When things go wrong, one can generally count on people to notice – particularly if a lot of things go wrong at once due to a black swan event like the one we are living through now. By their nature, those types of events tend to blindside – and in recent weeks, we’ve seen the collateral damage rack up across the economy, as the U.S. and much of the world has had to pivot nearly overnight into a new normal that still feels very strange.
What most of us don’t realize right away is that a sudden and systemic shock tends to expose strength in the system rather than weakness. Consumers are so habituated to things working right, OnPay Solutions President and CEO Neal Anderson told Karen Webster in a recent conversation, that it can be hard to appreciate something that is functioning in a completely normal fashion under rather extraordinary circumstances, as the financial services ecosystem is right now.
“One of my observations is that we're not reading about the failure of financial institutions or related bad news,” Anderson noted. “It is amazing that money can still move right now – between consumers, between consumers and businesses and between businesses – with the touch of a button. And that banks are able to offer mortgage relief for 90 days without skipping a beat – that's just unheard of.”
And it’s encouraging – for two reasons. The first, he noted, is that what’s happening now, for all its horrors, is an indication of just how far the financial services ecosystem has come over the course of the last decade. Also, it means the ecosystem as a whole is positioning itself to evolve to the new economic normal that will emerge when the current crisis is over.
When Stress Tests Pay Off
In the midst of an economic crisis tipped off by a global public health crisis, it might be difficult to think back to the last time the economy fell apart in 2008, or just how unbelievable the headlines were at the time. Banks long considered “too big to fail” did exactly that, or came within inches of doing so. It was an experience no one ever wanted to repeat, as it looked distinctly possible that the entire global economy would unravel all at once.
“Resulting from that, regulators insisted on tough stress tests on liquidity for financial institutions going forward. They wanted to confirm annually their ability to withstand super volatile changes in the marketplace,” Anderson told Webster.
Those stress tests, he noted, were not much loved by anyone at the time, and people often complained about them. But Anderson suspects that if they were polled today, many of those bank executives might admit they were “really happy they went through all those stress tests.”
Being forced to take one’s medicine, he noted, is no fun at all – but the lesson is that when it’s done and when it works, it makes a difference. After spending a decade rethinking risk and inoculating itself against volatile market shocks, the financial services industry has been better equipped to deal with the big shock of 2020, without stories about undercapitalized banks going belly-up.
It’s an often overlooked but important pillar that is keeping the economy together, Anderson noted – and shows how a lesson learned in one crisis can be applied to keep things moving forward during the next one.
Applying the Lessons Being Learned Now
Across the industry today, said Anderson, companies are rethinking all kinds of operational choices that once made sense, but are now showing vulnerabilities. Large enterprises that have invested in giant service centers as single central hubs that build all of their accounting, processing and customer service functions did so because it seemed like an efficient, cost-saving solution to put a lot of functions in one place. But in the next normal, he noted, it probably makes a lot more sense to split those functions up among two or three locations.
Firms that handle their own payroll systems on-site are now realizing that the sheer logistical challenges of managing paychecks with a suddenly decentralized workforce are quite overwhelming.
And, Anderson noted, there is finally enough collective will to do something that should have long since transpired: purging the paper checks that represent roughly half of all B2B payments made each year. They’re slow, they have security problems and the technology has long existed for CFOs nationwide to make the jump and say goodbye to them. Paper checks have persisted mainly due to apathy rather than preference, Anderson pointed out: They are relatively easy, require minimal data and are universally understood and require no new learning.
But now, in an era when everyone is thinking about contact points, paper checks no longer look like an annoyance so much as a safety liability for users.
“The paper check has been in use for hundreds of years, because all I need is your name and address to pay you,” he said. “But it also means somebody has to touch the check stock, load it into a printer, sign it, put it into an envelope and put it in the mail. And then a postal worker has to handle that document, and once it arrives, it has to be opened and somebody has to deposit that check. When you think of all those touchpoints, it doesn’t feel like an easy way to pay – it feels like an unwise way to move money.”
Particularly because there are better options out there, like OnPay Solutions and many others – all they need to do is decide to get wired in. Given the sharp uptick in inquiries and sales the company has seen in the last several weeks, a growing number of firms are embracing digital payments – or are least ready to learn a whole lot more about them.
While in some ways, it is amazing how well financial services has held up – and even managed to extend itself into crisis relief – the virus has exposed all the places in the ecosystem at large where there is still work to be done.
But as the world learned a decade ago, necessity is the mother of invention – and nothing necessitates inventive thinking like being blindsided by a black swan event.