How will the world look AC?*
*After Covid-19

Post covid kissWe’re fortunate to live in an age where medical and scientific knowledge guide us toward valid preventive measures to control the spread of SARS-CoV-2. Still, it is both good business and good humanity to speculate about the world that will emerge once this horror is behind us. There is widespread agreement that it will look vastly different from the one that began 2020. As Elizabeth Svoboda put it in her recent piece for Discover,

The tsunami-like impact of a global pandemic has a way of drowning out foresight. Right now, it feels impossible to predict what the world will look like next week, let alone next year. Yet behavioral science and the broad sweep of history suggest that COVID-19 will transform our daily lives in the long run.

That’s true but not terribly useful. It’s one thing to say “The Times They Are a-Changin’.” Pinning down the change is another matter entirely. 

We are not without clues. There is no disagreement that the restaurant industry has suffered and will continue to suffer immensely. If telecommuting becomes more of a norm, eateries that manage to survive lockdown will face a vast reduction in business and commuter lunches. Stay-at-home policies have driven more consumers to discover online shopping and delivery services, which will have serious long-term implications for brick-and-mortar retailers. Many gig apps have expanded their service offerings in response to increased demand for delivery services. The demand may persist if not grow but in no way promises to offset other, more widespread losses.

Our daily habits will certainly change. On April 19, PYTMS.com reported:

Our research shows that there is no guarantee that life will go back to the way it was before, even after the pandemic has passed. Only 47.9 percent of all consumers plan to resume the activities they used to do outside their homes, while another 32.1 percent say they plan to do far less outside the home than they had done before.

Continuing the theme, Market Platform Dynamics CEO Karen Webster wrote in a separate PYMTS.com article that …

… only 48 percent of consumers expect to resume their normal activities once the pandemic ends, with another 4 percent saying they will do so once they have childcare for their kids. About a third (32 percent) say they will perform more activities at home and fewer activities away from home, with 16 percent saying they won’t resume normal activities outside of the home after the crisis ends. This means 121 million American adults will not resume their activities in the same way they did before the COVID-19 outbreak. [Emphasis added.]

Adding a cautionary caveat, Webster said, “At least that’s how they feel now.” That’s important to note. People are not great at predicting their own behavior. Still, the numbers are significant, definitely suggestive, and not to be ignored.

In his excellent article for The Financial Brand, “Permanent Working at Home Will Rock Banks and Credit Unions,” consultant/advisor for Peak Performance Consulting Group Jon Voorhees observed, “Pre-pandemic about 5 million employees worked remotely in the U.S. The pandemic has driven many millions more to do so. More firms are recognizing that a remote workforce model can work successfully for their companies.” If many of those companies find telecommuting so advantageous that they opt to stick with it—which is not unlikely—the effects will be far-reaching. Voorhees suggests 10 ways that a telecommuting surge could affect the financial services industry. These include reduced demand for office space; declines in commercial construction; implications for businesses whose markets largely comprise central workforces; the subsequent toll on loan assets; and more.

Biometrics has seen a boost from growing fear of personal contact. PYTMS.com reports:

As organizations including the New York City Policy Department stop using its fingerprint ID entry for employees, there has been a spike in demand for facial recognition technology alternatives. In China, there are already reports of city buses installing facial recognition to detect COVID-19 on buses.

Banking, of course, will need to adapt to the post-pandemic world. In its latest annual World Fintech Report, CapGemini predicts a need for more effective bank-fintech partnerships:

“Businesses will evolve and emerge from the COVID-19 crisis in different and profound ways. For traditional banks, this will translate into an even greater need for digital experience through further collaboration with FinTechs. Since we began this report three years ago, FinTechs have moved from disruptors to mature players, and it is now essential for incumbent banks to consider them not only as formidable competitors, but as necessary partners of choice to meet changing consumer expectations,” comments Anirban Bose, CEO of Capgemini’s Financial Services and Member of the Group Executive Board.

