COVID-19 pushing Arkansas, nation toward cashless economy with new digital payment innovations

July 20-26, 2020

By Daily Record Staff 


Although “Cash is King” is increasingly driving Wall Street’s investment strategy during the COVID-19 pandemic, that mantra is no longer true in the nation’s banking and financial sector.


By all accounts, the advent of COVID-19 has pushed that once futuristic fantasy of a cashless society to near reality due to social distance and shelter-in-place mandates nationwide to protect. Amid government measures to slow the spread of the virus, Americans are altering the way they bank, pay and shop on an unprecedented scale and with rapid speed.


In early May, well before most states began reopening and the recent spike in COVID-19 cases nationwide, Jacksonville, Fla-based FIS National Information Services Inc. (FIS), released new findings showing the pandemic has accelerated the digital transformation of banking and commerce.


Founded in Little Rock as the former Systematics in 1968, FIS noted in the study last month that these adjustments likely will not be temporary but rather mark a “new normal” in consumer behavior in a post COVID-19 marketplace. FIS surveyed more than 1,000 American consumers about the ways they are paying and banking amid social distancing and stay-at-home actions taken across the U.S. since the COVID-19 outbreak.


“The impact of COVID-19 has rapidly accelerated trends that we have been seeing for years in terms of banking and digital payments,” said FIS General Manager Mladen Vladic, who oversees the financial technology giant’s customer loyalty efforts. “Once consumers begin using convenient new digital services, few tend to go back to their old habits, so we expect this to be the new normal going forward. 


“We are now further along on our path towards becoming a cashless society in the U.S., and perhaps looking at the end of the paper check altogether,” continued Vladic. “These findings should be a wake-up call for organizations about the importance of taking a digital-first approach. Now is the time for banks and merchants to be reassessing customer experiences.”


FIS drives central Arkansas’ involvement in global fintech transformation


From its earlier beginnings in Arkansas more than 50 years ago, Systematics was later acquired by Alltel Information Services in 1990, and eventually bought by FIS in 2003. The financial services giant, which had annual revenue of $10.33 billion in 2019, is now the world’s largest provider of banking payment technologies with more than 20,000 financial clients in over 110 countries. The Fortune 500 company still maintains a presence in West Little Rock, where it still employs hundreds of local workers at its corporate campus.


FIS has also been pushing the envelope here in Little Rock by working with Gov. Asa Hutchinson and the Little Rock Venture Center to make central Arkansas a “micro-hub” for financial technology services and data analysis for the banking sector. Since 2016, FIS has financial backed and sponsored the highly acclaimed FIS FinTech Accelerator program with the state Department of Economic Development and the Venture Center mostly because of the Fortune 500 company’s ties to city going back more than five decades. 


Through that accelerator program, the Venture Center has weeded through hundreds of applications in the past five years to select the ten finalists’ startups to participate in a rigorous 12-week executive and team building  bootcamp at the Little Rock Technology Park. The select cohort companies also receive in-depth mentoring and training from dozens of executives and mentors in the financial and banking sector, along with a significant monetary investment from FIS if they complete the three-month training.


Although many of the 50 or so fintechs from the Little Rock accelerator have fizzled out, a handful of past graduates have gone on to secure additional capital funding, win industry awards, and in some cases form partnerships with FIS to bring their innovations to market, Venture Center officials said. As an example, FIS recently integrated technology from 2016 Accelerator graduate Flutterwave that allows merchants affiliated with the company’s recent acquired Worldpay subsidiary to process online payments in Africa.


“The FIS Fintech Accelerator program has a demonstrated history of accelerating highly successful companies and expanding financial access in all corners of the world,” said Wayne Miller, Executive Director of The Venture Center. 


Just two weeks ago, FIS announced the cohorts for the 2020 acceleration program, noting that it received applications from fintech firms across the U.S. and 29 other countries. Due to the COVID-19 pandemic, however, the 2020 program will be conducted virtually and extended an additional six weeks to provide additional opportunities for in-depth mentoring and training for the startup firms, officials said.


“The FIS Fintech Accelerator is a key part of our overall investment strategy at FIS to develop and bring to market the most innovative, leading-edge technology innovations for our clients,” said Asif Ramji, Chief Growth Officer at FIS.


In addition to the FIS’s efforts to speed-up the adoption of cashless and digital payment options with its fintech investments, the Venture Center is also working with the Independent Community Bankers of America in Washington, D.C., to develop similar online payment solutions for smaller banks. In 2019, the local entrepreneurial service organizations held the ICBA ThinkTECH Accelerator at the city’s downtown Tech Park, where the inaugural program mentored eight fintech companies providing solutions specifically tailored for community banks.


The second year of that program, called ICBA ThinkTECH 2.0, ended in April 2020 with a virtual pitch competition due to COVID-19. In early June, ICBA then announced an additional three-year commitment to the Little Rock accelerator program as part of its strategy to compete in the complex and evolving markets where community banks operate.


