Postal Banking: The New Coke of Idea Comebacks

In the early 1980's the Coca-Cola Co. conducted a massive consumer research campaign among its customers to help them gain a handle on taste preferences and why their product was declining in popularity. The result was that customers indicated that “taste” was a determining factor in their soft-drink choices, so the Atlanta conglomerate decided to alter their 100-plus year-old formula by adding more sugar.

So, in April 1985, the company debuted its sugary New Coke. The resulting backlash was one of the greatest marketing failures in the annals of American business. Consumers roundly rejected the product and Coke lost millions on the gambit not to mention being saddled with some $30 million in unwanted New Coke concentrate sitting idly in its distribution warehouses.

Sadly, not all mistakes retire permanently to the graveyard.

Take one idea that hung around for nearly 50 years in the 20^th century before being discontinued but is now gaining some impetus for a possible return – postal banking. From 1911 to 1967 the U.S. featured postal banking – the practice of offering retail banking services at USPS locations. However, a precipitous drop in deposits led to the practice being discontinued permanently, or so we thought.

But the idea is now being resurrected as part of the Democratic platform in the 2020 Presidential election.

Under various proposals, the USPS would offer low-cost small amount loans as well as bill-paying services and checking and savings accounts annexed by debit cards. These loans may or may not be in partnerships with local banks or credit unions. Currently, the Post Office still can dispense money orders, but customers are forced to go to banks or other financial institutions for other products.

According to reports, the idea restarted roughly six years ago when the USPS Office of Inspector General remarked that the Post Office could make profitable loans at a much lower interest rate than traditional payday lenders which typically cater to the middle and lower class many of whom have limited access to traditional banks and are frequently gouged by high interest rates and fees.  

Here's my problem with it and in full disclosure my skepticism is backed by years of bad experience.

In the 20-plus years my family has lived in our house, we have been treated to the worst mail delivery service in our region. On a typical day, I receive 3-4 pieces of wrongly addressed letters and sometimes we don’t get a delivery until 7 pm at night or occasionally, not at all. In other words, our local post office is often unable to handle daily what they’re supposed to be an expert in. But that’s a microcosm of what’s happening nationally.

On an annual basis, the USPS records billions in losses. In 2019 for example it posted a loss of $8.8 billion, the 13^th consecutive year it has wallowed in red ink. Couple that with the fact that the organization has little or no experience in the financial services sector and you are coming dangerously close to a repeat of a New Coke-like debacle.

With all the recovery we will need from COVID-19, we certainly don’t need another disaster in waiting. Postal banking should remain alongside New Coke.

Dead and buried - without any added sugar.