We are living through an historic time, a time of upheaval. Yet upheaval can bring opportunity if we let it. The Financial Brand’s Jim Marous summed up the matter well when he recently wrote:

Banks and credit unions must use this time of disruption to consider reinventing themselves from the inside out. It is a time when we need to better understand the way consumers expect their financial institution to support their financial needs. This includes the way banks and credit unions use data, AI, technology and human resources to impact marketing, innovation and the digital delivery of products and services.

Onward.

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It’s World Password Day, and the news isn’t encouraging

Tip: Don’t use 12345.

Tip: Don’t use 123456.

Though cybersecurity and cyber fraud are frequent topics of interest, one cannot bring up the importance of solid passwords often enough. In that spirit, here’s wishing you a happy World Password Day.

Ready for some scary facts? According to a new report from LastPass91 percent of us agree that using the same password for everything is dangerous, but 66 percent of us still do it. Fifty-two percent of us haven’t changed our passwords in the last year. Even when we know that a brand we do business with online has suffered a breach, 52 percent of us don’t bother changing our password.

About three years ago, I listed the 10 most frequently used passwords. (Click here to read the post.) Here they are:

  1. 123456
  2. 123456789
  3. qwerty
  4. 12345678
  5. 111111
  6. 1234567890
  7. 1234567
  8. password
  9. 123123
  10. 987654321

If you wondered why we need a World Password Day, now you know.

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TBT: Avoiding Digital Banking Parity

Screen Shot 2020-05-06 at 8.22.39 PMI am fortunate to have been published a few times in The Financial BrandI think this one, originally published in June, 2014, bears reposting. It’s called “Avoiding Digital Parity,” a danger the financial services industry has faced and still faces. As I said way back when, rather than cut and paste it here, I’ll invite you to click here and to read it on FinancialBrand.com. While you’re at it, explore the site. You’ll find no end of good, useful information.

 

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TBT: Predicting the future of fintech under Trump—how’d I do?

At the outset of the Trump administration, questions loomed about the future of Dodd Frank, the payments industry, and fintech in general. Here’s a look at my situation analysis, three years later. Originally posted March 8, 2017.

* * *

Wilcox on future of fintechPerhaps you heard: The United States has a new administration.

Relax. I’m not going to opine here about bathrooms, health care, or walls. I could think of no surer way to lose about 50 percent of valued personal and business relationships. Instead, I’m going report on sundry educated guesses as to what we in the payments industry might expect.

There is widespread agreement that the Dodd-Frank Wall Street Reform and Consumer Protection Act faces serious revision if not outright repeal. The act’s stated purpose is:

To promote the financial stability of the United States by improving accountability and transparency in the financial system, to end too big to fail, to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes.

Dodd-Frank merged a number of federal agencies and created a fair share of new ones, the most notable being the Financial Stability Oversight Council, the Office of Financial Research, and the Bureau of Consumer Financial Protection. Depending on whom you ask, Dodd-Frank is a godsend, a millstone, or a bit of both. TechTarget offers a succinct summary of the two views. Proponents, it says …

… believe the act prevents the United States economy from experiencing a crisis like that of 2008 and protects consumers from many of the abuses that contributed to that crisis.

… whereas opponents …

… believe the compliance burdens the legislation creates makes [sic] it difficult for U.S. companies to compete with foreign counterparts.

But, in any case …

In February of 2017, President Trump issued an executive order that directed regulators to review provisions put in place by the Dodd-Frank Act and submit a report on potential regulatory and legislative reforms.

The award for scariest headline goes to Nasdaq, who recently ran the not terribly reassuring, “Will Trump Disrupt the Payments Industry?” The article quotes E&S Consulting founder Lori Breitzke:

“Trump may repeal the CFPB, given his disdain for [Dodd-Frank]. If this occurs, the CFPB’s new prepaid card rules will be repealed along with the agency, and another entity will be created to replace it. ​If Trump cannot repeal the CFPB, he will instruct the agency to ignore, rather than enforce, the existing rule governing prepaid cards. Trump also will lower taxes on small businesses, fostering growth and the need for more merchant accounts and services.”

