Northern Economist 2.0

Tuesday 3 April 2018

Banking at the Post Office

This morning's Chronicle-Journal had a story on a call for post offices to provide banking services in small northern Ontario towns that had lost their major financial institution. As the story notes:

"Northern towns with reduced banking options, or those with no bank outlet at all, would benefit from a plan to offer regular financial services at local Canada Post outlets, says the federal NDP.
“Now is the opportune time for Canada Post to explore alternative revenue streams such as postal banking,” NDP MP Carol Hughes (Algoma-Manitoulin-Kapuskasing) said last week in a news release."

The concept was being "revived" according to the story but the precedent was countries like France, Italy and Japan which continue to offer banking services in their postal outlets.

This was an interesting story given that there appeared to be no realization that Canada once did have banking functions in post offices.  Along with Federal Government Savings Banks which assumed the responsibilities of government savings banks in the Atlantic region upon Confederation, there were post office savings banks started in 1868 in Ontario and Quebec modelled in part on the success of British Post Office Savings Banks.  The size limit on a personal deposit that could be held was limited to a maximum of $1,000 in order - so it would seem according to financial historian E.P. Neufeld* - to protect the deposit business of private banks. (See: E.P. Neufeld (1972) The Financial System of Canada, Its Growth and Development, MacMillan).

There was rapid growth in government savings banks as well as the post office savings banks until the 1890s and indeed, in 1888 the savings deposits of government and post office savings banks were over two-thirds the size of savings deposits of the chartered banks.  However, this growth was due to the competitive rate the federal government offered that was in excess of private rates.  The federal government lowered their interest rate in 1889 and after that the relative importance of government savings banks - and post office savings banks -began to decline.  Post office savings banks absorbed the activities of government savings banks in 1929 and continued to chug along in an ever diminishing role until 1968 when they were finally abolished.  They took a long time to disappear.

Could post office savings banks make a comeback?  It seems like an attractive option for small towns in rural remote regions that still have a post office but it remains that the prospect faces obstacles in the internet age.   Banking consolidation has been underway in larger cities as well as in smaller towns as a result of electronic banking services and a post office savings bank would have to offer banking services competitive with any private banking sector's e-banking services.  Besides, they have also been closing post offices in rural remote areas and consolidating services across the country.  For the concept to work, Canada Post would have to demonstrate that it offered a unique product that filled a need and could actually generate revenues in excess of the costs of operation.  It might be useful to see what the ingredients of success are in for postal banking outlets in countries that still have them.