Tuesday, February 25, 2014
"Around the world, financial services are the single biggest driver for new revenue for postal operators, and conditions may be ripe for similar success for the U.S. Postal Service," said the Office of Inspector General: United States Postal Service. "If just 10 percent of the money underserved Americans currently spend on alternative financial services were instead spent on more affordable products from the postal service, it could generate some $8.9 billion in new revenue."
The report noted that the USPS could become a more affordable alternative to payday lenders, which charge substantial fees for their services. The USPS said it would not become a bank or compete with banks, but instead partner with banks to offer alternative financial services.
The whitepaper, Providing Non-Bank Financial Services for the Underserved, cited 2011 Federal Deposit Insurance Corp. research that reported over a quarter of all U.S. households (about 34 million) have limited or no access to the traditional banking system. The USPS said that these households, representing about 68 million unbanked consumers, "are treading water very close to the economic edge."
The USPS feels it would be a natural fit to provide this demographic with financial services, since it already offers money orders and international money transfers. It said it already holds a 70 percent market share in domestic money orders and processed 109 million money orders in 2012. Via the GPR card, the USPS could offer "new ways of transferring money both domestically and internationally, and perhaps even include small loans that would help customers overcome unexpected expenses."
The USPS also made the case that banks are becoming less convenient for the unbanked. In 2012 alone, banks closed nearly 2,300 branches, the report said. But these closings are not spread evenly; most of them occurred in low-income communities, including rural and inner-city neighborhoods, where unbanked consumers live.
The USPS said 93 percent of bank branch closings since 2008 have occurred in ZIP code areas where household income levels were below the national median. In contrast, the USPS said 59 percent of its postal network is in ZIP codes with no bank branches, or only one. Being embedded in these communities translates into brand identification and trust, the agency added.
The report characterized the proposed Postal Card as the linchpin to the USPS's ambitions. Such a card would reduce the agency's overhead costs associated with cash and check payments and provide the unbanked with a full-service financial product that could be used to make mobile, online and in-store purchases, as well as facilitate bill payments, ATM money withdrawals and money transfers.
Madeline Aufseeser, Senior Analyst at Aite Group LLC, believes that the USPS has the distribution network for a successful GPR card program, but that the postal service's goals are impractical. "I don't think they really have a clue as to what it's going to take," she said. "And I think their expectations are not exactly realistic."
Aufseeser said the USPS has not factored in the additional operational costs, such as more staffing and increased business hours, needed to support a GPR card product. But, according to Aufseeser, the biggest mistake the USPS made is the projection of the revenue potential for its financial services proposal.
"They think they can generate 10 percent of the total revenue that that [unbanked] population derives today," she said. "And I think that's extremely overly optimistic."
Aufseeser noted that the GPR card market is a mature one, with Green Dot Corp., NetSpend Holdings Inc. and H&R Block dominating over 60 percent of the U.S. market. And newer players like American Express Co. and JPMorgan Chase & Co. have added their GPR products to the already crowded field.
"It's going to take [the USPS] years until they can achieve the same level of market share that these other players have," Aufseeser said.
The USPS apparently also failed to take into account that the GPR card market is ripe for consolidation. Aufseeser said that too many program managers and processors are vying for slices of the prepaid pie. "The concentration of the business is such that the market cannot support all these players, and the margins on this business are razor thin," she said.
Aufseeser added: "For them to think they are going to get 10 percent of the market share on mature markets, it just does not seem credible to me."
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