Extreme weather events are bound to become more frequent and devastating as climate changeThis is the action by which certain banknotes and/or coins are exchanged for the same amount in banknotes/coins of a different face value, or unit value. See Exchange. More accelerates. In mid-February, snowstorm Uri brought near catastrophe to Texas, one of the world’s wealthiest energy-producing states. Millions of Texans lost electric power and lacked running water for days or weeks.
Texas was highly vulnerable to a snowstorm with Arctic temperatures and an ensuing surge in power demand due to low investment in infrastructure preparedness and the fact that the state power grid is not connected to other interstate networks. As the state could not import electricity when Texans most needed it, utilities began controlled power outages to prevent long-term damages that would hinder the electrical grid for months.
The outages shut down the state. By February 16, at least 4.4 million customers (35.1% of the state total) had lost power. Water systems collapsed as well. The electrical grid came close to utter failure. Bill Magness, president and chief executive of the Electric Reliability Council of Texas (ERCOT), said the state’s electric grid was “seconds and minutes” from a complete meltdown. “If we had allowed a catastrophic blackout to happen, we wouldn’t be talking today about hopefully getting most customers their power back. We’d be talking about how many months it might be before you get your power back.”
As electronic paymentA transfer of funds which discharges an obligation on the part of a payer vis-à-vis a payee. More networks were down, grocery stores closed their doors or were open for cash-only sales. After the power stopped and its payment terminals were offline, H-E-B supermarket stores let customers take their goods for free if they couldn’t pay with cashMoney in physical form such as banknotes and coins. More.
Cash enabled random acts of kindness and solidarity during the storm. After a Foodarama store lost power in Houston, a man “handed out at least $500” in bills to pay for the drinking water and groceries of customers without cash. In San Antonio, Stripes employee Bonnie Valdez found that customers had taken the drinking water outside her store after the snowstorm. When Valdez opened the store, she realized that customers had slipped USD620 in cash under the doors. “[T]hey left me 620 in cash different ppl I was like wow 🙏❤😁. My store made 620 dollars when it was closed,” Valdez posted on Facebook shortly after.
The U.S. Office of the Comptroller of the Currency and the Texas Department of Banking authorized banking and financial institutions to close their offices due to the severe weather conditions. Before and after the snowstorm, Texan banks activated their contingency plansWork performed for the purpose of establishing protocols and procedures to be followed for the occurrence of an incident (theft, fire, natural catastrophe, etc.) or a situation (strike, unexpected demand, etc.), where normal work systems are unable to resolve problems. More for hurricanes, which included stocking ATMs so that customers could withdraw enough cash for transactions. Some institutions, such as the First National Bank of Kemp and the New Bedford Credit Union, lost electricity and internet connectivity, making them unable to process transactions altogether.
Mutual aid groups in Texas raised hundreds of thousands of dollars in donations to feed and house people with mobile payment platforms such as Venmo and CashApp, only to discover that the platforms restricted their accounts and delayed their transfers. Venmo and CashApp only allow verified accounts to transfer up to USD4,999.99 and USD7,500 per week, respectively.
The mobile platform policies led to generalized complaints in social media with the hashtag #StopTheHolds. Cash aid has a multiplying effect in supporting recovery efforts after natural and human-made disasters, as in the aftermaths of hurricanes Maria in Puerto Rico and Harvey in Texas (both in 2017), a massive power outage in Venezuela (2019), the eruption of Taal volcano in the Philippines, and the Nashville (Tennessee) tornadoes (both in 2020).
When the grid failed, wholesale electricity prices spiked more than 10,000%, going from less than USD50 per megawatt/hour right before snowstorm Uri hit the state to more than USD9,000. The increase translated directly into giant utility bills for consumers with variable-rate plans. Griddy Energy, a wholesale electricity provider, has saddled its 30,000 customers with thousand-dollar bills.
As Griddy connects directly to customers’ credit or debit cards for automatic withdrawals, its charges have been made without delay, severely affecting customers’ financial wellbeing. Some consumers have placed stop payments and canceled their debit cards to avoid seeing their bank accounts emptied; others have closed their credit cards to prevent their balances from spiralling due to high-interest rates.
A USD1 billion class-action lawsuit has been filed against Griddy Energy. Derek Potts, the attorney representing the lead plaintiff, said, “What happened financially to all of the customers of Griddy both in terms of the exorbitant prices charged and the manner in that they were collected from people’s bank accounts and credit cards literally in the middle of a catastrophe while many were without power, heat, and water, is clearly contrary to Texas laws in place to protect consumers.”
The economic disruptions brought by the Covid-19 pandemic have increased the relevance of resource redundancy and systemic resilience in economic processes ranging from global supply chains to payment networks (Bátiz-Lazo, Bautista-González 2020). The Texas storm is only the latest entry in a long list of events exhibiting the digital payments’ infrastructure vulnerability. As explained in episode 5 of the “Cash and Crises” video series, a functioning cash cycleRepresents the various stages of the lifecycle of cash, from issuance by the central bank, circulation in the economy, to destruction by the central bank. More helps to maintain the ability of those affected by disasters to pay for essentials when the electronic payments’ infrastructure has been disrupted or destroyed.
Natural disasters (such as the flooding of Lower Manhattan after Hurricane Sandy in 2012) and technological breakdowns (such as the Great U.S. Northeast and Ontario Blackout of 2003, the Visa outage in Europe of 2018, and the hacking of Japan’s 7-Eleven smartphone payments service in 2019) demonstrate the need to have a payment solution that does not require “technological or electrical infrastructure to be functional” in the light of digital failures. Just last week, credit card payments in several U.S. retailers, including Ikea, Forever 21, McDonald’s, Chick-fil-A, and Popeyes, failed due to internet outages affecting payments processor First Data/Fiserv.