Banking is a service that everyone needs. But every where in Canada people are being gouged by financial institutions. They charge fees on every transaction. Pay day lenders prey on low income and precarious workers by imposing exorbitant interest rates. The annualized profits of Canada’s major banks are over $34 billion, yet ATM fees and credit card charges continue to be among the highest in the world. Predatory payday lenders like Cash Money charge an annual percentage rate (APR) of interest that ranges from 400 to 600 per cent. Many Canadians living in rural areas, northerners and Indigenous people don’t have access to branch banking services. These inequities in the current system can be addressed by developing a postal banking service that would guarantee universal access, low fees, and profits that go back into the public treasury.
The Canadian Union of Postal Workers, as part of its 21st Century vision of Delivering Community Power, showed how a federally chartered postal bank could meet the needs of Canadians for a universal and affordable banking service that utilizes the retail assets of the Canadian postal service.
Postal banking has been tested in more than 60 countries, including Switzerland, France, the United Kingdom and New Zealand. There is no need to reinvent the wheel. Just adopt and adapt the best practices of countries that currently have a profitable postal banking service. Another benefit is this: Canada Post Corporation could have an additional revenue stream that supports other important services like home mail delivery.
By using the existing infrastructure and assets of Canada Post, postal banking could be quickly implemented. CPC has 6,300 offices and over 64,000 employees. It is already providing some financial services, so providing a wider range of service could be rapidly facilitated. A postal bank could help to deliver community power. It could boost the urgently needed environmental revolution by offering loans for housing and business energy retrofits. The idea has broad public support — it even showed up in a secret study by Canada Post Corporation. Around the world, the evidence is clear.
Postal Banking in the UK, Switzerland, France and Italy has been profitable, notwithstanding the latest bank crisis. The Italian Banking System is notoriously fragile. Many savers there, attracted to the stability of the Poste Italiane, transferred their deposits from the larger banks to the BancoPosta.
“Nobody knows where your money is safe today,” says Leonardo Galli, a 58-year-old accountant who has resolved to move all his savings out of his bank to a current account with Poste Italiane (PST.MI), one of many who are deserting the banking sector.
Likewise, the French Banque Postale , created in 2006, has not only survived the bank crisis of 2008, but thrived. Postal banking in many countries has been a successful and profitable undertaking, as the chart below shows.
Canada and the USA are two of the very few large countries without a postal banking service. Japan Postal bank is the 8th largest bank in the world. The 25th largest is the Postal Savings Bank of China (PSBC), in which the Canada Pensions Plan has invested 500 million dollars.
Postal Banking Around the World
A 2013 Canadian Centre for Policy Alternatives study identified specific features of postal banking in five countries that have successful and profitable operations – the United Kingdom, France, Italy, Switzerland and New Zealand.
Low Income Inclusion: The Banque Postale has special programs designed for those in a fragile financial
situation. The UK Post office offers no interest credit cards for 27 months and no fees on small overdrafts.
Rural and Regional Inclusion: The Italian Post Office Bank Bancoposta has a subsidiary Banca del Mezzogiorno-Mediocredito Centrale SpA which provides support for creditworthy companies operating in southern Italy, through its lending activities and by promoting and facilitating access to government subsidies.
Competitive Bank Rates: The UK Post Office chequing account fees are among the lowest in the UK and helped to keep other banks fees in line.
Indigenous Inclusion: The New Zealand postal bank Kiwibank offers special mortgages to Maori customers, in keeping with a communal land ownership tradition.
Social Housing and Low Income Housing: The Banque Postale makes a particular point of loaning money to social housing projects. The Kiwibank has set up mortgages for multiple owners on the same house which allows low income groupings to purchase property more readily.
Municipal and Regional Funding: The Banque Postale has become the top lender to local municipalities and to hospitals, amounting to 25 per cent of the French total, lending over 8.6 billion Euros last year.
Social Economy, Mutuals and Co-Operatives: The Banque Postale has targeted social economy institutions as a neglected sector for banks and has moved to offer full services to this sector.
Partnerships with Banks and Other Institutions: Most of these banks deliver services themselves and offer other services in partnership agreement with other banks or credit unions. For example, Swiss Post Finance mortgages are offered by a private bank.
Postal Banks have a Home Banking System and Can Use the Latest Technology: The BancoPosta uses its cell phone network to deliver banking services and has a large network of rechargeable banking cards. The new postal bank in India promises to equip all post office deliverers with an I-Pad and a smart phone to carry out banking at your doorstep.
