By all reasonable measures, the first three months of 2020 have been a wild ride.
The novel coronavirus has exploded into a global pandemic that has caused tens of thousands of deaths, grounded supply chains to a halt, emptied store shelves, tossed a record-breaking number of Americans out of work and likely brought the U.S. economy into a recession.
It has been an extraordinary exogenous shock to the system, Ingo Money CEO Drew Edwards noted in a recent conversation with Karen Webster, mostly comparable to a natural disaster like a hurricane or blizzard except blown up to a global scale and lasting for three months.
There is a bright side to this situation, he said, and one that is important to keep in mind. This is unlike 2008, when “the cancer in the housing market” left the economy permanently damaged when it ultimately collapsed from the inside. This isn’t a case of internal collapse, so much as it is a case of the economy being hit by a wrecking ball from the outside.
It’s a terrible situation, he said, but one that will ultimately be easier to recover from.
“Let’s say this goes on for three months, and it’s very painful,” he said. “It was necessary to end this public health disaster, which is now an economic disaster as well. What happens when everybody’s allowed out of their houses three months from now? Have those waiters and waitresses gotten a job somewhere else? Probably not. Is that landlord going to say to that business owner, ‘Sorry, I’ve already moved all your restaurant equipment out of here, and we’re putting somebody new in there?’ Probably not. Nobody’s renting restaurant space right now either.”
The sun will come out, Edwards said, and there won’t be the same kind of blast crater left in the economy from the housing market collapse a decade ago — but that doesn’t mean the economic disaster at hand isn’t serious. Workers and business owners are going to be stretched to the edge, Peter is going to get robbed to pay Paul, Grandma’s engagement ring is going to a pawn shop — “a lot of ugly things can happen,” he said.
The attempt to head off those ugly things is what has caused something truly rare in the federal government — bi-partisan, concerted efforts to push disaster relief at a national scale. Thus far, that has added up to roughly $2.2 trillion in stimulus funds — the largest swatch of which will most notably beef up small business funding via Small Business Administration (SBA) loans as well as put about $1,200 in the hands of each qualified consumer.
Will the major expenditure work to buffer the economy? The question is complex, Edwards and Webster agreed — and one that will ultimately be answered by time and results. But there are at least two areas of potential concern as the government undertakes a massive and unprecedented project in payments. One is logistical; the other is conceptual.
The Problems With Paying Out To Many At Once
The good news, Edwards noted, is that the government will not, as he had feared during his and Webster’s last conversation on the subject, be attempting to pay several hundred million American workers only by paper check next month. Instead, it seems it will be piggybacking off the account and authorization information from IRS and social program administrators for as many as possible — and will be able to push many citizens their funds via ACH payment, just like a tax return.
That’s a start, Edwards said, and a solid one — the ACH system works well for things like tax returns. It’s why it has been such a successful addition to the process — a decade ago, Q1 was to check cashiers as Q4 is to retailers, such was the surge of people with paper coming in to transform it into cash. These days, it’s a barely noticeable bump, so successful has ACH been at supplanting the paper in this unique use case.
But, he noted, there is a consumer segment that is slipping through the cracks here — people who don’t make enough to file tax returns, so the IRS doesn’t have information for them, and who aren’t enrolled in any kind of social assistance program. There are probably more people who fit into that definition than people think, Edwards said, and those folks will be getting checks.
What needs to replace that, he said, is a single, secure marketplace where consumers can sign in, offer up their authentication credentials and just choose how they want to be paid — bank account, PayPal, Square cash — and then push. The technology exists to do it, Edwards said. Ingo does it today.
“We can make sure we know who you are, that you own these credentials and that bank accounts are open and/or that the prepaid or debit card will work,” he said. “With that in place, it becomes easy for the government to just let eligible recipients come and claim the funds that they are qualified to receive and then disperse them out immediately, instantly with a trail. And to give them a choice for how they want to receive it. This is not unlike what we do for large insurers and banks today.”
But the bigger question, Edwards and Webster wondered as their conversation closed out, was whether, even if perfected for efficiency and access, the mechanism chosen to deliver funds to workers is actually the best method to keep them afloat for the next several months.
Restructuring Around Small Businesses
Sending a little over $1,000 to consumers in tough times isn’t a bad idea, Edwards and Webster agreed — but it is only going to go so far, both in terms of what people can actually do with it, and how much anxiety it is really going to alleviate.
PYMNTS’ recent data on this subject is pretty clear. Lower-income consumers are incredibly worried about whether they’re going to have jobs, or jobs to go back to in three months, and are ramping down their spending accordingly.
Entrepreneurs have an added anxiety level here beyond their health and their day-to-day economic woes — many are worried that this hiatus isn’t going to be temporary for them, and that they’re going to have to close. There is no direct payment program for small- and medium-sized businesses (SMBs) in the works; there is a loan program being rolled out as part of the Phase 3 stimulus deal, but qualifying is not a guarantee, and the process will be measured in months, not weeks.
One wonders, both Edwards and Webster observed, if there is an alternative history of this story where instead of trying to push a thousand bucks to a few hundred million people, they might have tried pushing those funds directly to the businesses that employed them on the condition that they keep their employees on payroll as though they were still working.
It would be, they noted, an expensive proposition that would essentially require opening the funding spigots up and floating the vast majority of U.S. businesses the equivalent of three months’ worth of revenue. Any business “worth giving the money to” pays taxes, meaning they’d be easier to get the funds to. And while a stimulus injection might make someone feel better about their next trip to the grocery store, paychecks tend to be the thing that actually instill consumer confidence — which is ultimately also what keeps the economy going.
It is a radical solution, both agreed, but then times have gotten somewhat radical out there lately — verging on biblical. The government is clearly already willing to consider $2 trillion worth of out-of-the-box thinking, and the Payroll Protection Program that is part of the CARES stimulus program is evidence of that. It is not impossible to imagine, Edwards said, that there are still ways to think better by thinking bigger about how to keep businesses open and paychecks rolling out.
“If the government would do that, then it avoids a lot of bloodshed,” he said. “The question is whether the government will have the foresight and fortitude to get beyond their politics to actually do that.”