Postal banking and US cash transfer programs: a solution to insufficient financial infrastructure?

Abstract

AbstractDirect cash transfers to households during the COVID-19 pandemic, including relief checks and Child Tax Credit payments, were delayed by weeks for recipients without bank accounts and were not received by many non-filers who lacked the time or resources to complete necessary paperwork. A postal banking system has the potential to expand access to financial infrastructure and enable the rapid distribution of resources to households in need during economic downturns – often the same households that are currently excluded from the financial system. This paper examines the history of the US Postal Savings System and the feasibility of a return to postal banking using evidence on the socioeconomic and spatial patterns of financial exclusion. We find that postal banks would be well positioned to compete with both alternative and conventional financial institutions, address issues with physical branch access, and improve outreach to vulnerable populations.KEYWORDS: Postal bankingpayment mechanismsfinancial inclusioncash transfersCOVID-19 pandemicJEL CODES: E65G21G28H53 Disclosure statementNo potential conflict of interest was reported by the author(s).Data availability statementData sharing is not applicable to this article as no new data were created or analyzed in this study.Notes1 https://www.fiscal.treasury.gov/eft/ (Last Accessed August 21, 2023).2 The corresponding country-level data are available in Tables A1 and A2 in Appendix A.3 Importantly, there is wide variation in account ownership and financial exclusion rates within global banking models, linked to specifics of the financial and social context of each country that fall beyond the scope of this paper. For instance, more than 80% of respondents in Japan hold an account in the Yucho network of postal banks. In Italy, 17% of respondents hold post accounts alone, yet it continues to have one of the highest levels of financial exclusion in Europe (16.9%). Meanwhile, Saudi Arabia has an extraordinarily large unbanked population among economies without postal banking – over 50% – due to restrictions on women’s access to accounts at financial institutions. Despite this variability, the same qualitative comparisons across the five postal banking categories hold regardless of whether averages or medians are used.4 Market income excludes government transfers but includes wages and salaries, self-employment income, non-tax investment income, dividends, capital gains, alimony payments, child support, Social Security and other pension income, and miscellaneous sources of income not listed above. In theory, Social Security is a transfer program that would be of interest for this study. However, the SCF does not disaggregate Social Security income from other sources of retirement income, and the evidence cited in Section 1 indicates that Social Security generally does not suffer from challenges related to outreach and disbursement.5 Net worth or wealth is the difference between assets (checking and savings accounts, CDs, bonds, stocks, annuities, money market funds, retirement accounts, life insurance, trusts, vehicles, primary residence, non-residential real estate, business equity, and other assets) and debts (mortgage debt, educational debt, vehicle debt, consumer debt, lines of credit, credit card debt, margin loans, other loans, life insurance debt, business collateral, and business debt).Additional informationNotes on contributorsMelanie G. LongMelanie Long is an Associate Professor of Economics at the College of Wooster (US). Her research documents social stratification by race and gender in US consumer credit markets. She explores how these gaps and other forms of structural inequality impact rates of financial distress, debt accumulation, and wealth inequality, with a focus on developments surrounding the 2008 Financial Crisis, student debt, and financial exclusion. Her work has appeared in journals including the Review of Black Political Economy, Forum for Social Economics, Journal of Economic Issues, Online Learning Journal, and Studies in Higher Education.Steven PressmanSteven Pressman is Adjunct Professor of Economics at the New School for Social Research and Emeritus Professor of Economics and Finance at Monmouth University in West Long Branch, New Jersey. In addition, he serves as Associate Editor of the Review of Political Economy. His main research areas are poverty and income distribution, post-Keynesian macroeconomics, and the history of economic thought. Over his career, Pressman has published nearly 200 articles in refereed journals and as book chapters, and has authored or edited 18 books, including Understanding Piketty’s Capital in the Twenty-First Century (Routledge, 2015), A New Guide to Post Keynesian Economics (Routledge, 2001; edited with Ric Holt), Debates in Monetary Macroeconomics (Palgrave Macmillan, 2022; edited with John Smithin), Alternative Theories of the State (Palgrave Macmillan, 2006), and 50 Major Economists (Routledge, 2013), which has been translated into five languages. He is a frequent contributor to newspapers, such as the Chicago Tribune, Denver Post, Los Angeles Times and San Francisco Chronicle, and to popular periodicals such as Challenge Magazine, The Washington Spectator and Dollars and Sense.