Becoming more efficient during an economic downturn: how to digitize to optimize

In an article published by the Harvard Business Review in June of 2022, Vijay Govindarajan and Anup Srivastava reported on ways for businesses to best gird themselves for a slowing economy. Govindarajan and Srivastava recommended looking at companies that remained buoyant during recent recessions. Recessions are typically short, followed by long periods of economic stability and even prosperity, so the trick is to weather those storms and be best situated for the post-recession bounce. Govindarajan and Srivastava use Samsung’s navigation through the 2008 recession as an example: Samsung doubled down on a handful of their stronger products, invested in research and development (R&D), and improved the technology of their most revenue-generating devices, emerging from the recession at the top of their field in those areas of focus. Samsung’s focus on and investment in technological improvements during a recession seems counterintuitive yet it is the proven winning solution to resiliency during a downturn.

As we move through Q4 of 2022 and head into 2023, we predict companies will be investing in technology, and optimizing their digitized practices to build efficiencies for their business. It’s now common knowledge that digitization is a surefire way to ensure growth and resiliency. In a 2018 National Bureau of Economic Research paper, Brad Hershbein and Lisa B. Kahn published their finding that during recessions dating back to the end of WWII all the way to the recession of 2008, companies invested most in developing their technology set. This is because digitization is a panacea during economic downturns: when you take full advantage of technology in your operations, you provide opportunity for greater time management, more innovation, and more creativity, which in turn allows you to produce products and services that best suit the future needs of your customers.

Diversification creates resilient businesses

As we face a potential recession, we suspect companies will also focus on building more diversified partnerships and enhancing collaboration. By diversifying providers, companies will help defend against an unstable market plagued by volatility. If you have multiple providers, you protect yourself from reliance on potentially vulnerable parties. For a corporation operating in this environment, as rates go up, and banks tighten their lending, working with multiple companies to facilitate payments will allow for greater financial security. Even if you partner with a larger bank as your primary lender or on your facilities credit line, partnering with a tech company like ����Vlogto facilitate your payments will give you increased flexibility when paying suppliers.

Abundance of engineering and strategic thinking talent coming out of fintech startups

With volatile interest rates, rising inflation, and unhappy stock market valuations, there’s been a near halt to the flow of venture capital funds into the fintech sector in the last seven months – venture funding for fintechs overall dropped 23% in Q2 2022 from the first quarter. As a result, companies have laid off workers at a much higher rate in the past several months than in the previous period. As reported in The Paypers, 4,189 fintech employees were let go across 45 layoff events in the first half of 2022. The prices for publicly listed fintech companies have gone down 70% in the past nine months, and we anticipate a great culling of fintech companies in the coming months. What can come with these layoffs is opportunity – a number of talented technologists and financial experts are entering the job market. Traditional financial institutions might embrace the availability of fresh talent and in all likelihood, banks and some of the more stable, senior fintechs will hire more talent and broaden their bench.

Public companies with stable revenue streams will then be primed for even greater expansion of their offerings and for developing new revenue streams. As this shift in talent acquisition occurs, new technologies, products, and processes will be imagined and realized.

Partner with nascent fintech companies to marry their innovative ideas with your strong foundation

In light of these changes, it seems likely fintech start-ups will increasingly partner with senior, seasoned financial technology companies. Being innovative and being able to share those innovations with a target audience require two different skill sets and two vastly different resource pools. While fintech start-ups often have the chops and resources for the former in spades, it is those seasoned, more established, and larger firms that have what it takes for the latter. In a recent episode of the “Inside the Strategy Room” podcast, McKinsey strategist, Miao Wang, reported on the mutual benefits of such collaboration and how the growth in digitization over the past few years has driven a greater need to innovate. This drive toward innovation comes from a need to compete to survive. This is because many of today’s most significant innovations are being created by a new generation of businesses that are almost entirely digital. These companies are harnessing technology to offer more appealing products and services, changing the competitive landscape dramatically. Wang explains that the increasing emphasis on innovation incentivizes old guard tech companies and tech companies that are just starting out to form partnerships. Simultaneously, with younger companies facing hardship, executives and founders newly on the scene will see greater value in collaborating with established institutions than in previous years. Together, large and small, and old and new companies will build synergies, share projects, and generate new ideas and technology.

