When the Going Get Tough, the Tough Spend Money

If your LinkedIn feed is anything like mine, you’ve seen an uptick in people looking for jobs and companies announcing cuts.

These are likely reactions to uncertainties in the economy and the political landscape. The problem is that they are the wrong reaction.

My thinking on this is informed by my time at the Graduate School of Banking at the University of Wisconsin, Madison. I was invited to attend when I was a reporter for American Banker. (The industry wanted to make sure that the reporting covering it had some knowledge of how things worked.)

One of the professors castigated the students for having the instinct to cut every time there was a problem or downturn. As he put it, companies might save some money by making cuts, but they don’t earn returns. Companies earn returns by investing.

We can see the results of not investing in the payments industry when we read the consent orders that have been filed against issuing banks. They failed to invest in adequate and qualified staff to manage partners and programs. They failed to invest in adequate systems to manage risks, identify customers, or even maintain ledgers. They failed to invest in proper oversight of their partners.

Banks that want to be in the innovation business are going to need to think of themselves as investors in the fintech sector. The difference is that the investments they make will not be monetary investments in third party companies. Instead, the dollars will need to be spent on themselves for technology, for additional people, and for training the people they have.

Two challenges will face the institutions that do this.

First, they will need to develop a strategy that justifies a longer time horizon for return on investment. In a world dominated by quarterly earnings calls, this can be tough. But having a larger goal can help directors and investors follow the money.
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Second, they will need to get comfortable not following crowd and cutting when times are tight. It can be difficult to take a different path than colleagues and competitors. But innovation comes from finding opportunity where others see problems.