It was an ambitious vision — millions of Americans receiving their paychecks on Postal Service prepaid cards, and heading to their neighborhood post office for affordable small-dollar loans — and now it's been chopped down to size.

In a January 2014 report, the U.S. Postal Service's office of inspector general foresaw the nationwide mail carrier competing against high-cost payday lenders, and perhaps directly against credit unions and banks, too. Those ideas sparked a big debate about the proper role of the public sector versus the private sector in financial services.

The follow-up report, released Thursday, offers something of a reality check.

Congress has long set limits on what the post office is allowed to sell, and there was never much reason to think that small-dollar loans and deposit products would be added to that approved list, at least anytime soon.

The new report from the postal IG's office acknowledges that its big ideas from last year are unlikely to be approved under current law. So it focuses instead on a smaller set of moves that might allow the Postal Service to establish a toehold in the U.S. consumer finance market.

Starting Small

"It may be most feasible for the Postal Service to start small with what it can currently do and then expand strategically once it has proven success," the report states.

Even baby steps would have to be approved by the Postal Regulatory Commission, but the inspector general's office expressed optimism that several proposed forays deeper into financial services could get the necessary regulatory approval.

Spokeswomen for both the Postal Service and the commission declined to comment, saying that their agencies have yet to fully review the report.

Financial services trade groups, including CUNA and NAFCU voiced strong opposition to postal banking plans last year and are already starting to voice their disapproval of the most recent report.

Alicia Nealon, NAFCU's director of regulatory affairs said in a statement Thursday that "though well-intended," the proposal to expand financial services through USPS "could have unintentional effects on credit unions and consumers" and that her trade group "would oppose this move."

"Among their nearly 100 million members, credit unions already reach many underserved and rural areas," Nealon said. "NAFCU and our members firmly believe that consumers are best served by institutions that can offer a full range of financial services and establish relationships with them, as credit unions do."

The American Bankers Association also reiterated its opposition to expanded postal banking.

"The Postal Service could be perceived as a government-endorsed and preferred provider of financial products," Ken Clayton, the group's chief counsel, said in an email. "This would harm the ability of local institutions to service their customers and meet the needs of their communities."

Dennis Dollar, an Alabama-based credit union consultant and former chairman of NCUA, said he not overly concerned about the inspector general's most recent report.

"With competitors like Bank of America, Wells Fargo, Chase and Citibank, [and] with PayPal, Google and Wal-Mart coming on stronger every day, I doubt many credit union leaders are losing much sleep over the historical inefficiency of the losing-billions-even-though-stamps-are-going-up-annually USPS being a game changer," Dollar said.

Jim Blaine, the president of State Employees' Credit Union, a $30-billion institution in Raleigh, N.C., described USPS as a "great organization," but added that it is "hamstrung" by several structural problems, including pensions, its "quasi-governmental" status,  and its "regardless of cost" service mandates.

"USPS can't truly compete [or] succeed in any line of business until those issues are fully and fairly resolved," Blaine told Credit Union Journal. "That takes decisive Congressional action, [so] don't hold your breath."

The new 43-page report estimates that the Postal Service could generate $1.1 billion in annual revenue by making several moves that likely would not require congressional approval.  That is far below the $8.9 billion in new revenue that was projected 16 months ago.

What follows is a look at several of the report's ideas:

Expand International Remittances

The Postal Service already offers a remittance service that it calls "Sure Money," or "Dinero Seguro." But last year the product was only offered in 800 post offices, according to the report, out of more than 30,000 USPS retail locations nationwide.

What's more, the Postal Service currently allows Americans to send money to only four nations among the top 10 recipients of remittances from the United States. Immigrants who have relatives in China, India, the Philippines, Vietnam, Nigeria and South Korea cannot use the service.

"If the Postal Service revamped and expanded Dinero Seguro beyond its current reach and into the top markets, it could become a truly useful and robust product," the report argues.

Offer domestic money transfers. Americans who need to send emergency cash elsewhere in the U.S. often turn to Western Union, MoneyGram or Walmart, which started offering a domestic money transfer service last year. The new report argues that the Postal Service could join this competition.

Such a move would benefit from the large existing network of post offices, but the Postal Service has certain disadvantages in the money-transfer business. "The current operating hours at many post offices may not be convenient for all customers, but these hours could be adjusted to reflect customer demand if necessary and appropriate," the report states.

Expand Check Cashing Services

Today, post offices only allow their customers to cash checks issued by the Postal Service or the U.S. Treasury. The report suggests that enabling customer to cash their payroll checks could offer a significant opportunity for the Postal Service, though it also notes the risks that stem from consumers fraudulently seeking to cash bad checks.

Lease Space for ATMs (or Operate Them)

At least 11,000 post offices nationwide likely have enough foot traffic to justify the addition of ATMs, which could be part of a surcharge-free network, according to the report. The ATMs could either be owned by the Postal Service or privately owned by operators that lease space.

"The Postal Service could place its ATMs in areas like lobbies that are accessible after post office windows close for the day, so that customers can access ATMs anytime," the report notes.

Improve Marketing of USPS Money Orders

The Postal Service is already the nation's largest provider of paper money orders, having sold 97 million of them last year.

But the inspector general's report argues that the USPS product has certain advantages over the money orders sold by convenience stores, pharmacies and check cashers. Those include its perceived security and the receiver's ability to get paid quickly and reliably.

"The Postal Service could market these advantages," the report states, "particularly to small online sellers that often use the Postal Service to ship their merchandise."

— Palash Ghosh contributed to this article.

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