How innovative, disruptive technologies are changing the world of payments: The future of the wallet

Increasingly, the consumer-led experience is blending with the business to business (B2B) experience. What we all experience in our personal lives is also now an expectation when engaging in B2B experiences. Recent developments in technology – from Venmo to digital IDs, Netflix to Amazon, wearables and apps – have changed our norms around the speed of transactions. Whether your product is consumer-facing, or B2B, customers, clientele, and business partners are all trying to speed up the process, and remove any and all pointless delays.

As a result, corporations are looking for ways to make payments easier. One example can be found in the now-ubiquitous tap-and-go technology for plastic cards. What we learned was that it is not that much easier to take a card out of your wallet and tap it than it is to take a card out of your wallet and swipe it or dip it. So while tapping the card was cool, it really didn’t remove friction. Fintechs went back to the drawing board and came up with the digital wallet. Our prediction is that wallet technology is going to continue to be developed in the next year or two, and digital wallets will see greater adoption in 2023.

What makes the digital wallet interesting is that it actually truly does remove friction – not only can I tap my card, but I no longer need to even have the card with me, because it’s stored in my digital wallet on my smartphone. That opens up all kinds of use cases. It also simply makes life easier. Unsurprisingly, the digital wallet phenomenon is bleeding over to the B2B segment. Once corporations have digital wallets up and running, small, everyday processes become quicker and more efficient, which saves significant time in the long run.

Digital wallet adoption is particularly relevant for small businesses and a little bit less relevant at an enterprise level which has its own unique needs – but for small businesses the bleed over to B2B from B2C with digital wallets is happening.

One way to think about the uptick in digital wallet usage by businesses, is to consider a kind of “consumerfication” of B2B payments. By reproducing the speediness and elegance of consumer apps, companies can keep in step with the times while increasing efficiency. One great feature of ����VlogSelect (formerly known as Flume) is digital checks, allowing for rapid and low cost of payments to suppliers. Digital checks are just one example of wallet technology that will shape the future of B2B payments.

How does payments technology tie to building a more sustainable business model?

Paperless, digitized, task-automated systems are more environmentally friendly practices which make for greater sustainability. The data hubs required to power those systems are not as sustainable. A focus on reducing data hubs will be an important part of the sustainability equation for digital payments technology companies.

One trend we anticipate in the near future is a new offering where fintechs will act as a consultant in the buying process for corporates. Companies will rely on data housed by fintechs to assess which suppliers are the most sustainable, and to learn the best route and the best marketplace for them to transact. If your corporation is making a lot of large buying decisions annually, your payments provider should be able to tell you where to buy your products and materials that will allow your company to make the most green buying decisions. Let’s say you are in the market to buy office furniture – maybe you go to a big box office supply company and buy it, but if you have some direction from the data supplied by a company like ����Vlogto know which companies that are selling furniture are doing it in the most environmentally-friendly way, you can easily convert those buying decisions into the most sustainable choices for your business. Ideally the vendor options would all be ranked, and you could easily draw out which furniture company has the highest environmental rating. This fintech service will help buyers choose more wisely.

This is a future trend we are anticipating – what consultative offerings can payments technology companies give to a buyer that are value-added. Smaller and mid-sized companies with fewer resources and less time to focus on environmental improvements to their supply chain would benefit tremendously from this resource. In the near future, there’s good reason to believe these companies will begin to rely on their payments providers for this kind of information. Executives at many companies are concerned about sustainability and want to improve, but may not have the resources to adjust their practices. Fintechs can fill that role. They have the data.

The future of crypto

As Time Magazine’s Alex Gailey and Ryan Haar recently reported, Bitcoin and Ethereum are down more than 50% from their all-time highs in late 2021. While there have been small surges in recent weeks, the crypto market as a whole is largely stalled. While purely speculative, there’s some chatter that the future internet/Metaverse/VR/AR will help digital currency survive this downward spiral, and potentially give it wings to thrive and become a realized currency.

