspicious that the Post Office will be able to provide them at a profit when banks and credit unions for the most part do not. And if the goal is to shore up the Post Office’s finances, that is yet another policy that can be pursued. But having the Post Office itself get into the business of providing checking accounts may not achieve that goal.
Which brings us to another proposal — or an idea at least — which is having banks or credit unions open mini branches in post offices, much the way some grocery stores have mini bank branches. This idea was actually
CALHOUN: Many customers will want a live person, that an ATM in the post office, I think, is not enough. Those may be useful, but there are ATMs around pretty well distributed. And even in rural areas, although their economics are they're much further apart than in in urban areas. But I think a key part of this model is recognition that, at least for the … through an intermediate future, people want and need the availability of a person to interact with. A lot of customers, that's still the case. And it cost a lot of money to have a person there. And a post office has the advantage of having a person already present there and having that physical branch there, particularly in the low-traffic rural areas.
HELTMAN: And yet another iteration of postal banking — one proposed in a bill from Democratic Sen. Sherrod Brown of Ohio earlier this year — relies not so much on expanding the mandate of the Postal Service as it does on expanding the role of the Federal Reserve. Brown’s
SHERROD BROWN: It would allow every American to walk into any bank or post office in the country – or go online – and set up a free, secure bank account, backed by the Federal Reserve and hooked directly into the Federal Reserve’s payment systems. Banking for All means no check cashing fees. No more paying to use the money you already earned. No more waiting until Wednesday to use money you were paid on Friday. It means all workers would able to fully participate in the economy that they keep being told they’re so essential to. And it means if you’re lucky enough to have some savings at the end of the month, you get the same great interest rate the big banks do. Technologies like Central Bank Digital Currencies, full digitization of the payments system can help make this a valuable tool for everyone.
PETROU: … which is a whole different discussion, and a very, very major structural change.
HELTMAN: That’s Karen Petrou.
PETROU: Hi, I’m Karen Petrou, Managing Partner at Federal Financial Analytics. They are pushing a digital dollar, and they believe that this was precipitated by the COVID pandemic, although the ideas have been kicking around for a long time, which is that a major problem in the banking system is the slow pace of payments, combined with the high cost of deposits — of placing the safekeeping deposits — as well as the challenges of people in banking deserts even getting to a bank. So how do you solve for that? You create a central bank digital currency. The Fed yesterday just
BARADARAN: It's much bigger than my idea. My idea was just about inclusion. I'm a proponent, but I think it's … I don't think Fed Accounts is, like, necessary for postal banking. I think you can run it through my postal banking runs through Treasury, I'd be fine running it through the Fed. I don't think that's necessary, the Fed. It's just like, it's too much ammo for the thing that we need. I mean, we just need people to have, like, debit cards and then get a mobile app, right? Like, I, you know, I think a lot of people like don't need to get 5% on their deposit. Like we're not getting anything right now. Right. And that is a problem, generally. And that's a problem I think the Fed accounts could deal with. I am talking about a different problem. I'm just talking about that access point. What do you know, unbanked, underbanked people need to be able to like not have to pay money to be included and to just equalize that payment structure and I think Fed accounts is like bringing, like, a bazooka in for a thing that can be solved with like just a simple …
HELTMAN: … BB gun?
BARADARAN: … debit card. Yeah, exactly.
PETROU: Oh, yeah, I think it's the … it's the neutron bomb. You would have … you'd have a banking system, but quite possibly without banks.
HELTMAN: Yet another idea for postal banking is far narrower in scope and aimed at a very specific problem — one that we experienced so viscerally earlier this year — and that is that the inefficiency with which the government disburses federal aid. In March, Congress approved $1,200 stimulus checks to most Americans to help cope with the Coronavirus pandemic. But it took weeks or even months for many Americans to get those checks. And when they came, often they weren’t checks at all, but debit cards — cards that, in my case anyway, had the wrong name on it. This is a problem that predates the pandemic, but it could have been made simpler if the Post Office had a more expanded role as a distributor of funds from the government — SNAP benefits, VA benefits, stimulus checks, unemployment benefits, things like that.
PETROU: In a stimulus program — I am entitled I'm a family earning below whatever the threshold is, I'm entitled to $1,200. That was distributed, as you know, in a very complicated series of checks and debit cards that did not work. Instead you show up at the post office, you show an official ID it is checked on a computer and you get the cash. It's separate from financial intermediation, because it does not involve either deposit taking nor lending. It's acting as a fiscal agent for the federal government. I think that's a very sensible idea that might speed urgently needed payments to households.
HELTMAN: But that doesn’t address the problem of banking the unbanked. And if that’s what you want to accomplish, is there another way besides expanding the mission of the Postal Service that could get you there? Wouldn’t it make sense to use the financial system we already have and use some series of carrots and sticks that might get it to serve the population it doesn’t serve now?
DONOVAN: I think that's what policymakers ought to do is, let's look at this, don't look at it from a credit union versus bank perspective, don't look at it, you know, from a, you know ... just through the lens of CRA or, or CDFI, or minority deposit institution. Let's put the consumer at the center, and let's, let's say how do we solve this problem? And how can we use the existing structures that we have — credit unions, small banks, large banks — to help to help provide a solution? I think the answer is there.
ZYWICKI: Yeah, I think the first thing is some simple deregulatory things. I think the Durbin amendment for example, the evidence on this is pretty clear that, basically, what the Durbin amendment brought about was a huge drop in access to free checking, and a huge increase in the fees paid by people who lost access to free checking. So depending on the numbers,
MERSKI: Incentives make perfect sense. So if you can provide low-income accounts for customers and get a tax break for that, that would be an incentive to provide, you know, a tax break of some type for community banks serving low-income customers. Or lighter regulation — that just the cost of regulation on financial institutions and what they have to do to set up and maintain accounts. If you could lower regulations, costs regulations with the incentive to provide more financial services.
CALHOUN: Overdraft fees generate north of $15 billion a year for the banks. And they are what we would call wrong-way subsidy. They are subsidy coming from the working families to subsidize the other account holders. So part of that is finally come to grips with overdraft, which we would note that, again, looking back, if you go back to 1990, overdrafts were ... the current model of overdraft did not exist. It was pushed as a revenue source by bank advisors and bank service companies, and promised to them to be the most profitable fee service that they would have in the entire bank. So, it is by no means … there, there's very little connection between the fee, which is $35 — and the average overdraft is under $20 and is repaid in three days. I mean, the cost is in … the cost continues to climb as technology ... rather, the price that consumers pay, the cost to consumers, continues to grow dramatically even though the cost to the bank continues to plummet due to technology and automation.
HELTMAN: Postal banking is an idea that we are likely to hear about more and more, and at higher and higher levels in the coming months. It could be a solution to a number of different but interrelated problems, but that depends on the details and the alternatives. But whatever postal banking may be, it isn’t a panacea.
PETROU: It's a payment system problem. It is a savings safekeeping problem. It is, in the many people's view, a predatory lending or predatory pricing — i.e., overdrafts and the cost of deposit — problem. And in some variations on those, particularly the ones linked to Central Bank digital currency, it's a … it's even a lending issue. Then you start down a list of specific financial services based on the objectives you anticipate for a postal banking system. And different advocates have different objectives. Some of them see it as a deposit safekeeping function, others as a new way for people to get non-predatory loans. There are different proposals and each one is trying to solve for something ... something else. Then you add it to the very complex question of Fed accounts. So bit by bit, you build it out, and each idea is advocated by people trying to solve a particular problem, and many of the problems are a good deal more intractable than the Postal Service, I think, is going to be able to solve.