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What Is Postal Banking?

Postal banking is a system where your local post office offers essential financial services similar to a commercial bank. This system is standard in many parts of the world and was once available in the United States. Advocates now believe returning it could be a low-cost solution for the country’s large unbanked population.


How Postal Banking Works

The local post office can serve as a bank branch with postal banking. For example, it might provide check cashing, bill payment processing, and even small loans.

Although they may sell postal money orders, U.S. post offices do not typically provide these services today. Recipients can also cash orders at a post office location, which is convenient for people who need to pay a bill or want to send money safely to someone who doesn’t have a checking account.

Post offices used not to be that limited. The Postal Savings System ended in 1967 as commercial banks raised their interest rates on savings accounts, and demand for the Postal Savings System declined.


Postal Banking and the Unbanked 

More than 5% of households in the U.S. (about 7.1 million in all) were unbanked in 2019, the most recent year for which figures were available. This means that no household member has a checking or savings account at a bank or credit union.

Cashing a check can be prohibitively expensive for these households which rely on essential banking services.


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

  • Fees. Unpredictable (often excessive) fees—such as overdraft fees, monthly account fees, and withdrawal fees—prevent some people from opening or keeping accounts.
  • Lack of trust. Many people said they didn’t trust banks to handle their money.
  • High account minimums. The most commonly cited reason for not having a bank account was that the household didn’t have enough money to meet banks’ minimum balance requirements.

Unbanked households that don’t have access to a checking or savings account often have to use check-cashing stores or payday loan centers to conduct financial transactions, like cashing paychecks or paying utility bills. In California, for example, one check-cashing chain’s fees can range from 1.79% to 14.99% of the check’s face value, depending on the type of check.


Advocates of postal banking say that a postal banking system would allow low-income individuals to cash checks at cheaper rates and keep them away from predatory lenders. The ability 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

A white paper released by the U.S. Postal Service Office of Inspector General in 2014 sparked renewed interest in postal banking. According to the paper, underserved households spend on average more than $2,400 a year on interest and fees from alternative financial sources. Postal banking could significantly reduce that amount.

In 2020, Sen. Kirsten Gillibrand (D-N.Y.) sponsored a bill—the Postal Banking Act—that would allow the Postal Service to provide essential financial services, starting new conversations about options for underserved Americans. Co-sponsors Sen. Bernie Sanders (I-Vt.) and Sen. Jeff Merkley (D-Ore.) joined her.

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

“The Postal Banking Act and the postal banking pilot program have faced significant opposition from Republican leadership in Congress and the banking industry,” said the American Bankers Association (ABA). “The ABA 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 says that the answer to the problem of the unbanked is to be found at its branches rather than the Postal Service,” the ABA says.


What is postal banking?

Providing essential banking services at local post offices is called postal banking. This can include checking to cash, bill paying, and even small loans.


What is the advantage of postal banking?

Advocates argue that millions of unbanked Americans could have access to low-cost financial services through postal banking as an alternative to expensive check-cashing stores and payday loan providers.


What is the argument against postal banking?

Many banks now have low-cost programs that could better serve the currently unbanked population, maintaining that the U.S. Postal Service is ill-equipped to add banking to its other services.


The Bottom Line

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


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