Postal banking

Canadian banks have some of the highest rates for account fees

High fees are another of the problems of our present banking system. In 2010, Vision Critical (commissioned by ING Direct bank before it was bought by the Bank of Nova Scotia and renamed Tangerine) showed that banking fees in Canada were among the highest in the world with more than half of Canadians (55%) on average, paying $185 per year.[22] Since that time fees have only gone up. Also variable fees have also risen steeply: “A nominal rise of 46 percent was observed in the average price for variable transactions from 2005 to 2013. In 2005, the variable fees charged by financial institutions ranged from $0.50 to $0.75 per transaction. By 2012, variable fees ranged from $1.00 to $1.50 per transaction. For example, in 2005 financial institutions charged from $0.50 to $0.75 for each banking machine transaction made outside of a consumer’s chequing account plan. By 2013, they were charging from $0.65 to $1.50, a nominal increase of 51 percent.”[23] In 2016 the fee at TD was $2.00 at non TD ATMs on the mid range account and for RBC the fee was $1.50.

The Unbanked

Estimates of the size of the unbanked population in Canada, with no accounts, range from 3 per cent to 15 per cent. [24] But the unbanked and the underbanked still have to use banking services which the banks are not providing to them. One of the major sources of cheque cashing and small loans to the unbanked are the payday loan companies. It is estimated  that between 1.8–2.5 million households in Canada rely on payday loans each year for around $2.5 billion dollars in credit.[25] The Canadian Payday Loan Association claims there are now some 1459 payday loan outlets or on-line companies.[26]

Since the federal government in 2006 downloaded responsibility for the management of payday loans to the provinces, things have only become worse for many borrowers with each province fixing their own interest rates. The FCAA (Financial and Consumer Affairs Authority) estimates that across Canada interest rates for payday loans are between 442% to 650% per year. [27] Another study estimates these rates are much higher at 620%-912%. [28]All studies show that these rates are what can be only called 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 already too high) but nowhere near the payday loan rate. 

The major growth in the last few years has been on on-line payday lending companies such as Wonga which can outflank provincial regulation. No wonder Canada is a very profitable payday loan location. The largest payday lender company Dollar Financial (Money Mart in Canada) has a profit margin of  49% in Canada, compared with 24% in Europe and 25% in the U.S. [29]

Indigenous Communities have few banks or credit unions

There are according to Statcan over 600 First Nations bands[30] and over 961 inhabited reserves in Canada.[31] This does not include Métis and Inuit communities or non-status Indigenous population. But there are today only about 59 bank branches[32] and 2 credit unions in Indigenous communities (including First Nations, Métis and Inuit). This means that most Indigenous communities are not well served in terms of banking services. On the other hand, there are many more Post Office outlets in these communities that could also offer financial services.

Immigrant communities are poorly served by banks’ high remittance costs

Each year billions of dollars are sent out of Canada as remittances to their countries of origin mainly by immigrant workers in Canada. A study in 2014 estimated the amount was $24 billion per year.[33]

The cost of remittances is high. The World Bank tracks estimates that sending $200 from Canada to the Philippines will cost on average an extra $10.40 in fees through a bank or $8.70 in fees if sent through a money transfer operator.[34]

(4) A postal bank can be quickly put into place because Canada Post already has the infrastructure, the staffing and the products and technology to adapt to offering a wider range of financial services.

History of Postal Banking in Canada 1868-1968

Canada already had a postal bank for 100 years. Canada’s postal savings bank was one of the oldest postal banks in the world just after the British one was established.  Postal banking was instituted just after Confederation in 1867 and was initially very successful with millions in assets and tens of thousands of customers.

This system began operating in 1868 with 81 locations and grew quickly. By 1884, there were 343 post office savings banks, with a balance of $13 million from almost 67,000 accounts. In 1898, the chartered banks successfully lobbied the government to reduce the interest rate paid on deposits at postal savings banks from 3% to 2.5%. They also worked to eliminate advertising by postal banks. As time went on, chartered banks and credit unions increased their presence in communities and the post office and government became less interested in maintaining the network.

At the same time in 1968 as the US Post Office closed its banking services, Canada also did rather than improving and modernising the service. The original regulations governing the Postal Savings Bank remain on the books in Canada.[35]

Advantages of Canada Post for Delivering Banking Services

Present day Canada Post has built in advantages for delivering increased financial services.

1) Many communities in Canada have a postal outlet but no (or limited) banking services as we have shown above. There are about 6,300 postal outlets present in most Canadian communities, the largest retail network in the country.

