How the Payments Industry is handling the COVID-19 Crisis

While there have been key events throughout modern history over the years that have drastically changed consumer behavior – from the Industrial Age to the Great Depression, World Wars, and the Internet Age – we are facing unprecedented times. The current Global Coronavirus pandemic has dramatically changed how we work, play, and spend our money. This has had a direct impact on the global economy, and shaping the future for ecommerce across all industries, for merchants and payment service providers alike. As of yet, it’s difficult to predict exactly how the marketplace will look going forward, and this is a valid reason for concern. One thing for sure is that we’ve already started seeing a shift in which companies are thriving and which are struggling to stay afloat. Some more unconventional than others. 

While some merchants and PSPs are operating with business as usual, travel merchants, restaurants, retail along with PSPs that have a heavy travel and POS portfolio have had no choice but to reinvent themselves in order to remain afloat. Their familiar ways of doing business are not sustainable under current conditions, so they have had to adapt in real-time or risk being left behind. 

Who’s Thriving?

Industries such as education providers, online entertainment (think streaming video and online gaming), and those offering online delivery are not only surviving these tough times, but many are actually thriving. 

Contactless delivery options for delivery services such as foodora, Uber eats and deliveroo have seen huge surges.  As more countries issue mandatory quarantine, consumers are spending more time indoors and ordering in. Grocery stores have had to quickly adopt a more omnichannel approach, providing shoppers with the option to purchase online.  

Web conferencing providers such as Zoom are quickly making their mark on employers and educational institutions as they provide the technology needed to connect people remotely and allow work and school to continue, even with the pending security concerns. So much so, that Zoom has added more users this year than the entire 2020.  While many companies are currently offering free options, they are positioning themselves to become a permanent fixture as businesses and schools around the world realize their value. Once the current payments crisis is resolved, many of the changes made to get through this period will become new norms going forward, and the marketplace for web conferencing services has a huge potential to remain strong. Companies that never considered remote work as a viable option in the past have been placed in a situation where they had to rely upon it, and employees may apply pressure for continued flexibility going forward. Many of the transactions upgrading from free to paid versions of these resources will occur online, to the continued benefit of merchants and PSPs in this industry. 

As consumers explore entertainment options, they are increasingly turning to favorites such as online gaming, completing or offering courses on global platforms such as Udemy, and enjoying video streaming services such as Netflix  and YouTube (who both recently had to adjust streaming in Europe to accommodate unprecedented web traffic). Gaming and other entertainment merchants have seen higher than average volumes as a result of more consumers at home, and hence with more perceived free time.  

Surprisingly for some, local small businesses are among those who are thriving, with many offering curbside pickup or delivery paid for through touchless transactions in the Americas, Europe and Asia. Economic concerns as well as a shift in focus to local communities as people are spending unprecedented time at home are contributing to this success. 

Payment Service Providers who’s portfolio of clients boasts those with increased volume (including gaming, and other online entertainment merchants).  This may be enough to even offset the damage of those merchants who are severely underperforming as a result of industry or lack of adaptation to our current situation. 

Who’s Struggling?

Industries that provide customer experiences, such as events and travel, are at a standstill, leaving business owners with valid concerns about the future. 

The travel industry in particular has suffered a huge blow. While some consumers are opting to reschedule their leisure travel plans, many are unable to do so. People who normally commute to work are now working from home or not at all. Refunds are at a record high, with some governments even taking the extreme of mandating them. Those businesses who decide to follow their existing refund policies are still not fully minimizing their risk, as they protect their losses at the expense of their relationships with customers. Some players in the travel industry such as small travel agencies, vendors and businesses at travel hubs, or travel insurance providers may never fully recover. 

Payment Service Providers are able to charge a fee for returned transactions, however the increased administrative volume and impact on merchant relationships may actually translate to significant losses that offset these fees. 

