How COVID-19 is affecting the cashflow of online merchants
How acquirers are being forced to react and the knock-on effects
Author: David Drever
Date: 29 Apr 2020
Who’s most impacted, why, and what solutions are out there to reduce the pain?
For many online businesses, the world has become a more profitable place, at least temporarily. For online pharmacies, those selling cleaning and sanitising products or enabling remote working and business management – the global pandemic has offered opportunity.
For merchant acquirers, having a portfolio weighted with merchants selling downloadable digital content or software as a service is a real bonus. Alternatively, for acquirers with a large percentage of merchants in the online travel and hospitality space, the pandemic is causing a whole different type of nightmare. They must react fast to mitigate their own business risk and this is having painful knock-on consequences for their customers.
Merchant acquirers essentially provide ‘lines of credit’ to businesses for the future delivery of goods and services. If you’re a business providing flights for early summer 2020, hotel stays for global tourists or tickets for global sporting events – your business is likely to have ground to a halt. More worryingly, any already booked income for that ‘future delivery’ must now be refunded or re-allocated to customers with heavy discounts or incentives. The worst possible scenario comes when the volume of enquiries for refunds overwhelms an already ‘skeleton staff’ and that those refund requests turn into chargebacks. This will result in problems with your acquirer relationship, black marks against your company from the card schemes, fines and the potential to have your merchant facilities quickly withdrawn.
For those businesses who are actually managing to deal with this negativity, they are often being subjected to long hours of discussion with their acquirer about how to manage ongoing business, and mitigate risk moving forward. Its draining for everyone. Think about it, managing cashflow has already become your biggest challenge, then you get hit with a request to increase your rolling reserve (a percentage of revenues held back by the acquirer to offset chargeback risk)!
So, what’s the solution? It's tough enough managing day to day business challenges without having to reconsider relationships with the financial institutions that are essential to keeping your business alive. Most senior leaders are sat at home behind their desks, struggling to manage the extra pressures of lockdown with their families – so now is not the time to face the arduous challenge of speaking to alternative providers, or is it?
We believe that now's the time for boutique payment service providers like FXCPay to step up and reach out. The 'C' in FXCPay stands for concierge, so we’re all about service levels. We help online merchants explore alternative online payment solutions for no charge. Free consultancy. With a wide network of partners, we know which acquirers want to look after which sectors of business, and the prices they're likely to charge. We explore opportunities on your behalf. If we can improve business cashflow by moving a merchant to a new home, where that acquirer actually ‘wants’ your type of business, it's a win-win surely? It's time for the independent payment service providers to show their value to the industry.
What’s more, when considering online merchants that are selling across international borders, we’ve found a way to massively reduce the costs of multi-currency processing. Our multi-currency pricing module enables a business to take international online payments for a total cost of 1% (including interchange and scheme fees). Yes, we’ve found a way of making it fairer and cheaper for everyone. We work with acquirers that really want to help their customers by reducing costs, and so working in partnership means we can usually offer merchants multi-currency transaction processing for less than it costs them to process a domestic transaction. Cardholders also benefit as they pay in their domestic currency, giving them price transparency and in most cases saves them having to pay those annoying foreign transaction fees that most issuers apply.