2) Canada Post has a high trust factor among the Canadian public. Nine out of 10 Canadians have a favourable or somewhat favourable impression of Canada Post, and seven out of 10 are satisfied overall with Canada Post.

3) Canada Post already has an existing skilled and stable workforce that would be open to skills upgrading. Canada Post has a large and skilled workforce of 64,000 employees in 2015.[36] Door-to-door delivery means that postal workers could also handle banking at the door when needed.

4) Post offices across Canada are already linked together by high quality Internet services as well as secure delivery mechanisms.

5) Canada Post already delivers a number of financial services. These include

• the epost service which can be used to pay and receive bills.
• Moneygram services to send money orders.
• Vancity prepaid and reloadable credit cards
• Prepaid Visa and Visa gift cards

6) Long opening hours Most Canada Post outlets are already open five days a week and many 6 or 7 days a week. All could operate longer daily hours than 9:00 a.m. to 5:00 p.m. Many postmasters have already complained about the reduced opening hours of their bank or credit union financial service outlet which is now often open only a few days a week while the post office was open the full 5 day week.[37]

7)  A new postal bank could use federal government banking experience. The federal government already has significant experience in the financial industry which it could share with a postal bank. These banks could also deliver some of these services through the postal bank which would greatly expand their points of contact.

Business Development Bank of Canada (BDC) already has 100 business centres which lend to business. It loaned over $4.7 billion in 2015 and made a profit of over $490 million. [38]

Export Development Canada could help companies seeking export help. It made $925 million net income last year.[39]

Farm Credit Canada has another 100 offices across Canada. It has $27 billion in over 147,000 loans and made a profit of $938 million last year.[40]

Canada Savings Bonds manages $6 billion in bonds and sells $$1.5 billion a year.[41]

What kind of services could be offered by a postal bank?

Postal banks can fill the gaps that we have shown the traditional banks and credit unions have and could offer special services to:

1) Regions (such as rural and inner city) not, no longer, or poorly served by traditional banks and credit unions including all citizens but also rural and inner city businesses. Canada is largely an urban country with over 80% of its citizens living in big urban centres. With no banking in many rural areas, this urban concentration will only increase.

2) Municipalities, aboriginal governments and social housing organizations All these governments and NGOs need a lender who will concentrate on their particular needs.

3) Low income customers and those excluded from traditional banks Since most banks and credit unions do not seem interested in supplying the kind of products that low income citizens needincludingpayday loans at reasonable interest rates the kind most people pay on their low rate bank credit card or line of credit, postal banking could offer these kinds of products.

4) Indigenous peoples in partnership in providing all kinds of services.  As we noted most Indigenous communities whether First Nations reserves, Métis communities or Inuit communities in the North do not have banking services. And yet Indigenous peoples are the fastest growing segment of the Canadian population.

5) Immigrant communities could be helped by providing no or low cost remittance products for people sending money back to their family’s country of origin.

6) Environmental services Postal banking could help make post offices hubs of community power by offering affordable loans to boost renewable energy development, including energy-saving retrofits.

7) NGOs and social economy organizations including co-ops, mutuals etc.  Traditional banks have always had a general difficulty in dealing with organizations based on a not for profit basis or based on community ownership rather than family or shares.

New financial services could be offered and old ones expanded

• Withdraw and deposit with Interac from any bank
• Chequing and savings accounts at best rates
• Savings products such as Canada Savings Bonds, GICs etc.
• Low interest credit cards
• Debit cards and prepaid debit cards
• Mortgages for homes and businesses
• Business and consumer loans some through BDC, Farm Credit Canada, and EDC
• Insurance products
• Low fees or no costs for out of country remittances
• Travel exchange funds such as US dollars
• Mutual funds and stocks
• Short term loans to replace payday loans but at interest rates at credit card rate
• Joint mortgages: allow several unrelated persons to purchase a house by pooling income
• Aboriginal mortgages (based on home value not on communally owned land)
• Special attention to municipalities and social housing. Develop an expertise in lending to municipalities as well as social housing organizations
• Special services for NGOs and Social Economy organizations such as co-operatives and mutuals who often fall through the cracks of traditional lenders profile on what a borrower should look like when ownership may be made up of co-op members

Special new services could also be offered

All of these services can be facilitated at local post offices but also by using Skype and Facetime contact with specialists and regular visits of specialists to local post offices.

