How The Payments Sector is Responding To COVID-19

Jun 24, 2020

The COVID-19 pandemic has left an indelible mark on the health and financial well being of millions around the world. In the payments industry, merchant acquirers have certainly not been spared. 

The current crisis has brought an unprecedented amount of chargebacks. With the disastrous restrictions and regulations against all air travel and hotel accommodations, the end result will be endless chargebacks due to cancellations. This will inevitably leave many merchant acquirers holding the bag, so to speak, creating much risk. 

Although these acquirers do have advanced risk management systems to protect them and mitigate them from risk, these tools may not be enough to ride the torrential storm of financial risk due to the pandemic. 

Lockdowns Equal Less Fees

As governments world-wide enforced lockdowns, countless businesses from every sector had to close their doors and suffer a tremendous loss of traffic and sales. Some businesses may never recover from the lockdown. 

What does that mean for merchant acquirers? The dramatic collapse in sales from merchants meant an automatic drop in fees for the acquirers since payment processing services faced a steep decline. 

Also, the inevitable result of so many businesses not surviving post-COVID-19 would mean more bankruptcies which will mean more chargebacks for acquirers. 

Travel Sector Hard-Hit

As thousands of flights and hotel accommodations had to be suddenly cancelled, it is unlikely that acquirers have enough protection in place to withstand the extreme number of chargebacks that will come as the result of these cancellations. Major airlines are already suffering from the impact of COVID-19, with some completely collapsing in the U.S. and in the U.K. Merchants in both the food and drink and hospitality sectors have also been hit hard. However, for acquirers processing payments for merchants in the grocery and e-commerce sectors, the impact is not as serious. 

Hard Times Ahead

Understandably, acquirers need to brace themselves for some very difficult times and will need to take extreme measures to lessen their risk. What this means for merchants is that they will experience “longer withholding periods”. Another requirement for merchants will be more collateral “upfront”. Most likely, acquirers will call for letters of credit and/or “charges over assets” and bank guarantees.

Unfortunately for merchants, especially in these trying times, they may not be able to provide security or have enough cash flow to help them ride through the “withholding periods”. The difficult decision that acquirers must make is that they may lose prospective business due to the widespread hardship felt by most merchants. Or they could simply focus on those merchants and industries not especially hard-hit. Either way, acquirers have to find a way to lessen their risk. 

Is There An Upside?

The effects of the COVID-19 pandemic are unparalleled and continue to affect every facet of life and business. Although it does seem like the situation could turn dire, the effects of this health crisis on the payments industry will be somewhat limited in the “direct effects.” What this means is that the industry will experience a “lower growth” but not a negative growth. Financial updates released by both Visa and Mastercard is that there is a “reduced expected growth”, but still “a projected growth”.

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Having a merchant account allows an account holder to take advantage of merchant cash advances. When a merchant is approved for an advance, the business agrees to receive a lump sum of cash in exchange for an agreed-upon percentage of future credit card sales.

Pricing varies depending on the merchant’s industry, past credit card processing history, the type of business seeking the account, average ticket sales, and average transaction volumes.

Yes, EMB works with merchants who are building their credit, as well as those who have poor credit. EMB also approves merchants that have no credit card processing history and businesses that have lost their merchant accounts due to high chargebacks.

Several factors influence a merchant’s risk level. Though only one factor likely will not get a merchant classified as high risk, a combination of these may: business size, location, and industry, credit score, credit card processing history, a industry’s reputation for excessive chargebacks, a prior history of high chargeback ratios, and whether a merchant exclusively sells online.

Virtual terminals are stationed on a merchant’s website, making it easy for customers to make a payment or purchase online. Merchants or a payment processor can easily set up virtual terminals, so online businesses can accept credit and debit card and e-check transactions.

A merchant account is a business account with an acquiring bank. Without this business account, which actually works more like a line of credit, a merchant cannot accept and process credit and debit card transactions. Businesses need a merchant account to accept major credit cards via a static point-of-sale terminal, mobile card reader, or through a virtual payment gateway.

After filling out EMB’s simple online application and submitting any necessary, requested documents, many merchants get approved within 24 and 48 hours.

EMB specializes in working with high-risk merchants. EMB works with many merchants, including but not limited to businesses in these industries: gambling and gaming, adult entertainment, nutraceuticals, vaping and e-cigarettes, electronics, tech support, travel, high-end furniture, weight loss programs, calling cards, e-books and software, and telecommunications.

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