Bluff, New Zealand, is the southernmost inhabited city in the Eastern Hemisphere. The post office overlooks the Foveaux Strait – if you were to navigate south from the port, the next landmass you encounter would be Antarctica. Fewer than two thousand people live in Bluff, but any of them can go to the post office and cash a check or apply for a loan. Residents may be at the end of the world, but thanks to the state-owned postal banking entity, Kiwibank, they still have access to basic financial services.
Meanwhile, the United States is riddled with what are known as banking deserts – populated areas, many of them urban, where residents do not have access to a bank. The problem worsened in the aftermath of the recession, when traditional banks began to branch closures in the popular districts of the country. Many cash-strapped Americans have been forced to turn to “alternative financial services” – that is, predators payday loan and check-cashing operations, which offer small dollar loans in a pinch. Known for their hidden fees and sky-high interest rates, these companies don’t provide basic services like checking and savings accounts. These are not banks, they are shark tanks.
One in four American households are either unbanked or underbanked, which means they are totally or partially excluded from traditional financial services. These 68 million people represent a growing market for loan sharks, and spend on average 10 percent of their annual income on the high interest and fees that come with alternative financial services – roughly the same proportion they spend on food.
Traditional banks show no sign of returning to the areas they abandoned during the recession. But there is a collective solution to the banking desert: we could set up a public postal banking system like New Zealand’s. After all, we already have.
One of the main drivers of postal banking systems around the world has always been to provide services to the poor. Britain’s post offices started to offer savings accounts in 1861, at a time when the poor physically had to keep their savings under lock and key. But ordinary citizens were not the only beneficiaries. In Britain, it quickly became clear that postal banking was successfully providing the government with a valuable resource of its own, helping it to securely fund the public sector – a win-win.
In the United States, postmasters relentlessly advocated for the postal bank from the 1870s. But as the lawyer Mehrsa Baradaran has shown in his delivered How the other half-banks, the American Bankers Association fought it fiercely from the start. Most banks were concentrated in the northeast and banks were in no rush to serve neglected areas – yet the industry was terrified of the prospect of competition from the federal government. Private bankers have successfully lobbied every postal bank bill for forty years.
After the Panic of 1907, when millions of Americans lost their savings, postal banking services rose to the top of the national political agenda. “I am convinced that people want such banks”, President William Taft declared in 1909, because they would benefit “a large number of people of weak means who do not currently have banking facilities”. A proposal for a public bank was adopted in 1910 and the program was implemented from 1911.
Due to bank lobbying, however, the resulting system was relatively limited: savings accounts had low ceilings, interest rates were capped well below those in the private sector (hence the colloquial name of ” banks of the poor ‘), and deposits were re-loaned to local commercial banks rather than financing public money.
Yet the system has operated successfully for fifty-five years. Banks were particularly popular with poor immigrants, who had been excluded from mainstream financial services. In 1915, 70 percent of postal bank deposits were held by immigrants, while they made up only 15 percent of the population. And in the 1930s and 1940s, postal banks sold government bonds to their customers, helping to ensure a stable source of funding for the public sector.
The relationship was symbiotic – the poor were given access to a universal and convenient public service, and the government was able to use the deposits to finance its debts. Postal banking facilities have contributed to profitable The budget deficit during the Great Depression and the program peaked in the United States during World War II, when four million Americans had savings accounts at post offices. During the war, $ 8 billion was raised through defense bonds sold by postal banks.
But the limitations imposed on the system by bank lobbyists finally caught up with it after the war. As the economy boomed, caps on interest rates paid to depositors began to weigh in, and many postal banking customers sought more sophisticated private banking deals instead. Account Request Reported, Enrollment Down and Lyndon B. Johnson finished the program without fanfare in 1966.
Less than a decade later, as the flight of whites drained wealthy urban centers and wages began to stagnate, postal banks weren’t there when many people needed them most. It is no coincidence that the predatory lending industry gained a foothold in the 1970s, filling the void left by the United States Postal Service.
New Zealand’s Kiwibank is not out of the ordinary. Taiwan has Chughwa Post, Hungary has Magyar Postatakarékpénztár, and the UK government operates Post Office Ltd. Post offices serve as banks in Brazil, China, Finland, Greece, India, Italy, Japan, Latvia, South Africa and South Korea – 139 countries in total, with varying degrees full state ownership and public-private collaboration. Worldwide, three quarters post offices offer financial services, including check cashing, savings, prepaid cards, bill payment, and even financial advice and education. 1.6 billion people have accounts at post offices. It is estimated that a billion of them would otherwise be unbanked.
In the United States, people excluded from traditional banks spend an average of two hundred dollars a month just to access the funds they need to cover their basic expenses and support their daily lives. The money is channeled to the wage moguls and loan sharks at the top of the food chain.
The answer to this problem is staring us in the face. Post offices are already well established in communities most in need of basic financial services – 60 percent post offices are in zip codes with only one or no bank branch. The United States Postal Service is trusted and appreciated – the Top rated of all federal agencies. It already has a mandate to provide universal service, for the public good rather than for profit.
Unlike a private company, it is forbidden to close a branch for purely financial reasons, since it exists to serve the community. It is centralized and systematized, employs a qualified workforce and already has security measures. And due to restrictions imposed by Congress designed hamper its finances and pave the way for privatization, this necessary public institution is short of money and in danger. It could use an injection of money and a revitalized sense of purpose.
The bad news is that there are now 22,000 payday lending establishments in the United States. The good news is that there are 30,000 post offices, already operational, ready to drive them out.