As the COVID-19 crisis is now stretching toward the two-month mark, the size of its impact to the economy is becoming more well-defined and worrisome. Unemployment figures continue to soar and businesses big and small are developing increasingly dark outlooks on their prospects for bouncing back. It is fair to say that the U.S. is in the thick of the crisis and still in the early days of attempting to gain back ground lost to the black swan event that shut down the world.
And yet, as Karen Webster and PSCU CEO Chuck Fagan discussed for the latest edition of This Week In Payments, despite the still blowing headwinds, society as a whole has nonetheless turned its eyes toward the horizon and started actively planning for what will be a phased walk back to normal — or at least something more close to approaching it than what we have now. Stimulus funds have started to flow to consumer and small and medium-sized business (SMB) accounts, governors nationwide are beginning to coalesce around reopening plans and, Fagan noted, that is across financial institutions, big businesses, small entrepreneurs and government in a rare and inspiring uniformity of purpose emerging.
“I think you are going to see more and more of that because it’s the right thing to do because the faster we can come out of this the better it is for everyone,” Fagan said. “Hopefully it’s an exciting recovery.”
And, he said, are there are early signs of that already starting to spring up.
Cashless and Contactless Time To (Finally) Shine
All over the world contactless payments via contactless cards have exploded over the last couple of years — but in the U.S. not so much. As of early 2020, however, that had started to change as card issuers began actually putting them into consumers hands — but both Fagan and Webster suspect that the COVID-19 pandemic, and the recent focus on clean hands it has engendered, might just be the rocket boost contactless cards have needed in the U.S.
PSCU has already seen orders for contactless plastic from its credit union partners, he said, and a changing orientation around their rollout. That, he noted, has gone from a “we’ll get to it” to a push to be doing it now — mostly through the replacement cycle as cards expire or are reported lost or stolen.
“It’s likely to see more mass distribution of these cards because the timing is right,” he said. “I suspect larger banks are already pretty far down this path and I think credit unions need to be there.”
Because, he noted, what is evident in the U.S. and around the world is that consumers are changing. It’s why Paidy was able to close a $48 million round recently to continue digitizing the cash out of the Japanese eCommerce marketplace — a cultural tradition long considered immovable to outside observers.
Immovable, he noted, but for the fact that handling cash has recently become undesirable, as has touching a keypad to enter a PIN or walking up to an ATM and having to touch the buttons.
“Three, four months ago we were all on airplanes, all staying in hotel rooms and touching the remote control without thinking about it. Now you think, golly, I don’t want to do any of that now,” Fagan observed. “Just the rapid nature of funding that’s gone into contactless payments and the patents that have been applied for. I think we might be looking at a whole new wave coming out of this.”
That, Webster and Fagan noted, will be a positive change. Others will be more challenging.
The Credit Clawback
Among many eye-catching and concerned bank earnings announcements this week, JPMorgan Chase managed to particularly catch the market’s interest with its announcement that going forward mortgage customers would need a credit score of at least 680 and a down payment of 20 percent to qualify for underwriting.
It’s a higher standard than has been common in recent years — and one that has sparked worries that banks are beginning to tighten their belts and cull their customer polls in preparation for a long downturn. A difficult turn of events, Webster noted, as a credit crunch coming as consumers are facing furloughs, halted paychecks and unemployment is a tough pairing.
Fagan agreed, though he noted the picture is somewhat complex. Part of JPMC’s move, he said, is doubtlessly to risk-proof of its balance sheet — but part of it is just to balance it out. Because interest rates are so low, he said, banks have been hit with a tidal wave of refinance applications — and one way to stem the tide is to raise lending requirements.
“I’m hearing from some of the CEOs I talked to that they’ve got two and a half and three times their normal mortgage volume right now just coming through on the refi side, and that’s very significant,” Fagan said.
Moreover, he noted, while banks are trying to build out safety and balance, they are also working hard to keep their suddenly and unexpectedly cash-strapped customers financially alive — with things such as payment deferrals on mortgages and cards, or calling a temporary moratorium on collection calls while the crisis is ongoing.
But, Fagan noted, the efforts at balance and keeping consumers afloat aside, there will need to be a revaluation of underwriting as society moves through the consequences of the coronavirus pandemic and starts to rebuild. A process, Fagan said, that might be a good deal longer than most people think it will be.
A Slow But Steady Walk Back
The economy may feel like it shut down overnight, Fagan and Webster observed, but switching things back on won’t happen that way. Even the most optimistic estimates for recovery are measured in months, not weeks.
“There is going to be a whole new way of doing things, it seems, and not one anyone could have planned for,” Fagan said.
But even in the midst of a spontaneous and somewhat chaotic reset there are many impressive signs of nimbleness, creativity and a generally community-minded approach to the economy emerging that are certainly good things. Amazon cuts its seller commissions, Google and Facebook are giving away ad credits, banks nationwide are working with customers and SMBs to come up with payment plans that protect their cash flow during uncertain times.
It’s is not going to be an easy recovery, Fagan said, or a fast one. But there will be a recovery — in fact there is one already underway in the U.S. It’s just that its effects may take some time to really see clearly.