There are good reasons to be skeptical of this analysis. Crypto has been around for five years with zero B2B use cases. Current forms of payment – both the movement of money, and the data that monetary transactions generate – are both cheap and reliable. Blockchain doesn’t provide enough value when stacked up against the incumbent technology. This is undeniable when it comes to B2B payments, and one could argue that crypto doesn’t win in C2B payments either. It’s widely acknowledged that crypto does provide a speculative form of value storage. We have created a new speculative commodity class that people can invest in, but we haven’t been able to find a practical application for it.

In recent months, Ethereum has transformed cryptocurrency’s relationship to energy usage. Ethereum, conceived in 2013 by programmer Vitalik Buterin, is a decentralized, open-source blockchain with smart contract functionality. Ether is the native cryptocurrency of the platform. Among cryptocurrencies, Ether is second only to Bitcoin in market capitalization. Usually, crypto’s energy expenditure is extraordinarily high. Bitcoin, the world’s largest cryptocurrency, currently consumes an estimated 150 terawatt-hours of electricity per year. This accounts for more than the entire country of Argentina, which has a population of 45 million people. Producing that energy emits some 65 megatons of carbon dioxide into the atmosphere annually which is comparable to the emissions Greece produces. Ethereum has come up with a solution designed to cut the cryptocurrency’s energy consumption by more than 99%. Not only does this mean crypto is now more sustainable, it’s also much more cost-effective to run. Does that mean that the value equation starts to change? We believe it’s way too early to know. But it’s something we’re watching and anticipate potential disruption from this sector in 2023.

How Artificial Intelligence and software as a service will continue to develop and evolve

AI was described by Google CEO Sundar Pichai as “more significant than fire or electricity” in terms of the impact it will have on human civilization. Future trends in AI run the gamut from large language models to generative artificial intelligence to multimodal learning. In digital payments, we anticipate future trends in AI will develop in myriad ways. For ����Vlogin particular, AI could have a range of possible usages. ����Vlogis exploring ways to use AI to augment the best segmentation of its customer supplier bases. We hope to help companies use AI to determine the best way to pay their suppliers whether it be through check, ACH, or via virtual card. AI is already being used to develop strategies, to enhance customer service, to expand on market research, to drive autonomous cars, to automate medicine, and more. It seems inevitable that AI adoption will continue to expand in 2023 as businesses develop new tools, processes, and technologies to drive innovation.

The future of digital payments technology is built on the foundation of a strong bench

Recessions are notorious for being a pressure-cooker exercise in change management, creating the need to be flexible and ready to adjust paired with a need to provide your staff with the tools to be nimble right alongside you. We all know we are only as good as the people with whom we surround ourselves and if you do nothing else in 2023, focusing on a strong culture of employee engagement and leading with your values will be the needed guiding light through the recession we most likely will be facing. Supporting employees takes many forms. Ensuring that your operating processes are efficient, and that employees are working with thoughtfully developed technology, is one way of creating a positive and motivating work environment.

A lot to be hopeful for looking forward to 2023

There is a lot to be hopeful for in the coming year. Despite friction from supply chains, inflation, and labor shortages, small business owners are forecasting a strong 2023, according to a report that came out this month from Bank of America. Surveying more than 1,300 small business owners nationally, the bank found that revenue expectations are at a seven-year high, and expansion plans increased significantly since earlier this year. Over the next 12 months:

• 66% of business owners expect revenue to increase—a seven-year high
• 52% plan to expand their business—up from 37% this spring
• 83% plan to obtain funding for their business—up from 70% this spring

Small and midsize businesses (SMBs) could be a focal point as you develop your 2023 strategic plans if the data is true and SMBs will ride out this storm better than others.

While there is a lot of concern surrounding future economic forecasts, small businesses are feeling good about their prospects, and there are some exciting technological developments surfacing that will impact businesses of all sizes and reduce friction and complexities in our operations. Add to that a great pool of talent at the ready and we should feel capable of weathering whatever is coming. Our best path forward is to support our customers, drive innovation by capitalizing on emerging technologies, augment sustainable practices, and build an employee community that balances talent optimization with encouraging an open mindset to the possibilities ahead of us.

To learn more about WEX, a dynamic and nimble global organization, please visit our About ����Vlogpage.

