Payments Innovation

How 9/11 Helped Shape Today’s (Digital) Payments Landscape

Viewed through the lens of the pandemic, the horrors of 9/11 may seem, at least to some, long ago and far away – though, of course, never muted.

The nearly two decades between then and now bring perspective on how life has changed – and how those changes have become commonplace, perhaps even taken for granted.

Security checks at the airports are as routine as the plastic bins that feed your luggage, shoes and devices through scanners. Real IDs are the law of the land.

Beyond safety precautions, the attacks also changed the very nature of how businesses are run and how they grapple and prepare for unanticipated interruptions.  That includes the ways in which we pay – and, by extension, the ways in which the economy can function.

In 2001, the stock market closed for four days. The NYSE and NASDAQ did not reopen until Sept. 17, which represented the longest period of “being dark” since the Great Depression. In addition, many financial firms had offices in or near the World Trade Center, which meant operations were halted as many employees could not get to work.

In some cases, the echoes of that time are present now – on an even grander scale. Many workers are unable to get to the office amid the pandemic. Many of us are navigating interruptions to daily routines that in a less technologically advanced age would be nothing short of crippling.

But the digital age is one that allows for flexibility and resilience that did not and could not be the hallmarks of the economy, or payments, back then.

We’ve noted in these digital pages that the paper check has been a stubbornly entrenched feature of commerce. In 2001, checks – or, more specifically, check-clearing operations – were hard-hit, due to the fact that planes had to get the paper checks from place to place. In other words, no planes (because they were grounded) meant no check-clearing services at issuing banks.

In a 2003 paper published by the Federal Reserve Bank of Richmond, the analysis noted that “settlement instructions were lost” and communications were unreliable – and the Fed injected $100 billion in added liquidity to help grapple with it all.

The Check Clearing for the 21st-Century Act (aka the Check 21 Act) helped bring check clearing a bit further along, though it did not become law until 2004. As detailed by the FDIC, the act was designed to “enable banks to handle checks electronically, which should make check processing faster and more efficient.” The goal has been to cut transporting paper checks from bank to bank. It’s not a quantum leap to get from Check 21 to mobile capture and deposit, which has been the digital method of getting checks into accounts – and which has perhaps been a literal lifesaver in the age of the pandemic.

Separately, retail bank branch closings were widespread in New York City and Washington, noted the Fed, but there were shutterings outside those locations, too. At least some banks even limited withdrawals by customers at ATMs.

Eventually, normalcy returned. The terrorist attacks have mercifully proved isolated. But in a nod to technology, bending toward a payments ecosystem that proves resilient in the face of external threats (now, at this moment, microscopic microbes), we’ve seen the rise of digital wallets, of virtual card issuance and of increasingly automated back-office functions. Square Readers have evolved to cash apps, while getting cash at the ATM has given way to tap and pay.

With the advent of instant and real-time payments, airlines transporting checks by the millions have been pushed into a past that seems as quaint as the horse-and-buggy era.

The threats may change, and the shocks they bring may change. But necessity – as they say, the mother of invention – spawns innovation from the ashes of crisis.

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