It was bad enough when the U.S. Postal Service's inspector general said earlier this month that it is seeking proposals from outside groups about possible postal banking services.
Then the inspector general added new details to his controversial postal banking proposal; he's now pitching the concept as a way for credit unions and banks to maintain a physical presence in communities where branches no longer make economic sense.
In a recent speech in North Carolina, Inspector General David Williams described his vision of an online exchange on which CUs and banks would be able to list their products, with retail transactions being processed in thousands of post offices across the nation.
Though Williams was vague about the details, he suggested that the exchange could be used to comparison-shop before consumers walk into a post office to make the transaction, which could be the purchase of a prepaid card, or down the road, a small-dollar loan.
He emphasized that even in the digital era, consumers still need ways to switch between different monetary instruments—such as cash, checks, debit cards, prepaid cards, etc.—and many often rely on branches for these services.
As many rural bank branches disappear, Post Offices could fill the void. For example, someone who has a prepaid card but needs a check or money order to pay rent to his or her landlord each month.
But credit union trade groups have joined their banking industry counterparts in rejecting the idea and raising concerns about the feasibility of USPS delivering traditional banking services.
"You wouldn't have a FedEx and UPS had the Postal Service been a model of efficiency and service, so you want to unleash that failed model on the financial system?" said Cam Fine, CEO of the Independent Community Bankers of America when the proposal was first floated earlier this year. "It's the worst idea since the Ford Edsel."
A controversial white paper released in January that first floated the proposal suggested that if the Postal Service were to begin offering financial services to the underbanked, it would be a "major new revenue" stream and suggested the postal service could raise as much as $9 billion by providing financial services to the underserved—a market of more than 60 million consumers.
Credit union insiders and experts remain skeptical.
"I think that [$9 billion] number is overstated," said Kevin Yaeger, chair of the National Council of Postal Credit Unions and CEO at Post Office CU in Madison, Wis. "There are things on the expense side of the equation; it's not just all income. "A lot of those fees that both banks and credit unions charge are to set off expenses, and some of those are real hard-dollar costs associated with providing these types of services. Whether it be checking OFAC to make sure somebody's not on a list or something like that, those are things that time staff time and energy, and frankly we've worked that into our business model."
The research proposals that the inspector general is requesting would take a closer look at the types of products that could be offered at postal branches. It would also assess implementation strategies, including potential partnerships with a single financial institution or "multiple financial institutions based on region or product."
"In laying out potential plans of action and analyzing the pros and cons of each one, the [inspector general's office] aims to inform the Postal Service and other stakeholders as they consider how to move forward," the office said in its request for proposals.
William Yarborough, CEO at U.S. Postal Service FCU in Clinton, Md., noted that there is precedent in other nations for postal-banking partnerships.
"They've been doing it in Europe for a long time," Yarborough said. "If you go to a British post office, you'll see in the corner, for example, a little area set up where they discuss certificates or savings or checking or credit card products."
He admitted that while the idea has some merit, the devil is always in the details—particularly when it comes to
"You've got to make it work, otherwise it will pull down whoever is providing that service if it's not priced appropriately," Yarborough said. "You have to have safeguards built in and the organizations have to have the resources to do all of this without it pulling down the organizations."
One major concern for Yarborough is that credit unions were not mentioned by name in the original white paper until midway through the report. He said that the authors of the report told him they used the word "bank'"as an all-inclusive term, but because postal credit unions have been providing banking services to their members for more than 80 years, "the Postal OIG, in my opinion, should be talking to us about this from the get-go."
Cutting Into CU Marketshare?
Could the U.S. Postal Service be cutting into credit union market share and potential membership? Or are there enough underserved consumers to go around?
Don DeCinque, president and CEO of Atlanta Postal Credit Union, downplayed those fears. Not only is the underserved market big enough for all comers, he said, but if those consumers were reachable, they probably would have already been converted into credit union members by now.
"Although it is a shame they haven't joined a credit union, and we, as credit unions, need to do more work to bring this market into the credit union fold," he added.
Meanwhile the announcement of the request for proposals came just days before news broke that the USPS was the victim of hacking.
Both Yarborough and Yaeger, however, downplayed the data breach, noting that anyone can be a victim these days.
"I think we try to stay a step or two ahead of the criminals, but unfortunately there are governments and organized crime spending more money on their IT budgets than probably our combined industry because [hacking] is so lucrative," said Yaeger. "That's the nature of being out there on the internet; anybody is vulnerable. Cyber security is top-of-mind for us, and I'm sure it was top of mind for the U.S. Postal Service and will continue to be."