Creating New Revenue Stream for Canada Post to Support Home Mail Delivery
The Parliamentary Committee looking at the future of Canada Post recently recommended restoring door to door delivery to two thirds of the households that lost this service under the previous Conservative Government (CUPW press release, Dec.13, 2016). Unfortunately, the report did not consider postal banking, which could help to sustain door to door delivery service. Businesses whose primary function is outside the realm of financial services have entered into banking services to achieve additional revenues to augment core business profits. Loblaw’s created PC banking, and Canadian Tire (CT) has a bank charter to offer not only credit cards but high interest savings account, tax free savings account, GIC and insurance products. Financial services have earned profits of $374 million before taxes for CT in 2015. Total profits for CT in 2015 were $1001 million. Financial services’ share of total profits for CT was a hefty 37%. If Canada Post was allowed to expand its financial services and offer postal banking it could also generate profits that would support its core business as well as new services related to renewable energy, such as charging stations for electric postal vehicles.
Postal Bank Supporting Accessibility and Inclusivity
The Canadian Banking industry achieved $34 billion in profit in 2015 – an increase of $9 billion over the 2011 profit figure of $25 billion. A postal banking service can acquire a healthy share of those profits, while being more inclusionary and offering lower fees.
While banks make these high profits, they are also prone to weaknesses which hurt consumers, and to which a postal bank can offer solutions. One of these is the decline in the number of branches, as major banks and credit unions close outlets. In 1990, there were 7,964 bank branches in Canada. Today there are only 6,348 bank branches, a 20% decline. As for credit unions, the recent decline in branches has been even steeper. There was a total of 3,603 credit union and caisse locations in 2002. In 2015, there were 1,819 credit union locations and 795 Desjardins caisse populaire locations in Quebec and Ontario, and 51 caisses in the Maritimes. This means there were in 2015 a total of only 2,665 credit and caisses locations, for a decline of 26% since 2002. Rural and Indigenous communities are underserved. Any mandate for a Canadian postal bank should include the utilization of retail branches, similar to the UK postal bank that mandated the following:
• A Post Bank could offer current accounts, access to credit, direct debit facilities, and expand its savings capacity. It would not be shareholder driven and would, through a Universal Banking Obligation, be locally based through post office branches.
• A Universal Banking Obligation, similar to the guiding principle of the Universal Service Obligation of Royal Mail, must be established through a Post Bank based on the unique national reach of the Post Office network.
• The UK economy relies on small businesses which in turn rely on the Post Office and its efficient, affordable and local service. A Post Bank will both safeguard the Post Office network and offer a more extensive range of financial and other services to aid small businesses.
While transaction fees charged by banks and profits increase, the underbelly of inequitable banking system are the pay day lenders who prey like vultures on those who cannot readily access traditional banking. The FCAA (Financial and Consumer Affairs Authority) estimates that across Canada interest rates for payday loans are between 442% to 650% per year. Another study estimates these rates are much higher, at 620% to 912%. All studies show that these rates are usurious and loan costs are most often billed to the worst-off financially in our population. The federal maximum loan rate is set at 60% (which is far too high) but nowhere near the actual payday loan rate. This situation can be ameliorated by making a postal bank charter conditional on inclusivity, and on the provision of services to the low income and unbanked population.
La Banque Postal has, as one of its key mandates, to service and encourage financial accessibility which includes:
• It must open a Livret A savings account free of charge for any person who so requests. Withdrawals from and deposits to Livret A accounts are authorized starting at €1.5 compared to €10 elsewhere.
• It offers among the lowest charges of any bank in France, and encourages methods of payment other than by cheque for “fragile” clients.
• It offers microcredit loans for those who have been previously financially excluded.
Unlike predatory pay day lenders, and some would say unlike many banks, the advisor of the Banque Postale must refuse to sell any product that would risk increasing the “fragile” situation of a client. One of the great inequities that can be redressed by postal banking is that effecting Aboriginal Communities which lack access to financial services. While the major banks all have Aboriginal services, there are very few branches on reserves. There are 615 First Nations communities in Canada today and many other Métis and non-status communities. A tally of branches of banks and credit unions on reserves shows only 54.
A Study of FFIS (payday lenders) conducted in Prince George, BC, found that “Aboriginal users of FFIS had lower incomes, less education, were more likely to be younger, more likely to be unemployed, and more likely to rely on income assistance than the non-Aboriginal users.” A Canada Post postal banking service can correct these inequities by:
New systems for establishing the identity of clients when opening an account or getting a loan or other product. One of the major criticisms revealed in the study, and in focus groups undertaken by Dr. Paul Bowles, is that low-income people do not always have the two or three pieces of ID required to open an account in a bank or credit union, while Money Marts simply take fingerprints.
Simpler processes for opening up accounts and securing products could be assured in new services. A mortgage product for Aboriginal people — particularly those on reserve land based on the home and not on communally owned land, could be similar to that offered by Kiwibank to Maoris in New Zealand.