Researchers for the U.S. Postal Service inspector general’s office are making the case that an agency rooted in delivering mail and selling stamps can help Bitcoin go mainstream.
The inspector general’s staff is urging the Postal Service to expand into financial services as part of a broader strategy to end seven straight years of losses. That may include turning local post offices into brokers for Bitcoin, a five-year-old anonymous network for issuing and moving money across the Internet.
“The post office might help address two major shortcomings that virtual currencies have today: lack of trust and lack of access,” Paola Piscioneri, a director of international research at the Postal Service’s OIG, said in an interview. “Today, when you transact with a virtual currency you don’t know who is on the other side.”
Is Bitcoin Real Money?
Becoming a Bitcoin intermediary means the Postal Service would have to take a business model that dates back to the 1770s and integrate it with a proto-currency that only exists on spreadsheets on the Internet. Then it would have to determine if enough of its customers would trade in Bitcoins when they’re more accustomed to using post offices to buy money orders and stamps and send packages.
“I consider potential revenue to be very limited at the moment as the user base is still rather low” for Bitcoin, Christian Jaag, a managing partner at Zurich-based Swiss Economics, said in an e-mail. “Also, regulatory risk is probably prohibitive for an agency or firm that is operating in a politically sensitive environment as the Postal Service.”
Joseph Corbett, the service’s chief financial officer, said the agency will stay on the sidelines for now and see if the Bitcoin market becomes more stable and transparent.
“We certainly don’t have any current plans to accept Bitcoins or to invest or otherwise be involved with the Bitcoin market, primarily due to the volatility,” Corbett said on an conference call today to discuss fiscal first-quarter earnings. “Also, lack of transparency in that market is something that is bothersome.”
Bitcoin was introduced around 2008 by a programmer or group of programmers who have never been positively identified. While Bitcoin.org estimates the currency had a market value of about $10.6 billion in mid-January, there is no central issuing authority, with only a public ledger to verify encrypted transactions.
There’s also the question of how to generate sustainable revenue from a volatile currency that has few fees, undetermined legal status and is still a minor presence in a multi-trillion dollar payment industry dominated by companies like Visa Inc. (V:US) and JPMorgan Chase & Co. (JPM:US)
While the inspector general’s suggestions on financial services and Bitcoin are interesting ideas, the agency will stick to it’s main business for now, Postmaster General Patrick R. Donahoe said today.
“As we’ve stated publicly before, we feel from the postal perspective our future lies in our core, and our core is delivery,” he said on the conference call.
The Postal Service today said it lost $354 million loss for the quarter ended Dec. 31, citing “the persistent decline of higher-margin first-class mail, stifling legal mandates, and its inflexible business and governance models.”
Since 2006, the Postal Service has reported about $46 billion in total net losses as Internet-based communications replaced mail volume, and United Parcel Service Inc. (UPS:US) and FedEx Corp. (FDX:US) grabbed bigger shares of the package-delivery business.
Efforts by the Postal Service to close its budget gap have been hamstrung by the U.S. Congress, which must approve any major changes to the business model despite the service getting less than 1 percent of its revenue from taxpayers. The agency can’t increase mailing prices by more than the inflation rate without regulatory blessing and is required to prepay future costs of retirees’ healthcare.
Researchers at the inspector general’s office said they believe the Postal Service could move into virtual currency without Congress’s approval because it would be considered “ancillary” to the agency’s current financial services authority.
Post offices already issue 70 percent of domestic money orders. The service offers prepaid debit cards in the U.S. and an electronic money transfer service to nine Latin American countries called Dinero Seguro, which means secure money.
The Postal Service has an opening to expand into non-bank financial products to the underserved, taking a cue from the success of other postal agencies around the world, the inspector general’s office said in a January report. Financial services have been a greater source of new revenue than parcel delivery and logistics, making up 15 percent of revenue for industrialized countries’ postal organizations in 2012, according to the report.
The inspector general’s office hosted an online forum Jan. 29 with the Universal Postal Union, which represents 192 member countries, as well as representatives from the World Bank, the Bitcoin Foundation, Booz Allen Hamilton Holding Corp. and the Federal Reserve Bank of Chicago. The researchers said they plan to explore options such as putting Bitcoin ATMs in some post offices or offering electronic wallets where people could store their Bitcoin.
While agency wouldn’t be involved in the technical side of Bitcoin, post offices could be a brick-and-mortar outlet for the authentication or the redemption of virtual currencies.
The Postal Service has about 36,000 retail outlets on U.S. territory, 38 percent of them in zip codes that have no bank branches, according to Piscioneri. The Bitcoin Foundation said those could be valuable new customers.
“It could be an on-ramp to innovative financial services for traditionally unbanked populations,” Jinyoung Lee Englund, a spokesman for the Bitcoin Foundation, said in an e-mail.
To contact the reporters on this story: Megan Hughes in Washington at email@example.com; Judy Lyons in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Bernard Kohn at email@example.com