As profit-chasing banks abandon low-income and rural neighborhoods, nearly 8% of U.S. households are unbanked, and one in five people live in areas that are insufficiently served by banks, aka “underbanked,” which forces them to rely on alternative and often predatory financial services such as pawn shops, check cashing services, and payday lenders.
Mehrsa Baradaran—a law professor at The University of California Irvine who began her career as a Wall Street lawyer helping banks turn to the government for assistance weathering the financial crisis—is proposing a solution to help the underbanked that also requires government backing: letting the U.S. Postal Service provide basic banking services. Baradaran, whose ideas have inspired presidential candidates including Elizabeth Warren and Bernie Sanders, argues that the U.S. Postal Service is in a unique position to serve the underbanked. “It’s a way to use the systems we have, which are already equipped to handle the essential services banks provide, to solve for inequality,” she says, adding, “if banks are supported by the federal government and they’re not serving half the population, that’s not a market problem. I think that’s a problem with democracy.”
Here’s how postal banking could ameliorate financial inequality.
Low-income areas have been disproportionately hit by the declining number of bank branches in the country; 93% of bank branches that closed since 2008 were in neighborhoods where the median income is below the national average. The USPS is the world’s largest retail network with over 30,000 retail locations (to put this into context, Starbucks currently has nearly 15,000 stores). Over half of them are located in zip codes with no banks, which puts them in an ideal position to serve the underbanked.
While fintech startups such as Earnin claim to help the underserved, Baradaran argues that digital solutions are not enough. “A lot of the time, people have no way to turn their cash into something digital, or the digital into cash, so they need brick-and-mortar locations to cash their checks. Fintech can’t solve for that,” she says. According to the Federal Deposit Insurance Corporation, the average underserved household spends almost 10% of its income just to access their money through these services annually. “If they had bank accounts, it would put a huge amount of money back into the economy and back into their lives,” Baradaran says. “This is money they can spend on food and clothes and shelter and all the essentials of life.”
Despite the common expression “going postal,” and the occasional complaint about slow deliveries, public trust in the USPS remains high. In a 2019 Gallup poll, 74% of Americans said the agency does an excellent or good job. By contrast, a 2018 Gallup poll showed that public confidence in banks was at 30%. Customers could also be sure that their money is safe: tampering with U.S. mail is already a federal offense, and the postal service already investigates crimes including postal robberies, mail bombs, and identity theft.
The USPS currently offers some financial services, including money orders, treasury check cashing, and gift cards. From 1911 to 1966, the institution even functioned as a bank accepting savings deposits. Abroad, many countries have embraced postal banking to increase financial inclusion and post office revenue rates. The largest public bank in the world is Japan’s Post Bank, which holds one-fifth of the country’s debt. Eighty percent of the Italian postal service’s revenue is from the financial services it provides.
Skilled workers and mandate to serve the public
Unlike banks, the USPS legally has to serve all Americans, giving them the same quality of service at the same price. The institution is also not a business that needs to make a profit and doesn’t let profit influence decision-making. For example, unlike a bank branch, the USPS can’t close a post office for financial reasons. “Banks want to be efficient, they want to make lots of money, and when the law doesn’t prevent them, they’re going to merge and close up certain areas, and then you’ll have a large swathe of the population that has to rely on nongovernment-subsidized lenders,” says Baradaran. “The post office is not motivated by profit, so it can help everyone.”