When I was a kid, my father went to Chemical Bank every other Friday to deposit his paycheck, which involved walking to a branch, getting in line, and talking to an actual person. My parents kept a stack of twenties in the silverware drawer so they’d have enough cash in between trips to the teller. I remember the smell of the ink on the carbon copy deposit slips, which I would doodle on and sniff while my mother waited in line at our local branch.
Going to the bank—once a ritual of American life—is going the way of twisting rabbit ears into sharp angles to make the TV more watchable. I’ve never balanced a checkbook. I take cash out (usually en route to the place where I plan to spend it) at one of the ATMs that’s on every block in New York City. My paycheck transfers automatically into my account and I deposit checks by snapping photos of them with my iPhone. I got a mortgage last year without ever stepping into a bank. And I’m hardly alone: A 2013 Federal Reserve survey found that a quarter of U.S. adults used mobile banking services in the last year, and that share is expanding rapidly.
By doing away with the need to wait in line and schedule visits around their limited hours, banks have become a lot less like...the post office. So why would it make sense for the U.S. Postal Service (USPS) to get involved in the banking business?
The USPS inspector general released a white paper last month arguing that the organization should use its enormous reach—31,272 retail branches—to do just that. Total mail volume has been shrinking on average five percent a year since 2006 and the USPS is drowning in red ink. However, according to the inspector general, the primary goal isn’t the survival of the organization but rather helping the “underserved.” The report estimates that about 31 percent of U.S. households don’t take advantage of traditional banking services, and they spend on average $2,412 yearly on “alternative financial services,” like check cashing and payday lending. In The Huffington Post, Sen. Elizabeth Warren (D-Mass.) expressed enthusiasm for the idea, promising threatening that “this is an issue I’m going to spend a lot of time working on.”
Post office banking is actually an old idea. The USPS offered savings accounts from 1911 to 1967, which paid an anemic interest rate but were popular with cautious savers because they were backed by the U.S. Treasury. But in 1934, the federal government started insuring the balances on all private bank accounts, and as FDIC limits grew Americans dumped their postal savings accounts. By 1965, two years before the system was dissolved, there were just a million depositors with a total balance of $416 million.
If the organization couldn’t compete with private banks before the days of mobile banking, why would it be able to grab market share now? Commercial banks are becoming increasingly nimble in an effort to cut costs, making it harder than ever for a federal bureaucracy with an enormous overhead to have a fighting chance.
Vastly reducing the number of unbanked Americans is a worthwhile goal—and one that could be more easily achieved if Sen. Warren and other Washington do-gooders would abandon their backward-looking schemes and get out of the way. Here are three policies that would truly lead more Americans to get into banking:
1. Eliminate price controls by repealing the Durbin Amendment.
According to a 2012 survey by Bankrate.com, only 39 percent of banks offered free checking accounts, down from 76 percent two years earlier. The average monthly cost of maintaining a checking account doubled between 2010 and 2012, to about $5.50 per month. And customers with low balances generally pay steep out-of-network ATM and overdraft fees. Is it any wonder so many U.S. households prefer to keep their money in cash?
The rising cost of banking is an unintended consequence of the government’s effort to knock down transaction costs by decree. Banks once collected about 44 cents every time customers swiped their debit cards at the cash register. With debit card use soaring (surpassing credit cards in popularity in 2006), swipe fees became an enormous source of revenue. Banks responded by dropping checking account fees to get their plastic in as many wallets as possible.
An amendment to the 2010 Dodd-Frank Act, introduced by Sen. Dick Durbin (D-Ill.), imposed a price cap that reduced debit card swipe fee down to 24 cents. As a result, banks earned $7.3 billion less in revenue from debit cards swipes in 2012 over the prior year. Predictably, banks responded by jacking their checking account fees and refocusing their efforts on signing up wealthy (and more profitable) customers. If the Durbin Amendment were repealed, most banks would likely go back to offering free checking accounts and otherwise courting the business of low-income Americans.