Banks Find Opportunity in U.S. Postal Service Woes

The U.S. bank industry, struggling to make the profits it used to, is using the struggles of another industry for its marketing: The U.S. Postal Service.

The U.S. bank industry, struggling to make the profits it used to, is using the struggles of another industry for its marketing: The U.S. Postal Service.

JPMorgan Chase & Co, Bank of America Corp, Citigroup Inc and Wells Fargo & Co are all using the looming threat of postal service cuts to sell bank services such as electronic payments and remittance pickups that can speed payments likely to be slowed by diminished mail service.

"It is a conversation starter," said Daniel Peltz, head of Wells Fargo's Treasury Management division.

For banks, electronic transactions save as much as one-third of the cost of processing checks, according to industry estimates. The potential savings are greatest for bigger banks, which reap additional economies of scale by running more transactions through the computer systems they have built.

Banks are looking for any chance to save money these days, as tough markets and a weak economy hit their profits, and traditional revenue streams dry up due to stricter regulations.

For bank customers, the new electronic payments and other services offer savings, too.

Greg Kerwick, a managing director in JPMorgan's Treasury Services unit, said his team is telling customers they might have to wait one to four days longer for invoices to reach customers and payments to return by mail, if Saturday postal delivery is eliminated.

His division, which helps 25,000 businesses with cash management, estimates that waiting an extra two days for payment would require a company that receives $5 billion of mail payments a year to come up with an extra $27 million of working capital.

To save that money, of course, customers must pay. For example, using lockbox services - where the bank picks up checks for businesses from postal plants seven days a week - can mean as much as $2 per check for the bank, which also can earn interest income during the maximum of three to four days they hold a payer's money before some checks are cleared, said Nancy Atkinson, a senior analyst with consulting firm Aite Group.

This "float period" could become even more valuable as interest rates rise in the future, she said.

Banks, however, may find it challenging to win more payment business because a delay in mail service is advantageous to bill payers who want to hold onto their funds as long as possible, Atkinson said. Payers typically drive the decision making around how they pay a supplier, surveys by Aite Group have found.

If more business turns to electronic payments, that could further hurt the Postal Service, which lost $5.1 billion in fiscal year 2011 and could see annual losses upward of $21 billion by 2016 if major changes are not made, Postmaster General Patrick Donahoe has said.

President Obama, in his budget proposal in February, called for an end to Saturday mail delivery and other cost-cutting by the Postal Service. The Senate is to consider a bill this week that would allow the Postal Service to consider ending Saturday mail after two years.

The service also has plans to close more than 200 mail processing plants, which would end next-day delivery of First Class Mail.

"Everybody has a desire to get away from checks and move more electronic," JPMorgan's Kerwick said. "This is placing greater urgency around making that happen."

"The mail will take longer to cycle through," Kerwick said.