USPS Could Boost Revenue by Expanding Banking Services, Report Says

Laura Stevens, “USPS Could Boost Revenue by Expanding Banking Services, Report,” Wall Street Journal, May 21, 2015

A new study by U.S. Postal Service overseers says the agency could add $1.1 billion in revenues through small expansions of its existing banking offerings, and could potentially generate ten times that if it gained legal authority to act more like a bank.

The white paper, released Thursday by the U.S. Postal Service Office of Inspector General, comes as the USPS is at a critical stage in negotiations with two of its unions. Postal unions are encouraging the agency to add more banking services to its portfolio, a model touted as successful at postal agencies in other countries. On average, posts in industrialized countries generated 14.5% of revenues from financial services in 2012, according to the report.

The report “outlines very clearly what’s doable now,” said Katherine Isaac, a consultant on this issue for the American Postal Workers Union. “It’s a no brainer. The legal authority is there for expansion of numerous products and services.” She said the union is also a proponent of adding additional products.

First class mail volume has declined about 35% over the past decade, and high retiree benefit payments have helped keep the Postal Service in the red. While it receives no direct taxpayer subsidies, it reached its $15 billion credit limit with the Treasury Department in 2012 and faces a chronic shortage of cash.

Its dire financial situation has sent experts scrambling to find answers to help return USPS to profitability.

The Inspector General proposed the USPS add additional financial services to its portfolio as an option in January of last year, saying it could benefit approximately 68 million Americans who either don’t have a bank account or rely on expensive options like payday lending. Sen. Elizabeth Warren (D., Mass.) was one of the first to champion the idea, writing in an op-ed that the USPS could benefit the poorest Americans through offering inexpensive banking options.

In the latest study, the Inspector General notes that the Postal Service is already the largest paper money order provider in the U.S., selling money orders amounting to $21 billion in its fiscal 2014. It also offers international money transfers, some check cashing and prepaid cards.

The agency could easily expand those offerings without needing new legal approvals, the report suggests. For example, it could add the option to wire money electronically between post offices, as well as ATMs for customers.

If the Postal Service could get congressional approval to offer more products, including services like the ability to offer small loans and savings accounts, it could eventually generate about $10 billion in revenues, the report estimates.

In its most recent fiscal-year ending September 30, the USPS earned $67.83 billion in revenue. It reported a net loss of $5.51 billion.

But some USPS executives have resisted the idea in the past. Instead, the agency has focused on cutting costs and growing its parcel business, which has boomed along with e-commerce. Executives have also called for new legislation to remove a congressional mandate that the agency prepay retiree health benefits over 10 years instead of 40.

A USPS spokeswoman said the agency was reviewing the new report. It is unclear whether Postmaster General Megan J. Brennan, who took office this year, would support adding more banking services.

The Inspector General’s report acknowledges there are a number of hurdles to any plans to expand banking services to local post offices. The agency would likely need approval from regulators to expand existing offerings, as well as additional approvals—from Congress and perhaps even banking regulators—for adding other services outside its current legal authority.

“One of the key challenges plaguing some of the Postal Service’s current financial offerings is a lack of public awareness that the products exists,” the report adds.

Late Wednesday, the USPS said that labor contract negotiations with the National Rural Letter Carriers’ Association came to an impasse and will continue through a dispute resolution process. The American Postal Workers Union’s contract expired, but the two groups agreed to extend contract negotiations.

Write to Laura Stevens at laura.stevens@wsj.com