“Because of its highly collaborative nature and direct access to community banking expertise, the ICBA ThinkTECH Accelerator has developed a reputation within the fintech community as one of the best for entrepreneurs looking to enter the community banking industry,” said Kevin Tweddle, senior executive VP of community bank solutions at ICBA, which represents about 5,000 small and mid-sized banks and financial institutions across the U.S.


That push by industry to adopt cashless and digital payment solutions has also caught the attention of the nation’s top banking and financial regulators, including the FDIC, Federal Reserve, Treasury Department’s Office of Comptroller of Currency (OCC), and federal Securities and Exchange Commission (SEC).


Even before COVID-19 settled in the U.S. in early 2020, most federal and state banking regulators were already working with industry to speed up the adoption of cashless banking interactions and digital innovations. The OCC is also involved with the ICBA ‘s efforts to support new innovations and help program greater access to fintech solutions and digital payment options.


“Forums like the ICBA ThinkTECH Accelerator program are pivotal in fostering a creative and thoughtful approach to innovation,” OCC Chief Innovation Office Beth Knickerbocker said after ICBA signed the agreement to continue the Little Rock accelerator program.


Pandemic Coin Shortages Exposes Other Cyber Risks


According to the Federal Deposit Insurance Corp.’s 2019 annual report, global investment in financial technologies was $37.9 billion in the first half of 2019. In additional, more than half of all consumers are interacting with banks through digital means with person-to-person cashless transactions totaled more than $570 billion in 2018. Consumers also prefer connectivity among financial management applications and their bank accounts, the report states.


Technology is “not simply transforming how customers access financial services; it is transforming the business of banking both in the way consumers interact with their financial institutions, and the way banks do business,” said FDIC Chairman Jelena McWilliams.


In the FDIC’s report written by the agency’s Inspector General’s office,  the banking regulatory agency that insures bank depositions up to $250,000 also said financial institutions are incorporating new technologies into bank processes and establishing partnerships with third-party financial technology firms, also known as fintechs. 


Community banks, the report noted, are working closely with these startup fintechs to develop solutions, such as reducing the time for loan underwriting and digital credit applications. Financial technologies offer banks potential benefits but also introduce a range of risks. Based on data from the Financial Stability Oversight Council (FSOC), cyber-attacks in the financial system include vulnerabilities to malware and ransomware attacks, denial of service incidents, data breaches, and other events. 


“Such incidents have the potential to impact tens or even hundreds of millions of Americans and result in financial losses of billions of dollars due to disruption of operations, theft, and recovery costs,” said the council, which was created after under the Dodd-Frank Act after the 2008 banking crisis to monitor the nation’s financial systems.


As noted, the rush to a cashless society and digital banking system has also created some risk associated with hacking, identify theft, cryptocurrency, bitcoin and other digital currencies. Also, the lack of cash exchange during the pandemic has also created an unusual shortage of coins, caused by fewer currency exchanges and more cashless payment options at restaurants and local retail established impacted by COVID-19 safety measures.


After more business began reopening in late May and June, some local merchants have also begun to hoard pennies, dimes, nickels and quarters due to the ongoing shortage. Others, like Kroger, have posted signs in local stories alerting customers they will not give back change for cash transactions. Instead, the grocery store giant with locations across Arkansas and 34 other states is asking customers for exact change, donate to charity, or put any excess amounts on their Kroger membership cards.


In a June 15 bulletin to regional reserve banks, the Fed said the COVID-19 pandemic has significantly disrupted the supply chain and normal circulation patterns for U.S. coin. Federal Reserve Chairman James Powell also recently testified before Congress that he has created a public-private task force to identify and implement solution to reduce further coin shortages.


“In the past few months, coin deposits from depository institutions to the Federal Reserve have declined significantly and the U.S. Mint’s production of coin also decreased due to measures put in place to protect its employees,” said the Federal Reserve’s June 15 bulletin. “[Current] coin orders from depository institutions have begun to increase as regions reopen, resulting in the Federal Reserve’s coin inventory being reduced to below normal levels.”


To get a handle on the penny, the nation’s central bank said it is working on several fronts to mitigate the effects of low coin inventories. Those solutions include limiting existing Fed inventories, working with the U.S. Mint to minimize coin supply constraints, and encouraging banks to order only the coin they need to meet customer demand. 


“Depository institutions also can help replenish inventories by removing barriers to consumer deposits of loose and rolled coins,” said the Fed’s June 15 bulletin. “Although [we are] confident that the coin inventory issues will resolve once the economy opens more broadly and the coin supply chain returns to normal circulation patterns, we recognize that these measures alone will not be enough to resolve issues.”  


PHOTO CAPTIONS:  (Photo by Daily Record Staff) 

National pandemic is accelerating the shift to fewer cash payment options; retailers face coin shortage too. 

River City Coffee serves up coffee to customers in Little Rock’s Heights district. Due to COVID-19, owner Jeremy Braggs said the café is operating during reduced hours and provides curbside to-go service. Patrons who choose to come inside can choose contactless methods to pay and pick-up their orders.