A number of journals are following Trump’s threat to cut off remittance send from the U.S. to Mexico. Shortly after the 2016 election, Business Insider reported that the threatened cutoff:

… could drastically curtail the operations of US remittance firms. Mexico is the largest receive destination for US remittances, cashing $25 billion in 2015, according to the World Bank. The strength of that corridor is pushing firms to double down on Mexico—for instance, Western Union recently nearly doubled the size of its retail network in the country, and MoneyGram unveiled a product in partnership with Walmart to make it easier and less expensive to send money from the US to Mexico. Cutting off access to the corridor, even temporarily, could drastically change the trajectory for these companies.

For mobile payments, the news may not be all bad. Most agree that the threatened cutoff may, as John Rampton, writing for Mashable, observes …

… put mobile payments, such as digital wallets and peer-to-peer payment apps, in a better position to thrive. Unlike traditional payments companies, these allow users to make cross-border payments without government interference.

Rampton takes a look specifically at the payments industry. He predicts a rollback of regulations welcomed by the financial services industry, agrees that cutting off remittances to Mexico could have adverse economic consequences, especially for the likes of Western Union, and reports a curious, early “skirmish” between the administration and the New York State financial regulator Maria Vullo, who wrote, “The OCC should not use technological advances as an excuse to attempt to usurp state laws that already regulate fintech activities.” Vullo was reacting to the White House’s just-released whitepaper, “A Framework for Fintech,” which, as of this writing, the White House has apparently pulled from its site.

Predictions by various pundits, policymakers, and reporters are all over the board. One thing all appear agreed on, however, is that no one really knows what’s coming. As Rampton summed up,  “While the new presidential administration could bring about many new changes in the payments system—both good and bad—it’s still too early to predict exactly what’s going to happen.”

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Best of intentions: PPP and SMB loans

SBA gift cashPrecautions taken by state and local governments during the pandemic have ranged from stay-at-home recommendations to stay-at-home orders, some under threat of citation.

Although some groups have erupted in protest, most Americans seem to have willingly placed themselves under a sort of house arrest. 

There’s no need to recite the long- and short-term economic consequences of the closure of non-essential businesses, the slowing to a crawl of essential ones, and the dire straits of, as I noted two weeks ago, some 74 percent of households living paycheck-to-paycheck. Readers are well aware of what all of the above portends.

To their credit, our current Congress, where both sides of the aisle seem to have a policy of “what the other side likes ours hates,” managed to pull off a couple of rescue packages. Notably these include a forthcoming $1200 per household and Coronavirus Relief Options, which the SBA recently announcedPer PYMTS.com:

Facing an economic emergency tipped off by the unprecedented coronavirus pandemic landing on American shores, the federal government in an uncharacteristic burst of speedy bi-partisan cooperation passed the $2.2 trillion CARES Act, a massive stimulus effort meant to keep citizens and businesses whole and afloat while the world rides out the outbreak.

The SBA’s relief options are of four kinds: 

• Paycheck Protection Program or PPP (loan forgiveness for retaining employees by temporarily expanding the traditional SBA 7(a) loan program); 

• EIDL Loan Advance (up to $10,000 of economic relief to businesses experiencing temporary difficulties); 

• SBA Express Bridge Loans (quick access to up to $25,000 for small businesses with a relationship with an SBA Express Lender); 

• and SBA Debt Relief (covers principal, interest, and fees of current and new 7(a), 504, and microloans for six months).