Resources:
Banking Dive
Harvard Business Review
McKinsey
Yahoo News
Forbes
Center for American Progress
Payments Dive
Smart Caffe
Ethereum
Columbia University School of Climate, Earth, and Society
University of Cambridge, Jude Business School
Science Direct
CNBC

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COBRA subsidies

First, the law allows workers who have been involuntarily terminated or experienced a reduction in hours to continue their employer health insurance coverage under COBRA with a 100 percent subsidy. The subsidy is effective April 1, 2021 and continues through September 30, 2021. The federal government will reimburse the employer or insurer (for fully insured plans) for the cost of the subsidy, including COBRA administrative fees. Passage of a subsidy has been a ����Vlogpublic policy priority since the outbreak of the pandemic last year. It will provide much needed financial support to impacted Americans and their families at a time when having adequate health insurance is more important than ever.

The bill also provides enhanced subsidies for similarly impacted workers, giving them a choice between COBRA and individual coverage purchased on an ACA exchange. While premiums will be subsidized no matter which choice an individual makes, the average ACA plan deductible is than the average deductible in an employer plan. Moreover, have a restrictive provider network. So, given the choice, we would expect that more people would choose to enroll in COBRA.

Dependent care FSA limit

Another way the bill benefits workers is through a temporary increase, for 2021, in the maximum amount that can be contributed to a dependent care flexible spending account from $5,000 to $10,500. The $5,000 limit was established in 1986 and has not increased since. This relief is particularly welcome at a time when American households are struggling with the impact of the pandemic-induced recession, because the tax savings reduce the cost of childcare. We believe that a sensible next step is to make the increase permanent (the 1986 limit would now need to be nearly $12,000 to keep up with inflation), and we will be advocating for that as we move through the year.

We applaud Congress and the President for enacting these important provisions that will benefit millions of Americans at a time of health and economic challenge, and we will be working hard to enable employers, brokers, consultants, and administrators to implement these changes to deliver these benefits.

Sign up for to learn from a pair of our industry experts on what you need to know about COBRA and how it’s been impacted recently.

For more on this topic, check out the podcast episode above or !

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Senate Democrats aim to have a bill to the President’s desk on or before March 14. The Senate could pass the bill as early as this weekend. While there is no guarantee, the inclusion of the subsidy to this point makes its enactment more likely than not.

We continue to work through the platform and operational considerations that the current version of the bill introduces. At the same time, we are communicating with Senate Finance and HELP Committee staffers to suggest technical revisions to the bill to make it workable for our industry and ecosystem.��

We applaud the members of Congress for recognizing displaced workers’ needs for assistance in maintaining their health insurance during the pandemic. We also want to make sure that those individuals and their families can readily receive that assistance.

Stay tuned for further developments as they happen.

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This is encouraging news for Americans who have lost their employer health insurance due to the pandemic-induced recession. If enacted, this provision would make it more affordable for those affected to continue their employer health coverage. This would help them avoid:

• Disruptions in coverage��
• Exposure to higher deductibles��
• Resetting of deductibles mid-year
• Potentially finding their doctors and other providers not in the network of an ACA plan.����

Our role as advocates

����Vloghas been deeply involved in advocating for a COBRA subsidy since last March, meeting with key congressional staff and allied interest groups and acting as a resource on the feasibility of various proposals.

While the President’s proposal is encouraging, there is a long way to go before it is enacted into law. A stimulus bill will be passed, but what will be in it is far from settled.��

We have already begun to double down on our advocacy work, first to build support to include the subsidy in the bill, and then to ensure it survives through the legislative process and remains intact in the final bill. Our early intel is to expect the bill to move to a final vote sometime in early March, although that timeline could move up or back.

Are there any other specifics on this proposal?

There are no further specifics about the proposed subsidy at this time, but we are well-positioned to get an early look at legislative language as it is drafted. We have reviewed every bill that has been proposed since last March, socializing them through our product, technology, and operations teams to determine what modifications would be needed and how administrators can operationalize the proposed subsidy. We will do the same when we see the current proposal take shape, so that we can move forward quickly should a COBRA subsidy pass.����

At the same time, we will be on sharp lookout for any elements in the detailed proposal that are unworkable or present significant challenges for employers and administrators and will be quick to provide feedback to congressional staff in an effort to avoid any unintended consequences.

