Banking at the Grocery Store

Out on the campaign trail, Sen Bernie Sanders (D-VT), has fired up support with calls for higher taxes on the wealthy, raising the minimum wage, and breaking up Wall Street conglomerates. Those are explicitly political issues that deserve debate elsewhere, but one proposal of his is certainly worthy of consideration here: turning post offices into banks.

Actually, that’s a subject we explored on this blog nearly two years ago, long before it got attention in the presidential primaries. But in the weeks and months ahead, if the idea gains traction, it might be good to remain aware of the basic challenges and benefits involved.

It’s a potentially odd combination, to be sure. With all due respect to tradition, our business is on the cutting edge, which includes a steady stream of new tools and technologies. The U.S. Post Office, by contrast, exists primarily to deliver snail mail. As we noted earlier, even e-mail is rapidly falling behind other forms of communication via social channels, so a vast infrastructure designed mainly to carry paper around hardly seems like a good match.

And yet. . .

As Sen. Sanders points out, too many low-income people really have no access to conventional banks in their neighborhoods. So they resort to “payday lenders” and check-cashing facilities that sometimes become scams. That’s bad for them, and for the economy. Meanwhile, many of these areas actually do have government-funded post offices with resources to spare.

Now consider the landscape from our perspective. A new study from Business Insider’s BI Intelligence graphically illustrates the erosion in branch banking services. Focusing specifically on that evolving demographic known as millennials, the survey of 1,500 respondents aged 18-34 reveals that nearly three-quarters visit a branch once a month or less.  Fewer than 40% use physical banks to conduct any banking activities other than using an ATM, and only 6% visit a branch on a weekly basis.

In other words, banks aren’t drawing this key demographic, and that’s a bit change. Here’s one indicator of how this shift is playing out. In Britain, a much smaller market than the United States, banks closed 500 branches in the last year alone. That’s more than double the number from 2013, and the damage is far from done: the market is on track for at least 650 closures in 2015. As a result, according to the Campaign for Community Banking Services, 1,500 communities have lost all banks in their town, and more than 800 have only one left.

But there’s a different way to look at all this. In the past we always considered banks to be banks and nothing else, but that notion is being overhauled. We’ve covered here how some banks have become more welcoming with video game machines, community rooms and teller pods, and others that double as cocktail lounges and event spaces. So if banks can become other things, why can’t other things—like, say, the post office—become banks?

Again, we can consider trends developing overseas. On Oct. 22, German financial technology provider Number26 rolled out a new program to turn retail outlets into dual-purpose banking hubs. The plan is to have some 3,000 grocery stores and other familiar retailers throughout Germany offer services to customers who want to make deposits or withdrawals. It’s very much a digital play—to benefit from the service, individuals need to access the Cash26 feature in the Number26 app. But that still means providing a traditional banking service where a bank doesn’t exist.

It’s a safe bet that in the near future we’re going to see many more such innovations. So sure, the very idea of connecting Wall Street with the post office may seem far-fetched now, but as branches continue to disappear and more individuals lose access to regulated and trustworthy institutions, will it seem more viable?

From our perspective, the key question here is which constituency will be driving the change.  Will the government take it upon itself to create partnerships with facilities such as the post office? Or will our industry take the lead and come up with decent alternatives that ensure legitimate banking services to underserved communities?

Chances are, we’ll soon find out.

Written by Jack Dougal