COVID-19 has impacted companies across almost every sector, accelerated the pace of changing consumer behaviors, and brought economies worldwide to a grinding halt. As stay-at-home mandates are slowly lifted and the economy tentatively enters the road to recovery, it is important that financial institutions and other organizations in the payments industry take advantage of crucial growth areas in today’s market.
To better understand the unprecedented COVID-19 pandemic and why it remains important to actively engage with growth areas in the payments industry, PaymentsJournal sat down with Robert Misasi, President and CEO of Mercator Advisory Group.
How COVID-19 is impacting the payments industry
Since founding Mercator Advisory Group in 2003, Misasi has observed many changes and areas of growth in the payments industry. In addition to having monumental impacts on the economy, COVID-19 has impacted the payments industry by accelerating consumers’ shift to digital payments. This has created the perfect storm of uncertainty and change in today’s world.
Certain sectors, such as the travel, leisure, and restaurant industries, have been hit particularly hard since the novel coronavirus was first detected in the United States in February. On a positive note, employment rates in the U.S. have begun to recover as the economy slowly reopens. Even so, “there is a long way to go, and it is hard to predict exactly where the endpoint is” for COVID-19, said Misasi.
Further, consumer spend has stayed relatively solid on a transactional basis, and the post COVID-19 world won’t be dramatically different in terms of overall spend. What will change, however, is where this spending goes. Travel, restaurants, and leisure will likely maintain a reduction in spending for some time, while medical and certain online services will see an upwards trend.
The worldwide payments model generates accurate industry predictions
Mercator Advisory Group’s worldwide payments model, developed by industry experts, is a credible source for predictions, trends, and growth areas in the payments industry. The model has been utilized by Mercator’s financial analysts in their respective areas of practice, which range from credit and debit to commercial payments and merchant services.
Recognizing that some of the numbers predicted using historical trends will be impacted by COVID-19, Mercator is continuously turning back to the model to adjust forecasts on a country by country basis. By maintaining constant vigilance and tweaking predictions as trends evolve, the company is able to generate a more accurate assessment of where the industry is headed.
Growth areas in the payments industry
Organizations working in the payments space can take advantage of opportunities in several growth areas, including credit, B2B, Internet of Things (IoT), and partnerships.
This remains true even with COVID-19, as technology is evolving very quickly and opportunities within the industry are constantly changing. Now is a good time for institutions to dedicate time to focus on optimizing payments and product offerings. Maintaining key accounts will be a must for companies to come out of COVID-19 profitable.
Many institutions are issuing credit during this time because they want to ensure that they are lending at the tail end of what is considered an economic expansion period. In Misasi’s words, “they don’t want to miss the ninth inning.”
While COVID-19 has impacted consumer behavior in a number of ways, it has not stopped people from using credit. This makes it all the more important for organizations to make smart decisions when it comes to lending, especially as the industry stays on the lookout for an anticipated wave of expanding delinquencies and defaults. Such a wave will likely occur in Q4 and Q1, but is largely contingent upon levels of reopening estimates.
Organizations should reevaluate their business and portfolio to ensure the best industry practices are in place, including metrics and guidelines surrounding delinquencies, defaults, and lending decisions. This is easier said than done, which is why Mercator has been active in helping firms by providing comprehensive operational reviews. These reviews identify strong areas of opportunity for operational teams to see substantial bottom line improvement.
For example, one of Mercator’s mid-sized clients approached the company for an independent review of its credit card functions. Mercator’s analysts analyzed the client’s data to provide insights and established a method to reconfigure credit card offerings into a simpler portfolio of products. Further, it designed risk management discipline to ensure the client’s future compliance with key risk strategies.
B2B payments and key account monitoring
Mercator has been seeing an increased focus on key accounts. The focus is on maximizing value and customer satisfaction, understanding key account needs, and filling in gaps to prevent losing customers to competitors. This makes sense. By locking down already existing customers, small and large organizations alike can maximize their future profitability as they move forward. According to Misasi, “customers already being served and who know a business best are the best opportunity to double or triple their business with a company.”
One way Mercator is involved in facilitating customer retention is through its ongoing customer survey work. Mercator is “able to ask key accounts questions that might be uncomfortable to answer if they were coming from the financial institution or bank itself,” noted Misasi. By using a third party to gauge customer satisfaction and gather authentic feedback, financial institutions can inform and improve the entire account management process. Client feedback can also be used to make adjustments in product delivery, referral programs, and contract negotiation.
Ultimately, establishing key accounts as a critical part of an organization’s outreach program warrants some extra attention in the current COVID-19 environment and beyond.
As payments increasingly shift towards contactless and digital options, there are opportunities for the Internet of Things (IoT) to play an important role in the future of the payments industry. What’s unique about Mercator is that it sketched out the first comprehensive framework of IoT payments, which are defined as a machine-triggered payment based on real-time data analytics.
Essentially, triggered IoT payments are eliminating the element of an individual making a conscious decision to purchase something. For example, there are fridges that automatically order food and printers that automatically order ink when the device detects that inventory is low. As IoT payment capabilities expand, businesses can take advantage of the opportunity to earn business upfront. If the organization happens to be at the top of wallet at that moment, it is well-primed for a long, profitable run.
Mercator’s IoT framework also establishes business strategies around IoT approaches and highlights the importance of having a comprehensive IoT strategy as payment volumes shift to IoT over time. Now may seem early to get involved in this space, but in reality, conversational commerce and e-commerce is already actively expanding into device-driven payments. Given the number of players approaching the industry, Mercator’s categorization framework can help organizations develop an IoT strategy and develop a go-to-market model in what is becoming an increasingly relevant area of payments.
Choosing the right partner
While addressing the immediate negative effects of COVID-19 is a top priority for many organizations, it’s still important for them to think about what the future of payments will look like. The payments industry has been very active and vibrant in regards to partnerships and RFPs, with several large acquisitions and mergers having occurred in the past year.
As a third party provider, Mercator Advisory Group can help companies evaluate their current relationships and vendor status across the board to determine the strengths, weaknesses, and quality of those relationships. It can also help organizations in finding partners, and has already had success in doing so. For example, Mercator has helped a payroll card software platform company find a program manager. The company has also helped a medical card issuer in the Medicare space find a partner.
COVID-19 has greatly impacted the payments industry, but that doesn’t mean growth opportunities have ceased to exist. Credit lending, key account management, IoT payments, and valuable partnerships are just some of the areas that financial institutions can focus improvement efforts on. By using a third party company like Mercator Advisory Group, effective organizational changes can be made to improve a company’s efficiency and profitability.