Potential changes and our platform

The good news is that the ����Vlogplatform has experience with COBRA subsidies, having supported the subsidy included in the . While we don’t have any guarantees about what the new proposal will look like in detail, the proposals drafted last year largely followed the 2009 model, and that is likely where things will start this time around if a subsidy makes it into the first draft of the bill.

We will follow up if and as significant news breaks on this subject.����

The information in this blog post is for educational purposes only. It is not legal or tax advice. For legal or tax advice, you should consult your own counsel.��

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Let’s start with a recap of Biden’s agenda that may affect employer health insurance and consumer-directed health (CDH) plans in particular:

• Larger exchange subsidies available to more people.
• Unrestricted opt-out from an employer health plan.
• A public option, administered by Medicare, intended to be relatively low cost.

Will there be change as a result of this agenda?

Whether and to what extent this agenda can be enacted is unclear. Last week’s run-off election in Georgia did flip the Senate to Democratic control, but just barely. The majority party’s lead in the House was also sharply reduced. The narrow majorities in both chambers will most likely moderate any changes if they occur. The smart bet would be to expect a public option to be passed by the House, with some chance of passage in the Senate.

Would there be a rush to the exits by employees toward a (presumably cheaper) public plan?����

Fiscal realities and competing priorities for increasingly scarce funds will have a lot to say about that cost advantage. And given that the plan’s reimbursement rates will likely be much lower than commercial plans, many providers may opt not to participate, materially diminishing the quality of the offering.

The public plan would not mean the end of the out-of-pocket cost challenge with which Americans continue to struggle; Medicare enrollees face substantial costs today. Consequently, there will be a need to preserve access to CDH accounts to help people deal with those costs. ����Vlogand the industry have been communicating that message on Capitol Hill for two years now to build awareness in an effort to ensure that these accounts are part of the framework going forward.

Additional takeaways

In other matters:��

• CDH accounts now enjoy support on both sides of the aisle, but meaningful health savings account (HSA) expansion is likely off the table in the new session. Legislation to by two Republican senators in late 2019.��
• A follow-on stimulus/COVID relief bill will be an early priority in the new Congress, providing an opportunity to re-open the conversation on COBRA subsidies.��
• On the regulatory front, we can expect some rollback of Trump administration actions, such as short-term, limited duration plans. The Trump regulatory agenda was to provide employers and insurers more flexibility to implement market-based solutions. Going forward, we can expect a pivot to less flexibility and greater adherence to the ACA.

In summary, the narrow margins in Congress will be a moderating influence in the new term.�� Employers can be expected to remain the primary provider of health insurance to working Americans, and CDH accounts will remain highly relevant no matter who provides the insurance.��

While we don’t anticipate meaningful expansion opportunities in either the legislative or regulatory arenas, our solutions enjoy bipartisan support. And there’s still an opportunity for COBRA as a critical lifeline for people who have lost their employer coverage. Stay tuned.

Want to learn more about what to expect in healthcare in 2021? Robert Deshaies, president of WEX’s health division, provides his five benefits and healthcare trends for 2021 that may surprise you.

The information in this blog post is for educational purposes only. It is not legal or tax advice. For legal or tax advice, you should consult your own counsel.

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HRAs are employer-funded plans that reimburse employees for medical expenses not covered by company-sponsored insurance, but the Obama administration had forbidden the use of them to pay for premiums on the individual market.

Building on President Trump’s executive order from October 2017, which called for expanded availability and permitted use of HRAs, the newly proposed rule would seek to “expand opportunities for working men and women and their families to access affordable, quality healthcare” through changes to regulations under various provisions of the Public Health Service Act, the Employee Retirement Income Security Act and the Internal Revenue Code.

The proposed regulations will be open for comment for 60 days from the date of publication. The proposed effective date is for plans beginning on or after Jan. 1, 2020.