For small to medium size businesses (SMBs), “grant” might be more apt than “loan,” albeit potentially more politically explosive. I recently asked a high-profile banker who prefers not to be named about the near-given that many SMBs will not be able to repay their loans. “They’re counting on the loans being forgiven,” he told me. The above-referenced PYMTS.com piece all but confirms his hunch:

… “loans”  … is a bit of a misnomer in a variety of ways. Firstly, few of the firms taking them intend to repay them; they intend to keep their staff on the payroll and apply for the loan forgiveness program baked into the offering.

Even when a divided Congress acts swiftly, snags are sure to raise their ugly heads (as are mixed metaphors like that one).

For one thing, the funds are not unlimited. The moment PPP options were officially on the table, applicants gobbled them up faster than fans gobble up tickets to see Taylor Swift in concert. Intentions aside, this meant that businesses receiving help from the PPP—and fans getting to see Swift in person—were vastly outnumbered by those who didn’t receive help or tickets.

Indeed, on April 5, The Salt Lake Tribune’s Washington Bureau Chief Thomas Burr reported:

A much-heralded government program to provide bridge loans to small businesses to keep their employees on the payroll during the coronavirus-caused economic downturn has run out of money while Congress remains deadlocked on how to pour in more funds. 

… The White House said earlier that the $350 billion fund—meant to shore up businesses with fewer than 500 employees during government-mandated closures because of the virus outbreak—was empty and no new loans would be accepted. The program had allowed small businesses to apply for government-backed loans through banks that would later be forgiven if the money was used to keep employees on staff during the shutdowns.

Inevitably, someone who didn’t manage to tap the program was bound to call foul. In fact, plenty of someones have already done exactly that. Already named as defendants are Bank of AmericaWells FargoJPMorgan ChaseU.S. Bancorp, and a host of others. According to a report in Dallas/Fort Worth Metroplex Social, allegations include: that banks unfairly favored larger, existing clients; that larger clients made off with funds that should have gone to smaller businesses; and that “businesses seeking lower loans were deprioritized.” For the record, I am not averring that the plaintiffs’ cases are valid. I am only reporting that they have filed them.

The Treasury Department is well aware of cases in which funds earmarked for smaller businesses went to larger ones that arguably didn’t need them. Business Insider has reported:

The Treasury Department is asking publicly traded companies who received loans from a fund intended to help small business recover from the pandemic to return the money by May 7 or face consequences, according to new guidance issued on Thursday … The request … came after large companies who took loans from the program were criticized heavily as the fund ran out of money—and many small businesses, which the money was intended to help, were unable to get a loan. Large companies were able to access the funds through a loophole in the restrictions that was meant to save the loans for small-business use only.

Accordingly, as The Hill reported yesterday, companies like Shake Shack and Ruth’s Chris Steakhouse have returned the funds. Others, however, have dug in their heels:

Ashford Inc., Ashford Hospitality Trust and Braemar Hotels & Resorts, all of which are tied to Texas hotel mogul Monty Bennett, said they will not return a total of $69 million received through the Paycheck Protection Program (PPP), The Associated Press reported.

In the meantime, the banking industry stands to, well, make bank on the Paycheck Protection Program. If ever there was a product you’d call a loan officer’s dream, PPP is it. Applicant businesses needn’t submit to a credit check, needn’t submit proof of revenue, need only have opened within the last quarter—and may not be required to repay the “loan.” In short, just about any business can qualify, as well as sign without fear on the dotted line. And banks, for their trouble, Financial Times reported … 

… stand to collect billions of dollars in fees on the $350bn in loans that are being offered to US small businesses as part of the federal response to the coronavirus pandemic … Banks will receive processing fees, paid by the federal government, for making the loans. The fees will vary with loan size: 5 per cent for loans under $350,000, 3 per cent for loans under $2m, and 1 per cent for loans greater than $2m. The loans will not incur a capital charge.

No wonder, another PYMTS.com piece reports, that “portfolio firms want a cut of coronavirus SMB rescue funds.” It is money waiting to be made. 

Which, these days, is more of rarity than ever.

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