How COVID-19 has shaped the future of money during emergencies

August 2020  |  EXPERT BRIEFING  |  BANKING & FINANCE

financierworldwide.com

As governments gradually ease the lockdown in the UK and across Europe, businesses of every type and size face the challenging task of rebuilding, all while the global economy teeters on the brink of recession. For many individuals and businesses, support from the national government – such as the UK’s furlough scheme, Italy’s €4.7bn Solidarity fund and the American government’s $1200 cheque to every adult – has been the sole reason that they have survived financially.

In addition to making businesses and individuals more focused on their cashflow, the crisis has further exposed the insufficiencies of outdated financial processes and highlighted the necessity of a rapid transition to digital. This crisis has taught us a lot about money during emergencies, both in terms of how we as a society can use it to help our most vulnerable and how businesses must handle themselves in order to achieve sustainable profitability.

Society went from business as usual to a total lockdown in under a month, and we must be prepared to react to similar situations with such speed in the future. Over the last months, governments have frequently relied upon the famously nimble technology sector for support, one example being Apple and Google’s collaboration on a tracking app for the US government. These partnerships between the state and technology businesses have led to the rapid development of entirely new means of distributing aid.

Targeted cash distribution

The ability to control the flow of cash – what it is spent on and who can spend it – fundamentally shifts the emergency aid landscape. Using prepaid cards drastically increases the speed and security with which funds can be distributed. But the level of specificity with which funds can be designated also enables targeted approaches to individual scenarios.

Take, for instance, the need to give a particular sector – such as hospitality – a boost when rebuilding economically. Citizens could be issued grants via prepaid cards which could only be spent in restaurants, bars and hotels. This is just one example which hopefully highlights the potential of a hyper-targeted approach to emergency fund distribution.

This modern alternative to ration stamps allows the government to pursue two vital aims simultaneously: stimulating the economy in the areas that need it most and helping those in need. Similar mechanisms of aid distribution, born from technology, will continue to develop to ensure that citizens and businesses affected by future crises can access grants and loans for specific purposes more quickly and more effectively than traditional government-led programmes.

Technology, accelerated by urgent need provoked by coronavirus (COVID-19), has changed the way that governments and charities can benefit citizens and economies during emergencies.

Business cashflow during emergencies

To further understand the role of money in a crisis, we must also consider the issue from a business perspective. For business decision makers, cashflow has always been of paramount importance, yet the margins for error are even smaller when times are tough. Maintaining cashflow is currently the number one priority for businesses, and it will remain so for the foreseeable future as we enter recession.

Businesses are likely to significantly increase their adoption of financial technology during this crisis – and some indicators suggest that they already have. Financial and spend management tools are already widely available that provide businesses with the all-important view of their cashflow in great detail and in real time. It is essential that businesses take advantage of the tools available to them – after all, what is more important than having full visibility over outgoings at a time like this?

A critical element of businesses keeping an eagle eye on their finances during an emergency is ensuring that staff are spending productively and responsibly. During a crisis the ability to exercise increased control over how resources are spent – and to rapidly revise these restrictions when necessary – is key.

Preparing to take on the unexpected

Technology has already radically changed the ways that governments and charities can assist individuals, businesses and economies during emergencies. Similarly, businesses which have a firm grasp on technology will be better suited to a rapidly changing environment, and many of those that have lagged in the past have rapidly come to realise the limitations of legacy systems.

Businesses which have discovered the value of digital tools for extending their cashflow runways, among a host of other uses, will have discovered a plethora of new opportunities and ways to ensure sustainability and profitability. This awareness will persist long after the crisis is over.

Carlo Gualandri is founder and chief executive of Soldo.

BY

Carlo Gualandri

Soldo