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Can becoming a bank save the Post Office?

Morgan Korn

The United States Postal Service has a serious dilemma: How can it survive in the age of email, online banking and a very competitive shipping industry? 

The Post Office recently raised the price of a first-class stamp to $0.49 from $0.46 but three extra pennies to send a letter in the mail will have little effect on helping the agency turn a profit. The postal service trimmed its loses in the first quarter of its fiscal year yet the agency still posted a $354 million loss. Total mail volume in the quarter, which ended Dec. 31, fell to 42 billion pieces, down from 43.5 billion in the same period a year ago. The Post Office has lost money in 19 of the last 21 quarters.

Related: Post Office Does Not Need a Taxpayer Bailout: Postmaster General

Money-saving strategies like ending Saturday mail delivery was rejected by Congress; other major financial decisions that the USPS wants to make are tied to a dysfunctional federal government that cannot agree on much these days.

How about this: allowing the Postal Service, which has branches in many low-income neighborhoods, to offer traditional and non-traditional banking services? That was the recommendation of the U.S. Postal Service Inspector General, who outlined such a proposal in a recent white paper.

"The Postal Service is well positioned to provide non-bank financial services to those whose needs are not being met by the traditional financial sector," according to the report. "It could accomplish this largely by partnering with banks, who also could lend expertise a the Postal Service structures new offerings. The Office of Inspector General is not suggesting that the Postal Service become a bank or openly compete with banks. To the contrary, we are suggesting that the Postal Service could greatly complement banks’ offerings. The Postal Service could help financial institutions fill the gaps in their efforts to reach the underserved."

More than a quarter of U.S. households -- about 68 million adults -- spent $89 billion in 2012 to access costly services like payday loans and check cashing exchanges because they did not have a bank account, the General Inspector noted in his proposal. 

Related: Why you can't "bootstrap" yourself out of poverty

"While banks are closing branches all over the country, mostly in low- income areas like rural communities and inner cities, the physical postal network is ubiquitous," the Inspector General writes. "The Postal Service also is among the most trusted companies in America, and trust is a critical element for implementing financial services. With affordable financial offerings from the Postal Service, the underserved could collectively save billions of dollars in exorbitant fees and interest."

"I want this idea to work so much," so Yahoo Finance's Jeff Macke in the video above. "But it won't work because it's a high-risk business. The Post Office won't make money."

The Inspector General estimates that moving into the banking business could net the Post Office nearly $9 billion a year. But there's "a certain irony in the Post Office, cash-strapped and maxed out on credit, looking to elbow in on the business of check-cashing and payday-loan storefronts," Mehrsa Baradaran, an assistant professor of law at the University of Georgia, specializing in banking regulation, argues in a recent NYT editorial. "A note of alarm is raised when it highlights the potential bonanza that providing financial services to the financially underserved could yield."

Both Macke and The Daily Ticker's Lauren Lyster agree that something must be done quickly to save the Post Office from bankruptcy...and extinction. It's up to Americans and lawmakers to decide exactly how to do that.

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