USPS responds to OIG financial services white paper

USPS responds to OIG financial services white paper (6/3/15):

This statement is in response to the U.S. Postal Service Office of Inspector General’s (OIG) white paper titled, “The Road Ahead for Postal Financial Services,” dated May 21, 2015.

The Postal Service’s mission is to provide the American public with trusted, affordable, universal mail service. Our core function is delivery, not banking. We are investing in innovations in the areas of our core function with expanded service like same day and Sunday delivery and will continue to do this.

While we appreciate the OIG’s research and do not reject all the ideas in the paper, we find the report misleading and incomplete, as outlined below. We are currently providing certain financial services including money orders, electronic funds transfers, and cashing of U.S. Treasury checks. To the extent our research concludes that we can legally provide additional services at a profit and without distracting from our core business, we will move forward.

  • The paper focuses heavily on revenue potential and does not analyze the Postal Service’s cost structure. For example, it implies that the Postal Service could enter this market, take market share from more established commercial firms already active in this industry by offering similar services at lower rates, and make a profit in as little as five years. It does not account for our higher cost structure and higher fixed institutional costs.
  • The paper’s focus on revenues and not on profit margins or potential losses could lead to the belief that $1 billion of revenue equates to $1 billion of cash profit. While we know that the OIG understands this is not the case, less financially oriented stakeholders may not understand this nuance unless it is explicitly spelled out, leaving readers with inflated expectations. Profit margins on these financial services businesses across the industry are very low (about 10-20 percent), so even if we achieved $1 billion in revenue and executed well, our cash position would only increase by an estimated $100 – 200 million, which will not materially change our financial condition—we need to focus on the core delivery business.
  • The paper opines in several places that the Postal Service should make the products more affordable for the underserved portion of the American public. More affordable appears to mean at a lower price level than the free market provides today, and the volume of business the OIG report estimates we may win is based on these lower prices. Since established financial services firms make a slim margin on revenue (on average, 10 – 20 percent) from providing these services, it seems unlikely that there is any significant room to lower prices without incurring a loss, and at a minimum, a lower profit margin.

Finally, to invest in an area outside our core function, such as the one highlighted in the OIG white paper, requires public policy and regulatory discussions that consider the relevant issues in a comprehensive manner, something which is not done in the OIG paper.

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