Canada’s big banks are in the midst of executing a threefold strategy as part of a digital shift with respect to their physical locations. They are scaling down branch sizes, relocating branches to more populated areas and closing unprofitable ones, mostly in rural locations.

Based on the banks’ statements, this process will continue in coming years. The Royal Bank of Canada plans to cut branch space by 20 per cent by 2023, and the Bank of Montreal’s CFO was recently quoted saying he expects “a gradual decline in the number of branches.” Credit unions are no different.

With Canada’s population growing, and banks closing branches, the number of commercial bank branches per 100,000 adults decreased from 25 in 2008 to 20 in 2018. The impact of fewer, leaner, and more productive banks is reflected in their financial results: The Big Six collectively made $45.3 billion in profit in fiscal 2018 and 2019 results are similar.

At the same time Canada Post, with more than 6,100 retail post offices across the country, operates the largest retail network in Canada. But in a dramatic contrast to the vast amounts of money banks make, Canada Post is struggling financially. In 2018, it reported a loss of $110 million, and in the first three quarters of 2019, it lost $37 million.

But the big banks’ behaviour — which leaves many rural communities unserved or underserved — coupled with Canada Post’s financial woes, is actually creating an opportunity to reintroduce a modern version of the Post Office Savings Bank, which operated for a full century until it was shut down in 1968.

There is a strong case for why Canada Post should offer banking services today.

First, it will fill a social need. A 2014 report for the Canadian Postmasters and Assistants Association (CPAA) found that of the 2,620 small towns and rural communities with post offices, 1,178 or 45 per cent did not have any bank branches. With continuous closure of branches since then, the rate is even higher today.

Moreover, Anderson reports that the situation is even more dire among Indigenous communities: in Canada’s more than 700 Indigenous localities, there are only about 66 bank or credit union branches.

Canada Post, as a Crown corporation, can and should fill that gap, serving rural communities, Indigenous people and eliminating so-called “bank deserts.”

A second motivation for Canada Post to open the teller window is that lucrative business of banking can boost financial results. Postal banking is common around the world, operated successfully in about 60 countries.

PostFinance, for example, is Swiss Post’s fully owned subsidiary, and one of Switzerland’s leading financial institutions. It serves more than three million customers, and in 2018 its customers had assets valued at 119 billion Swiss francs (roughly $162 billion (Cdn.)). Swiss Post as a group, made 405 million Swiss francs ($552 million (Cdn.)) in profit in 2018.

Canada Post can offer a spectrum of financial services including savings and chequing accounts, online banking, ATMs, credit and debit cards, cards, money transfers, foreign currency exchange, insurance, loans and investment products. It can make money and still offer services at a discount compared to the big banks. No wonder the lobby group representing the banks opposes such a move.

Canada Post should also consider entering the payday lending market, which still exists in most provinces, to provide short-term, high-rate loans to low-income individuals who struggle to make ends meet. While these loans do carry high risk, it should be possible, after carefully managing that risk, to offer payday loans at significantly lower rates than those offered by some outlets that charge effective rates as high as 300 per cent per annum.

In an attempt to introduce postal banking, NDP MP Irene Mathyssen tabled a private member’s bill on October 2018 but it was voted down by both the Liberal and Conservative parties. But with a minority government currently ruling, the NDP has significant bargaining power, which it could leverage to get the Liberals on board.

There is also strong support among the Canadian Union of Postal Workers, CPAA and additional socially minded organizations to introduce postal banking as part of a wider, sustainable-vision proposal — “Delivering Community Power” — that was introduced a few years ago.

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Even in the U.S., the case for postal banking is back as part of the Democratic party platforms. As Senator Elizabeth Warren once put it: “If the Postal Service offered basic banking services … then it could provide affordable financial services for underserved families, and, at the same time, shore up its own financial footing.”

The same logic applies in Canada.

Amir Barnea is an associate professor of finance at HEC Montréal

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