At the national level we would require more staff but much less than you might think. The British Post Office Vice-president for financial services said in an interview he had 300 financial specialists to look over the management of financial services in over 11,000 post office locations. [42]

How postal banking could work here

Several possibilities exist here as to how the Post Office banking services could be managed. The core bank would be a wholly owned subsidiary of Canada Post. Services could be delivered by it or some by credit unions and banks with which it signs partnership agreements, or through existing federal financial organizations.

(5) A postal bank could become part of the transformation of the post office branch into a real centre for delivering community power.

A post office location offering banking could be able to help in the environmental revolution needed by offering loans for environmental refit for housing and businesses.

The Delivering Community Power[43] proposal for transforming the postal network sees postal banking as a key element in making post office outlets the hub in communities for environmental transformation offering charging stations for electric vehicles. The post office could offer “one-stop support for clean energy grants, energy-efficient heating systems, green power generation and cost-saving retrofits” and postal banking plays a key role in this project.

(6) A postal bank already has widespread support across Canada.

Hundreds of municipalities support postal banking. Polls show so do a majority of Canadians. Canada Post management in the past has also been in favour of financial service expansion and a secret CPC management study appears to endorse postal banking.

Over 600 Municipalities already have passed resolutions in council supporting Postal Banking. These include big cities such as Toronto, medium size cities such as Victoria and Lethbridge as well as hundreds of small towns such as Mont Laurier Quebec. The full list can be found as in Appendix B. [44]

It is not only the postal unions, CUPW and CPAA which support postal banking. Canada Post management until the current CEO have generally been in support. Former Presidents and CEOs of Canada Post from the first president Michael Warren, to André Ouellet and Moya Greene, have all endorsed the idea of Canada Post getting much more involved in financial services. Michael Warren, President of Canada Post from 1981–85, said before the Rotary Club of Ottawa in 1982: “We have post offices in more than 2,000 communities where there are no banks.... We could consider providing any number of services that would benefit from a widespread retail network...perhaps an indirect role for the chartered banks on a fee for service basis. We may also have a part to play in the catalogue sales business or in travel... maybe insurance.”[45]

In 1998, before the House Standing Committee on Finance, Mr. Ouellet also supported the idea of postal financial services. “ ...as the numbers have been indicated to you, there are still a lot of areas in Canada that are not covered (by banks). If the movement is to close more branches, that will mean that fewer and fewer Canadians will have direct access. We have come here to tell you not to forget that Canada Post used to provide this service. We could do it again by just enacting the dormant section. You don’t even have to amend the Canada Post Corporation Act. The section is there that would allow us to do it. You just re-enact the section and we will resume receiving deposits, as we used to do in the past.”[46]

In April 2010, Canada Post CEO Moya Greene who is now the head of the British Royal Mail company went before the Senate Standing Committee on Finance to say:” ...we also need to diversify the revenue stream and be in wholly different businesses than we are today. I note, for example, that many postal administrations have made a success of banking...” Ms. Greene cited the success of New Zealand. “We have seen New Zealand, where they started offering banking services in 2002, and by 2009, it was probably 30 per cent of their revenues and 70 per cent of their profit.”[47]

Public support

Almost two out of every three respondents (63%) to a 2013 Stratcom poll supported Canada Post expanding revenue-generating services, including financial services like bill payments, insurance and banking.[48]

Canada Post management study supports postal banking

But it is not only past management which has supported postal banking. In fact, Canada Post conducted a secret four-year study[49] on postal banking that indicates that adding this service "would be a win-win strategy" for the corporation. Obtained though an Access to Information (ATI) request, 701 of the study's 811 pages were redacted.

 “Secret Canada Post files obtained by Blacklock’s show executives rated postal banking a “win-win” before cabinet apparently killed the scheme in favour of drastic rate hikes and service cuts this winter.”[50] One management report was entitled “Banking: A Proven Diversification Strategy”.

The report showed “Data concluded banking was a proven money-maker, accounting for 13 percent of profits for the U.K. post office; 25 percent for Australian post; 30 percent for France’s La Poste; 54 percent in Switzerland; 71 percent at New Zealand Post Group’s Kiwi Bank; and 78 percent of profits for Italy’s Banco Posta..”

Rather than underlining any major risk to Canada Post, instead the study urged “Canada Post executives to weigh “the size of the prize”, according to the report Banking: A Proven Diversification Strategy”

Recommendation: That the Standing Committee recommend the addition of postal banking at Canada Post, with a mandate for financial inclusion.

Recommendation: That Standing Committee  recommend that Canada Post release the study of postal financial services.