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Observations on FinTech and COVID-19 

by Chris Phillips, Derek Edwards

Published: March, 2020

Submission: March, 2020

 



Waller’s Financial Technology practice has been providing advice to processors, banks, ISOs, financial technology providers, merchants and other participants in the payment processing ecosystem for over forty years.


Based on communications this week with our industry contacts and the other members of the Electronic Transactions Association (where Waller attorneys are members of the Government Relations and State Issues Committees and the COVID-19 Working Group), we offer the following observations:


  • As everyone knows from personal experience, the many parts of the retail sector are taking a huge hit, and this is rippling through the payments industry. Based merchant data aggregated fromWomply, in industries like transportation, entertainment and lodging businesses payments are down more than 50%, year-over-year, while sectors like restaurants/bars, recreation, health/wellness and education are seeing payment volumes drop 15-30%. Womply keeps its figures updated daily, and as the various forms of stay-at-home orders are expanded, this seems likely to get worse before it gets better.
  • While thus far less significant than the drop in retail sales, many companies in the industry are also seeing increased chargebacks and refunds as retailers or consumers are forced to cancel advanced orders in anticipation of financial or supply limitations.
  • Because the financing structure of the merchant processing industry (e.g., debt financing, equity investment, purchases of residual income and merchant accounts receivable purchasing) is predicated on “recurring revenue,” rapid and unexpected shifts in volume like this will be disruptive, to say the least. Parties throughout the risk and financing stack of the payments infrastructure are taking a hard look at their obligations and security positions on loans and purchases of payment streams, as well as responsibility for merchant losses.
  • Many clients specializing in small business processing have high attrition even in the best of times, requiring them to “fill the hole” of lost merchants as a prerequisite to growth. Given the current economic conditions, new merchants will be tough to find, and we expect industry attrition to rise significantly.

 


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