The Post Office could seriously improve financial inclusion and deliver significant benefits to many communities without becoming a bank.
One of the strongest arguments in favour of electronic payments is the moral one. Electronic payments are good for society. The cost of non-cash payments is high, and the yoke falls on the shoulders of the poor.
The average annual income for an “unbanked” family is $25,500, and about 10 percent of that income, or $2,412, goes to fees and interest for gaining access to credit or other financial services.[From The Post Office Banks on the Poor – NYTimes.com]
The same is true in the UK, where the natural evolution of retail banking is seeing branches fall by the wayside on their way to becoming vestigial appendices of a pre-online world. Yet the lack of physical presence is not without controversy.
Branch closures are hugely controversial and over many years numerous communities have waged high-profile campaigns to halt the withdrawal of banks from their high streets. Such campaigns have largely failed, with thousands of branches closing.[From Do banks have a duty to keep branches open? – Telegraph]
Now, while at heart a running dog lackey of capitalism, I am not entirely insensitive to these issues. There are a great many communities (my sister lives in one) where there are no nearby bank branches and the Post Office is a valued connection to the economic system. Rather than bully banks to keep money-losing branches open to serve money-losing customers via money-losing ATMs, then, an alternative that has been discussed many times is to use Post Offices instead. By adding financial services businesses, Post Offices might themselves be more viable and stay a vital bond in many and varied communities. But Post Offices get robbed. They need expensive security and armoured trucks to deliver and remove cash. They need safety glass and panic alarms and counter space for tills and all the rest of it. Consequently running Post Offices as bank branches seems infeasible.
But if you take paper and metal out of the equation, everything changes. The local Post Office then becomes an obvious front-end for banking services, an agent for a variety of financial services providers. If Barclays are going to offer Remote Deposit Capture (as an obvious example) then why not let the local postie use his mobile phone to scan cheques in for people who still want to use them: the elderly, non-technology savvy tradespeople and so forth. In fact, why not go further and let the Post Office offer its own accounts.
A recent white paper by the U.S. Postal Service’s Office of the Inspector General floated the idea of introducing postal banking services as a means of expanding financial inclusion[From Postal Banking: Maybe Not So Crazy After All – Bank Think Article – American Banker]
I don’t think this is a crazy idea at all. I think it makes sense to look at using the Post Office in this way. But does the Post Office need to be a bank to do this? Why have the burden of banking regulation when what the unbanked want is simple payment accounts, the kind of near-banking service that can be delivered effectively through a widespread, established agent network reaching into almost all communities.
In the UK, the Post Office would not need to become a bank or partner with one as it does now. The Post Office could, and should, obtain a Payment Institution (PI) licence and an Electronic Money licence (ELMI) and then do something like the Amex/Walmart Bluebird scheme in the US. Or something like the T-Mobile “checking account”. Or something like the Telefonica O2 Money proposition in the UK. Create a near-bank. It would be a small step for them to then issue their own pre-paid companion card and a smartphone app for the more technologically-sophisticted consumers (so they can transfer money to others, thus reducing their need to obtain cash at all), mutating the old Post Office Card into an open-loop, contactless token fit for the modern world.
This kind of organisation could cost-effectively serve a mass of people who don’t need current accounts and the cost base that comes with them, much to the benefit of the both the banks and the underserved customers.