Mastercard's plan for Hurricane Florence recovery
As the Southeast U.S. braced for Hurricane Florence to make landfall, Mastercard made its own preparations to enable the American Red Cross and Allstate Insurance to push funds out to victims.
Push payments such as Mastercard’s Send and Visa’s Direct have been gaining significant traction in the marketplace for everyday tasks such as paying workers in the gig economy, but these platforms become essential in disaster situations.
“Allstate started it with us because of their past experience with Katrina," Jess Turner, executive vice president of digital payments and innovation at Mastercard. "After that hurricane they rushed the claims through the process and cut paper checks. That’s when they realized they couldn’t physically send a check because people’s homes were destroyed."
Instead, Allstate had to distribute checks at shelters. And then of course victims had to find a way to deposit those checks and wait for the funds to clear.
Allstate's partnership with Mastercard led to the development of the Allstate QuickCard Pay product in October 2016, surpassing the speed of Allstate’s existing Fast Mobile e-Payment service. Mastercard previously partnered with Berkshire Hathaway Travel Protection Insurance in October 2015 to pay out claims during a travel emergency. Mastercard and the American Red Cross first worked together to launch their mobile disbursements program for humanitarian aid in 2016.
“The key to push payments is that they happen in real time — within 30 minutes of issuing a payment, funds show up in a bank account," said Talie Baker, senior analyst at Aite Group. "The card networks are the first commercially available real time payment system in the U.S. So, I think the timing of the roll out of this technology coincides with the U.S. moving to a real time payments infrastructure."
B2B and B2C payments typically lag consumer payment trends, so these partnerships had to wait until consumers were comfortable with the concept of digital payments.
"When emergencies happen, people are reluctant to try something new," Turner said. “Five or six years ago people weren’t used to peer-to-peer [P2P] payments. Now 57 percent of adults use them."
Each major disaster is a real-world testing ground for payments technology, but it can also be a stark reminder of the limits of these advancements. After Hurricane Maria struck Puerto Rico last year, much of the island was without cellular service and electricity. To keep the island's economy running, the Fed flew in cash one or two times a day to meet surging demand from banks, which had requested cash at as much as 700% above normal daily levels.
But even that wasn't enough to solve the problem. Without electricity to banks and ATMs, residents had to line up at bank branches to get access to cash.
Electricity is still a problem for communities in the continental U.S. After Hurricane Harvey struck Texas last year, First Data had to distribute tens of thousands of its Clover Go mobile card acceptance devices in FEMA-designated zones — while also dealing with flooding at its Sugar Land, Texas, location (the Atlanta-based company set up temporary operations at a hotel in Houston).
Sometimes payment companies figure out their roles on the fly. Back in 2012, in the aftermath of Hurricane Sandy, WEX discovered that its WEX Connect app — which directs fleet cardholders to the cheapest gas stations based on distance — had inadvertently become a tool to map which gas stations were knocked out by the storm, since those stations stopped sending updated gas pricing via WEX Connect users.
In the insurance world where paying claims is a daily event, moving to a digital push payment can also address issues of fraud that arise when thousands of dollars of FEMA funds are moving to an area where banks' visibility into payment activity is limited by damage to the infrastructure.
"As far as fraud — Visa and Mastercard tell us they have very little fraud with push payments because of the nature of the payment flow," Aite's Baker said."Payers are gathering payment info directly from the recipient and pushing a payment to them. I don’t think these payment methods will increase fraudulent claims — there is all kinds of stuff that happens in validating a claim before a payment is ever made."
Push payments are also better suited for the underbanked, who might typically rely on check-cashing stores, which add another point of friction during a crisis. "It provides a solution for the underbanked because funds can be pushed to a prepaid card," Baker said. "So this technology actually provides payments capability for a greater part of the population than ACH."