Research and Statistics

If pandemic strikes, will banks, credit cards still work?


If the swine flu goes pandemic, will your credit card issuer be ready? If it’s not, it could mean empty ATMs, disrupted customer service and other such headaches for consumers. For banks, failure to prepare could mean losses of billions of dollars.

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If the swine flu goes pandemic, will your credit card issuer be ready?

Tower Group's Dennis Moroney
Dennis Moroney at a glance
Title: Research Director, TowerGroup
Area of expertise: Bank cards
Education: M.B.A. in finance, Hofstra; bachelor’s in political science, Alabama
Professional experience: More than 25 years experience in the financial services industry, including senior-level positions at Citicorp, Chevy Chase Bank, and USAA. Was also CEO of several technology and financial services startups.
More about Dennis: Volunteered as vice chairman of a Washington, D.C.-based nonprofit that serves creditor and counseling industries; quoted frequently by outlets such as The Economist, CNBC, Fortune, Time, The Wall Street Journal, New York Times

While the impact on their plastic may not be credit cardholders’ immediate concern in the face of a pandemic, experts say banks must ready themselves for such an outbreak or risk being unable to service those cardholders and potentially losing billions of dollars as a result of their failure to prepare.

Experts have already considered the possibility. In his May 2008 paper, “Contingency planning: Are credit card issuers ready for the next pandemic?,” Dennis Moroney, research director for bank cards at advisory services firm TowerGroup, highlighted some sobering statistics to drive home why banks should be concerned: According to World Bank estimates, a global influenza pandemic would cost the world economy US$800 billion. Additionally, the U.S. Centers for Disease Control and Prevention (CDC) and the U.S. Department of Health and Human Services estimate that consumer spending in the United States would decline by $150 billion to $200 billion in a worst-case scenario.

Moroney crafted his report by looking at previous government research, which found that 36 percent did not have a business continuity plan in the event of a pandemic — something TowerGroup says represents a major financial risk to U.S. banks and card issuers. For consumers, it could mean empty ATMs, disrupted customer service and other such headaches. However, the good news, Moroney says, is that the study likely opened some banks eyes’ to the risk of a global pandemic and may have led to some institutions being better prepared for today’s swine flu crisis. spoke with Moroney to see what his research suggests about banks’ readiness for a possible swine flu pandemic. (Note: The conversation has been edited for length and clarity.) How nervous should banks actually be about the swine flu potential pandemic?

Moroney: Most of the banks, any of the bigger ones anyway, would have had a contingency plan in place even before this thing happened. The regulators would require that. But it deals with more physical calamities — meaning a terrorist attack or the data mainframe blows up or something like that. So the only real solution here, in terms of a global pandemic, would be potentially something like homesourcing. That has grown, but it’s still a long way from being deployed.

If people are disconnected from their jobs and are not able to make payments, then I think it will add additional financial strain to an already stressed financial system from a liquidity point of view because people aren’t paying their bills. … Another thing that fell out from this study was the banks suggesting that they get relief from certain regulatory requirements compliance requirements in terms of timeliness of resolving certain disputes. … On the retail bank side, one of the concerns if it really got bad was replenishing money in ATMs, because you have to physically be able to replenish those cash machines. If, for some reason, people couldn’t do that — you’d have credit cards, yes, but not everybody has credit cards — there might be some stress there as well. Anyway you cut it, especially now with the economy being where it is, this is not something that would do anything to improve the situation. Are there any banks by name that seem to be more vulnerable than others or are doing a better job of preparing than others?

What would happen?
If a worst-case scenario pandemic strikes, Moroney says possible effects on the banking system could include:

  • Empty ATMs.
  • Slower, or even disrupted, customer service.
  • Difficulty making collections.
  • Longer waits to resolve disputes with the bank.

Moroney: Not that I’m aware of. All the responders to this study were anonymous. That was part of the deal. There was a willingness to share, but it was a willingness to share only if you didn’t share who it is. … My guess is that weakened institutions, which would tend to be smaller institutions, might have more vulnerability than larger institutions in that way, simply because they wouldn’t normally presume to do that even though they would be at risk in terms of failing an examination. I’m sure they’d be engaged in trying to think of a solution there. If I had a bet, and it’s purely a bet because I have no evidence, I would think the bigger banks would be a little better prepared. In terms of the banks themselves, what parts of the bank would be most at risk?

Moroney: Anywhere you have large groups of people assembled, where you’d have a combination of, obviously, the risk of spreading this thing, but also people are going to be reluctant to come in. People are just going to say, “I don’t want to come to work, because if I get sick and I bring that home to my family — forget it, I’m not coming in.” That’s why I think that homesourcing is a great, very realistic solution, if the infrastructure is there to support that. And in the same token, that’s true for some of the outsourcers as well, if they’ve got facility to do that, and I don’t know that they do. The technology is certainly there, and the security aspect is there, both on the customer service side and, if necessary, collections. But my guess is they would probably ratchet that back a bit if things are really getting nasty, and they would worry about just trying to service it. They would most likely get relief from the Fed if this thing really, really gets serious as far as some of the collection requirements and people going delinquent and so on. I’m sure there’d be some intervention, but we’re talking really about a much more accelerated situation than what we’ve got right now.

I think we’re much better positioned now than we were several years ago.

— Dennis Moroney
TowerGroup Is the swine flu outbreak going to have more of an impact on certain types of cardholders?

Moroney: I would say the ones that have more [available credit] would be less affected and have more options than those who don’t. If the seriousness of this got to a point, my guess is that the banks would either on their own account or be instructed to allow people to have ability to make purchases, if that’s the only thing they had. But I think things have to get pretty bad before something like that happens. In the event that it did become a pandemic, would my cardholder experience change? Obviously, that probably wouldn’t be my first concern — but just in terms of calling customer service or them trying to collect?

Moroney: I think we’re much better positioned now than we were several years ago for a couple of reasons. Let’s say, for some reason, a bank is not able to have telephonic connections to their customers. I would bet that most, if not all, institutions have a website, and the Internet becomes a real plus here. Even with remote agents, as long as they can get into the mainframe and the consumer can come in that way, there would presumably be the ability to stay connected. And if you can do that, you can do voice-over-IP, so my guess is that you can probably communicate. So technology has really empowered and enabled institutions to really be able to deal with these types of crises.

The customer experience? My guess is that it’s not going to be what it was when all of this was going on. Let’s face it: The only time the customer is going to call is if the card doesn’t work, so the banks really have control of that and can do things to suspend lines or increase lines or examine people that have been stopped, presuming that they’ve got people that can get access to the data, which I would think that they probably could. Unless this goes on for a prolonged period of time I wouldn’t think this would be a material impact. Inconvenience? Yes. Disruption? Probably. But where we’re gridlocked? Don’t think so.

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