Last September, without fanfare, the Postal Service began testing what was styled as a check-cashing service under which customers could purchase gift cards and pay for them with a business or payroll check. Checks were limited to $500, and their full value, less the $5.95 fee, was transferred to the card. The test was conducted in only four locations: Washington (DC), Falls Church (VA), Baltimore, and the Bronx and, by its equally unpublicized conclusion, there had been only six sales generating $37.50.
Postal banking has long been advocated by liberal politicians as a way to provide financial services to the “unbanked,” i.e., persons who don’t or can’t use traditional banks. Giving them access to banking at the tens of thousands of USPS retail outlets would benefit them greatly, advocates claim, while at the same time generating business for the agency.
The Post Office Department’s Postal Savings System ended in 1966 and, since then, the USPS hasn’t shown particular interest in that business line, despite the prodding of the American Postal Workers Union and their Congressional adherents. Reportedly, former Postmaster General Megan Brennan had not pursued developing the service even though the union had agreed to testing it. All that changed, however, when the APWU met with PMG Louis DeJoy who, reportedly, liked the idea and saw it as a service he could tie with his plans for expanding the package business to simplify customer transactions.
The agency was clever in its approach to the test. Because it’s already allowed to sell gift cards as an authorized “nonpostal service” and collect a service fee, letting customers pay for one with a paycheck let the agency premise the check-cashing as simply a gift card purchase, and thus justify not seeking approval from the Postal Regulatory Commission.
Because the PRC hadn’t been approached prior to the test doesn’t mean it didn’t notice – and have questions. In a January 7 information request, it asked a long series of questions, such as:
“Please discuss the Postal Service’s rationale to commence the Pilot Program without Commission review, especially in light of the statement attributed to a Postal Service spokesperson that ties the Pilot Program to ‘[o]ffering new products and services that are affordable, convenient and secure aligns with the Postal Service’s Delivering for America 10-year plan… .’ ...”
[The USPS responded on January 14 that “Postal Regulatory Commission review was considered unnecessary because the gift card product was approved in 2014 under the competitive product category of Postal Services. The current pilot is merely testing a new form of payment for an established postal product – gift cards. This did not require a change to the Mail Classification Schedule. ...”]
“Please identify any plans for expanding the Pilot Program (either to new locations or other payment methods) in the next fiscal year, if applicable. ...”
[USPS response: “Although we are considering potential next steps for this initiative, no decisions or definitive plans regarding terminating, changing, or expanding the pilot have been made. ...”]
On January 28, the PRC sought more details in follow-up questions, including:
“... Given that between September 13, 2021, and January 14, 2022, there were only six customers, how will the Postal Service proceed going forward? Will the Postal Service continue and/or expand its efforts in this area?
[The USPS responded on February 4: “The Postal Service continues to monitor the pilot and anticipates that more gift cards may be purchased using the additional forms of payment being tested. At this time, no decisions or definitive plans regarding terminating, changing, or expanding the pilot have been made.”]
“The Postal Service states that this ‘pilot’ is a ‘time-limited test.’ ... Pursuant to [statute and PRC regulations], any market test for an experimental product, including services ancillary to only competitive products, must be first reviewed and approved by the Commission at least 30 days before initiating such test. Please explain with a full degree of specificity why the Postal Service believes that this program is not a market test as described in the statute and Commission regulations...”
[USPS response: “The Postal Service considers the application of Commission rules pertaining to market tests to be inapplicable in this instance for several reasons. First, no new products or services are involved in the current pilot. The only products being sold are the existing gift cards that have been previously authorized by the Commission. Second, the focus of the test is a limited acceptance of an additional form of payment, not market response to the sale of an innovative product or service not currently listed in the Mail Classification Schedule. Forms of payment for Postal Service products are not products or services themselves. Finally, acceptable forms of payment for gift cards are not set forth in the Mail Classification Schedule, and therefore are governed by Postal Service discretion and regulations.”]
Other observers in Congress weren’t pleased with how the test conspicuously avoided PRC regulation. In a March 1 letter to PRC chair Michael Kubayanda, Reps. Blaine Luetkemeyer (MO-3rd) and eight colleagues stated, in part:
“The Postal Service’s attempt to offer a financial services product without proper approval from the PRC raises questions as to the intentions of USPS leadership and the PRC’s authority to conduct oversight of the Postal Service’s product lines. The notion that USPS could engage in this pilot program by justifying it as a new payment option – as opposed to a new product – is an affront to the PRC’s statutory role.
“... As the independent Federal agency charged with providing transparency and accountability at the USPS, we ask the PRC to assert its statutory role with respect to the pilot program and subject the matter to the appropriate procedures outlined in the PAEA for new products. Furthermore, we encourage the PRC to prevent the USPS from participating in any additional financial services in the future. ...”
Given that the matter is part of an open docket, Kubayanda had to be cautious in his March 9 reply:
“... Through a series of questions in the [Annual Compliance Determination] docket, the Commission has formally sought information about the scope of, and authorization for, this program, specifically seeking to understand the following: the retail locations participating in the pilot, the controls in place for handling these new payments as part of the pilot, the USPS’ legal basis for commencing the pilot (including attributes of gift cards that led to the prior classification of gift cards as a postal product), the revenue collected as part of the pilot, future plans for the pilot, and the history and legal basis for prior USPS activities involving Treasury checks and payroll checks. ...
“While I am limited in what I can discuss with you about this matter prior to the Commission finalizing its ACD, once the Commission releases the ACD, the Commission can provide briefings on the Commission’s findings relating to this issue. ...”
Though liberals see postal banking as a needed service, conservatives and the financial services industry oppose it as an inappropriate venture into private sector business by a government entity. Opponents also note that:
• Any financial risk related to individuals who can’t or don’t use traditional banks could be relevant to postal banking and should be evaluated before offering such services. If banks cannot serve them profitably it’s doubtful the USPS could, making it essential to protect the agency from losses it can’t afford.
• The Postal Service lacks competencies in several areas: the infrastructure to manage financial services; and expertise about the internal risk controls, consumer protection laws, and privacy regulations with which banks must comply.
Regardless, the future of postal banking likely will be driven as much by political calculus as sound business judgement.
Leo Raymond is Owner and Managing Director at Mailers Hub LLC. He can be reached at lraymond@mailershub.com.
This article originally appeared in the May/June, 2022 issue of Mailing Systems Technology.
