Financial Services Industry

There are about 31 billion pieces of transactions (First-Class Mail) in the mail. Most of these are bills and statements (about 14 billion) sent to households and about 5 billion payments sent by households to businesses.

Source: 2014 USPS Household Diary Study

It is all About Money

One of the single largest customer segments for the postal system and the mailing industry is the financial services sector. Unlike most sectors, however, there was not much of a direct link between financial service providers and the industry. Most such companies were very large and did not see mailing operations as a core part of their business.

By WWI, technology enabled banks to communicate more effectively with each other and clearinghouses were established. The Federal Reserve System was created, and part of their charter was to process checks for banks. A national network was developed, using private couriers and air services to move checks between processing centers.

The Postal and Financial System Developed Separately

Unlike many other industry segments, there was less of a need for the financial services industry and the postal system to work closely together. Most banks were local and most of their business was conducted by walk-in customers at the bank. Customers were well known by the bank staff, and business was conducted on a very personal basis. The postal system and its customers developed ways for customers to pay for things sent through the mail, and didn’t really need the banks.

The Post Office Developed Financial Services to Serve a Limited Market

The Post Office developed consumer-oriented financial services to help them purchase goods sent by retailers through the mail. Money orders [Deeper Learning: Money Orders] and Collect on Delivery Services [Deeper Learning: Collect on Delivery] were sometimes seen as competing with the private sector, but most banks were not interested in that market. From 1911 to 1996, the Post Office operated a savings bank [Deeper Learning: Postal Savings System] focused on immigrants and small savers that most banks were hesitant to serve.

Some Financial Services Started Marketing by Mail

Most financial institutions generated and received personal letters to businesses and wealthy depositors. This was simply a method of maintaining relationships. However, some companies saw opportunities in using mail as a way to build businesses and a few actually built their business models around using mail. One example is the insurance company GEICO, which was founded during the height of the Great Depression in the mid-1930’s. They offered automobile insurance, directly, to a carefully selected customer group and have been very successful to this day. Others followed their model.

The Checking Account Pushed Banks into the Mail

Most Americans did not have checking accounts before WWII, and their use was largely local. As more households became more affluent, they wanted to buy more things. They wanted something other than cash, and they wanted it to be convenient and secure. Soon, many households had checking accounts, and millions of statements and payments entered the mail. Specialized check printers emerged.

Then Came the Credit Card

The industry continued to develop new methods, offering credit and payment options. In the 1900’s, oil companies and some retailers offered propriety cards as a convenience to loyal customers. A few decades later, travel and entertainment cards were introduced by companies such as Diner’s Club and American Express. The general purpose credit card was developed by Bank of America in 1966 (it became VISA), and MasterCharge was introduced soon thereafter. Most households in the country now have multiple credit cards, and regularly receive statements and offers in the mail. Mail volume increased by billions.

Converging Technology was Bringing Financial Institutions and the Postal Service Together

Many suppliers to the financial industry were also suppliers to the Post Office. An example might be the history of the Burroughs Adding Machine Company, founded in 1885. By 1926, over 1 million machines were sold, largely through the use of direct mail to generate leads for sales. The company diversified and was one of the early entrants into the computer business, providing services to the financial industry and the military.

The Bank of America, the largest bank in the country, had to maintain a huge workforce to process millions of checks each month. All checks had to be cleared by hand and banks were closing by 2:00 p.m. to process them all. A new payment system had to be created to handle the growing number of checks. This was typical of most banks. The solution that Bank of America came up with, working with the Stanford Research Institute, was the development of technology to automate the process, enabling checks to be handled much faster and more accurately.

Burroughs helped develop the use of Magnetic Ink Character Recognition (MICR) [Deeper Learning: MICR] for processing checks. They also won a large contract from the Post Office to design, develop and produce automated letter sorting machines that could handle 43,000 pieces per hour. The mutual needs of both industries were being addressed by the same suppliers of equipment and services, and bringing the industries closer together.

Billions of Bills and Payments in the Mail Created the Need for Cooperation

The billing and payments industry needed less expensive ways to manage their mail, and the payments processing system demanded ever more accurate and timely delivery – every hour the check was in the mail was lost revenue due to “float.” The industry was working hard to improve their internal operations (document management) and required the postal system to do the same.

The financial services industry created the National Postal Policy Council in 1982 to support the efforts of the Postal Service to improve systems for addressing, handling and delivering the mail. Other groups were formed to focus on specific issues, such as the Major Mailers Association and the Mailers Council. The industry also supports the Postal Service’s Mailer’s Technical Advisory Committee.

The Payment System Continues to Evolve

There are now more ways to receive bills and pay them than ever before. Businesses and households no longer depend solely on the mail to receive their statements or pay their bills. Online payment systems may bypass banks.

Billions of bills and payments are still sent by mail. It remains the category of mail contributing most to the financial health of the Postal Service. Financial institutions, the mailing industry, and the Postal Service are working closely to ensure that mail remains a secure and effective method to conduct transactions.