Why do the government shutdowns matter?
When the government was shut down in 2013, the US$3 billion bill for Watchman Payment Systems (WPS) soared by nearly 100%.
Since then, the price has plummeted by more than a third, dropping to $1.6 billion.
The price tag is not the only thing that has fallen.
WPS, which provides a payment service to more than 6,000 businesses in the US, also lost more than $1 billion in 2017 alone, and has been downgraded several times over the last decade.
“It’s really important to understand the effect of the shutdowns on the US economy and what it’s doing to businesses,” says Rob Bowers, executive director of the Federal Reserve Bank of St Louis.
The shutdowns “hurt us badly,” says Bowers.
“And it’s been devastating to businesses because they are in a position where they can’t hire and attract the talent that they need.
It has impacted on their ability to invest.”
WPS is part of a network of more than 100 payment systems, including the Visa, Mastercard and American Express, that provide services to US consumers.
Some are still operating despite the shutdown, such as CheckCashing.com, which offers a $2 payment option for online purchases.
Others, such like PayPass.com and the Federal Express, are shut down or shut down for business reasons.
It’s not clear what the effect on the rest of the network will be.
For now, there are few clues about what is behind the drop in WPS prices.
But there are clues that WPS has seen a significant decline.
In March 2017, the Department of Homeland Security’s Office of the Inspector General published a report examining the performance of the US payment system.
The report said that since the shutdown of WPS in 2013 (the largest of its kind in US history), its average revenue per payment has dropped by more as well as the cost of transactions.
This decline has been compounded by other, smaller payments providers, such the online-only PayPal and Chase, both of which have seen their revenue fall since then.
In a statement to Quartz, the government’s inspector general, William Lee, said the “significant declines” in Wps revenue “indicate a continuing deterioration of the overall financial health of Wps”.
“The recent reduction in payments by US businesses was not a result of a direct, or temporary, reduction in the level of service provided by WPS but rather reflects a deterioration in the overall performance of WPs financial assets and liabilities,” he said.
The inspector general’s report found that WPs current financial situation was “poor”, with “significant gaps in assets and revenues”, which is why the agency found that there is “a significant risk that significant financial and operational challenges will continue to occur.”
In 2017, there were a total of 14,094,000 payments, and WPS accounted for $1,077.5 billion of them.
This represents a drop of more $7.3 billion in one year than in the entire 2013-2017 period.
The government’s auditor also found that the agency’s “gross margin was negative” in 2017, meaning it lost money.
The auditor also noted that Wps revenues were “significantly higher than they had been in previous years”, suggesting that the company is doing better.
But it was not all bad news.
In the year before the shutdown in 2013 and 2014, WPS’s average revenue rose by $9.2 billion, according to the IG’s report.
WPA revenues also rose by an average of $6.7 billion, while the IG found that “WPS has substantially reduced its capital expenditure by a net $4.3 million, mainly due to a reduction in operating expenses”.
But the biggest decline came in the third quarter of 2017, when WPS lost $6 billion in revenue.
“WPA revenues and payments for US businesses declined by an aggregate of $5.7 million in 2017 and by an additional $3.2 million in 2018,” the report found.
In 2019, WPA was able to recover some of its losses from 2017, as it increased the number of transactions it processed by nearly 40%.
But that year also saw a drop in the number and quality of WPA payments received, according the IG.
“Although the average amount of payments processed by WPA increased by $5 million during 2018, payment quality decreased by $3 million,” the IG report said.
In 2020, the agency also lost money, and in 2021, WAPs revenues fell by $1 million.
“The negative impact of the 2014 shutdown on WPA’s financial condition was mitigated by the positive impact of a $1 increase in WPA transactions in 2018 that resulted in a reduction of $2.3 in payments received by WAP in 2020,” the inspector general said.
Bowers says the government is still trying to understand what’s behind the decline in WAP revenues and the other payments providers’ declines.
“One thing we know is