Social change work is hard and frustrating and wonderful and terrible; it is also, at times, funny, quirky and just plain fascinating. With this blog we hope to capture all that goes into what we do at Capital Good Fund, and we invite you to join the conversation!

Sunday, February 2, 2014

Thinking Outside The (Post Office) Box

Photo credit bettybl 
The crisis of inequality in America has many consquences, one of which is that those least able to afford it spend the most on financial services.  As Elizabeth Warren points out in an article dated February 1st, "68 million Americans are...underserved by the banking system. Collectively, these households spent about $89 billion in 2012 on interest and fees for non-bank financial services like payday loans and check cashing, which works out to an average of $2,412 per household." At 10% of income, that's about as much as they spend on food!

This data should put a nail in the coffin of the notion that financial services aren't an essential tool to tackling poverty.  Just consider this: given how much more affordable our loans are, and given how much families save on their taxes and on their budgets thanks to our Financial Coaching and free tax preparation, we could easily cut that $2,412 figure in half.  That's an additional $1,200 that can be used for food, housing, transportation, education, savings, vehicle repairs...That's transformational!

One challenge, however, is how to reach those 68 million Americans in a cost-effective manner.  After all, the 'downside,' if you want to call it that, of designing our products to be affordable, is that our margins our tight: we make very little money per borrower.  Anything that increases our costs--dozens of new offices, aggressive marketing, etc.--severely limits our ability to scale.  So that's why I'm so excited that the Office of the Inspector General of the United States Postal Service (USPS) has an intriguing idea, which he shared in a report titled 'Providing Non-Bank Financial Services for the Underserved.'  Simply put, the USPS is proposing that they use their national brick-and-mortar infrastructure of stores, combined with the trust people already place in them, to deliver affordable services to those in need.

I love this idea for several reasons.  First, it solves a challenge we have: how do we compete with the predatory financial services industry, which is well financed and can afford to have a ubquitious presence in poor communities?  Under this model, we could potentially co-locate at the post office, enabling us to dramatically lower our costs.  The magic word in retail, after all, is 'foot traffic,' and the post office already has that; foot traffic means a much lower customer acquisition costs (much lower marketing costs).

Second, it allows us to leverage one of the most trusted entities in the country, the postal service, to immediately gain access to millions of potential customers.  That is the kind of reach many companies dream of!  Ordinarily the process of opening a new office entails a lengthy period of building partnerships and establishing trust.  Partnering with the USPS wouldn't eliminate that, of course, but it would sure make it easier and faster.

And finally, a partnership with the USPS could open the door to countless other opportunities--using postal offices to do free tax preparation and Financial Coaching sessions, especially after hours; co-branding financial products, such as prepaid debit cards; and turning postal offices into community hubs that offer other services, such as wireless access, that the community needs.

So let me close by asking you this question: how do we go about forging this partnership?  According to the Inspector General's report, they are looking to "...introduce products through pilot programs for market select geographic areas."  How wonderful and powerful would it be for us to be involved in such a pilot?

Let's make it happen!

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