At a high level, the proposed regulations build on the Qualified Small Employer HRAs (QSEHRAs) that were created by the 20th Century Cures Act in 2016. QSEHRAs allow small employers (1-49 employees) to offer HRAs to reimburse individual insurance premiums and/or out-of-pocket healthcare expenses. The proposed regulations expand the use of HRAs for premiums to all employers, regardless of size.

Whether this will lead mid-sized and large employers to get out of the business of offering group health insurance remains to be seen and will depend in large part on such factors as relative costs in the individual and group markets (current big advantage to group health) and tax advantages associated with the employee-paid portion of group health premiums.

Another possible trend would be for employers to offer the HRA as an option on a menu alongside group health, so that the employee has a wider choice of insurance plans and, for lower-income workers, access to subsidies on the public exchanges.

The excepted-benefit HRA represents a new product that provides employers with another way to provide benefits beyond traditional health insurance. Keep in mind that, to offer this HRA, the employer must also offer group health insurance.

One thing is certain: The proposed regulations open up new product opportunities for administrators to provide to employers, and they would benefit those employers by enabling them to offer a wider choice of benefit options to their employees. This is consistent with other recent moves by the current administration, such as the expansion of short-term health insurance plans.

����VlogHealth will be studying the regulations carefully, commenting on them to regulators, working with our colleagues in the industry and making any platform changes required to accommodate these new and expanded products.

Follow us on Twitter to keep up with the latest changes impacting consumer-directed healthcare in the United States.

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On Wednesday, the House Ways and Means health subcommittee held a Capitol Hill hearing on the role of CDHPs in expanding access to healthcare, lowering healthcare costs and increasing the number of choices available to consumers. The hearing addressed everything from trends in HSA enrollment to policies that would give more consumers access to tax-advantaged savings accounts.

It began with a testimony by Health Subcommittee Chairman Peter Roskam, who said, “Healthcare reform should empower individuals and families to make decisions for themselves based on what fits their needs and budget. One of the best tools we have to accomplish this goal is consumer-directed health plans that are paired with HSAs. These plans offer lower premiums and a higher deductible to encourage better use of healthcare services. Engaging consumers in their healthcare spending is critical to reining in our system’s ever-increasing costs.”

Other experts who spoke at the hearing include Roy Ramthun, president of HSA Consulting Services; Matt Eyles, president and CEO of America’s Health Insurance Plans (AHIP); Jody Dietel, chief compliance officer for WageWorks; and Sherry Glied, dean of New York University’s Robert F. Wagner Graduate School of Public Service.

The following day, the Joint Economic Committee also met to discuss the potential for HSAs to engage patients and bend the healthcare cost curve. Including members of both the House and the Senate, the committee reviews economic conditions and recommends improvements in economic policy. Among those who spoke at its most recent hearing, Kevin McKechnie of the HSA Council, Tracy Watts of Mercer and the American Benefits Counsel and Dr. Scott Atlas of the Hoover Institution explored statistics on the adoption and usage of HSAs, their effect on healthcare expenditures and both the short and long-term effects of greater adoption of CDHPs and HDHPs/HSAs respectively.

Dr. Atlas concluded his testimony with this call to action: “Expanded, liberalized and transferable HSAs represent a key instrument in an overall strategy of broadening access to affordable, high quality healthcare for everyone. If appropriately designed, HSAs represent a strong incentive to consider price and value for those seeking medical care. HSAs offer more effective incentives than tax deductions for health expenses. HSAs have been proven to reduce the cost of medical care for individuals, and also to improve health by increasing the use of validated wellness programs. While expanded HSAs alone are not necessarily a panacea, they are a critically important and effective step.”

At the crux of both hearings last week was the assertion that as CDHPs become of increasing importance to Americans, more legislation is needed to make them even more beneficial to consumers; this would require numerous amendments to the tax code. ��According to McKechnie “These ideas are vetted, bipartisan, and affordable. Some would actually save taxpayer money. Individually and together, they can dramatically strengthen the proven, successful HSA model.”

The House Ways and Means health subcommittee hearing, which streamed live on the web, can be viewed in full below.

The Joint Economic Committee’s hearing on HSAs can also be viewed in full below:

Health savings accounts in many ways offer something for everyone. To learn more about their advantages, read our blog post .

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