The luxury goods industry was already recently starting to see signs of decline, but the current crisis will test the future of this industry in upcoming months. As consumers shift their focus and priorities in the midst of uncertainty, prestigious brands must shift their marketing approaches. There was already a move towards a stronger digital presence for high-end brands, and this trend must continue in order for these brands to survive. Only time will tell.

PSPs who are travel heavy, or who did not encourage merchants to take advantage of the rise in ecommerce are feeling the blow as we speak.  Not only for lack of revenue, but also due to the abnormally high increase refunds and chargebacks as travelers frantically cancel their travel plans.  

How Payment Service Providers (PSPs) are Coping

The heightened focus on cashless transactions poses an opportunity for payment service providers to capitalize on innovations they have already made while reinventing themselves to accommodate the “new normal” that our current global situation has created. 

Some struggling industries have limited options to work around the payment crisis while others businesses are finding creative ways to stay afloat. PSPs have been there to help them along the way with some offering to allow for overdraft as well as waiving fees, understanding that in the long term, preserving the relationship of otherwise profitable partnerships is more important.  

Merchants already leveraging the services of Payment Service Providers have enjoyed increased volume, and even local and state governments are benefiting from the ability for PSPs to efficiently distribute funding and payments, such as the upcoming economic stimulus payments being offered in the United States.

This can be a double-edged sword, however. Some PSPs who already had robust technology equipped to effectively handle surges in volume and demand have been able to thrive, while the others may actually be overwhelmed and unable to manage this situation. With shelter-in-to place orders and quarantines in effect around the world, consumers are relying on digital payment options such as mobile payments, credit cards, and e-wallets for transactions they typically conducted in person, such as grocery shopping. As services offering remote delivery are thriving, they are calling upon the PSP industry to support them, requiring lower fees due to increased volume, more attention from account and support teams, as well as increased settlements. 

Also, with any online transaction there is always the threat of hacking and fraud, even in areas such as the Asia-Pacific region where e-wallets are rapidly becoming a preferred payment method. Cooperative industry measures such as the creation of  the global PCI Security Standards Council are focusing on best practices and resources to mitigate this ongoing issue. Top PSPs such as Visa, WePay, and AliPay are among the participating organizations. 

Even still, some PSPs who are heavily focused on sectors deeply impacted by the crisis remain in a vulnerable position as cash-flow presents a huge risk for refunds and chargebacks. This could also provide an opportunity for innovators in the market to provide solutions for more secure transactions. 

What’s Next? 

Uncertainty is a reality when it comes to how things will play out moving forward, 

 During the current crisis, compounded by the global Coronavirus pandemic, consumers are drastically  shifting their buying habits and preferences, and only time will tell if these changes will be permanent, however one thing is clear.  Merchants must leverage the know-how and experience of the PSPs in terms of providing the best payment solutions for a time like this – queue omnichannel solutions, lower ecommerce pricing (for merchants seeing higher volumes) and stronger protection against fraudulent transactions.  

The need to forego luxury items, shift many common everyday transactions from brick-and-mortar to online, and engage in more frugal spending (out of job-related concerns) will shape the Payments Industry going forward. Merchants should be able to rely on their payment partners to guide them in the most efficient direction moving forward. 

The pressure for even small, local merchants to offer digital payment options along with the creation of many new business models to keep existing companies afloat throughout the crisis will continue to be game-changers. It remains to be seen how cross-border payments will be impacted moving forward, as consumers in many areas have shifted focus to “buying local” and merchants have been forced to find alternate suppliers as borders have closed. 

Some consumers may rush to return to their previous shopping and spending habits,while others may implement permanent changes. In any event, the landscape for the online Payments Industry has completely changed, and PSPs must be prepared for the next stage of their growth.  

Now that they have been thrust to the forefront in sustaining economies around the world, supporting entire businesses (and even industries), the momentum must be maintained.  This means continued investments in technology, services, scalability, and security. 

Out of difficult and challenging times comes great opportunity for Payments Services Providers should they properly execute their next plans of action, and should provide their merchants with the right guidance necessary to weather this storm and come out successful.

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