Published: April 7, 2020


The coronavirus is bringing with it a wave of change across the payments industry. No entity or segment has been granted immunity, but some will fare better than others. Payments stakeholders must work quickly to familiarize themselves with the threats and opportunities stemming from the global pandemic and put in place plans for adaptation.

The 451 Take

The effects of COVID-19 are already present across the payments industry and will continue to become more widespread and apparent in coming months. While the threat to transaction volumes is front and center, the global pandemic will drive a range of other impacts – running the gamut from fraud to compliance to consumer payment behaviors – that will be critical to monitor closely as the year progresses. For many, this will be a test of not only their contingency plans, but their operational resilience, customer-centricity and financial stability.

Payment Processing

Our Macroeconomic Outlook Consumer Spending survey has yielded sobering results for payment processors. We observed overall consumer spending growth shift swiftly into negative territory in March, with 33% of respondents now saying they plan to spend less over the next 90 days and only 20% saying more – a dramatic net -25 point decline from February and a net -20-point decline from March 2019. Adding further concern, nearly three-quarters (73%) of respondents told us they anticipate the economy to worsen over the next 90 days.

The near-term impact of the coronavirus is being driven by the temporary business closures that are spreading across the country as a result of social distancing requirements. CardFlight, an mPOS provider that serves 60,000 SMBs via its processing partners, saw transaction volume plummet 50% between the weeks of March 2 and March 23, with the number of active merchants dropping by 26% during that period due to business closures. Visa has observed overall cardholder spending in March drop 4% in the US, with overseas spending sinking 19% as a result of travel moratoriums.

The business impact of consumer spending declines is already being felt by processors. Global Payments, for instance, has made the decision to cut employee salaries by 10% in effort to curb the impact of the virus on its balance sheet. EVO Payments announced on March 30 that it had secured a $150m private equity investment from Madison Dearborn Partners to fortify its business and announced plans to reduce fixed costs up to 20% for the remainder of fiscal 2020 and lower capital expenditures by up to 75%. Processors taking at times drastic measures to secure the financial stability of their businesses are sure to become more widespread in coming months.

Payment processors that have significant exposure to the hardest-hit industries (Figure 1 below), particularly in card-present channels, will feel the most pronounced impact. Square is especially vulnerable, given that food/drink merchants accounted for 26% of its 2019 total payment volume. It is also likely to feel the impact of the almost inevitable wave of business failures in the SMB market, considering roughly three-quarters of its payments volume is derived from merchants doing under $500,000 in annual sales. Many ISOs and agents, which resell payment services into the small business market, will see decimation of their merchant portfolios.

Processors that have deep roots in the resorts/hotel industry are also at risk. Shift4 Payments, which processes for more than 21,000 hotels, noted that hotel transactions dropped from 186 million the week of March 1 to eight million the week of March 22. Those with a strong position in the airline industry, like Worldpay (FIS), will feel a dramatic hit to transaction volumes as well. Hospitality merchants and their processing partners are also being swamped with an influx of refunds and disputes, which can put a major strain on cash flow and on internal resources if automation processes are absent.

Processors with a heavy focus on card-not-present channels are likely to fare better than those that see their volume dominated by in-store transactions. The growth in mobile order-ahead and delivery use in the restaurant and grocery verticals are prominent drivers at play here. According to Forter, at the beginning of January there was a 7.5% growth rate of new accounts being opened on food service sites; at the end of March this new account rate has increased to 36%. Our Q3 2019 survey shows that 2 in 5 consumers are using order-ahead services on their smartphones frequently; we expect this figure to climb significantly in coming months. In the longer term, online purchasing behaviors learned during the crisis could become more commonplace post-outbreak, thus shifting a greater share of in-store payment volumes online. Stripe, which counts delivery apps such as Postmates, DoorDash, Instacart and Deliveroo as customers, is likely to be one key beneficiary of this trend.

We must also remember that this is the first time many of the newer entrants in the payment processing sector have had to deal with true adversity. Unfortunately, not all players will emerge from this pandemic on even ground. Depending on the duration and severity of the pandemic, some may fail to emerge at all. But despite the mounting business challenges, this is a time for processors to show empathy toward merchants. We applaud Square's decision to automatically refund subscription fees for its various software products (e.g., Square Marketing, Square Payroll) for the months of March and April. PayPal has also made merchant-centric moves, such as waiving chargeback fees and doubling the dispute response window through April 30.

As normalcy returns, we anticipate key lessons from the pandemic will spark merchant demand for various payments capabilities. For merchants that were challenged to make the quick pivot from in-store to online sales, aligning with partners that offer an omni-channel payment platform is likely to be more of a priority than ever. We also anticipate greater demand for payments-data-as-a-service offerings as more merchants recognize the importance of attaining a detailed understanding of the financial status of their business at any given time. Additionally, we expect revenue optimization and recovery tools – like payment routing and retry capabilities – will be sought out as critical strategic levers for maximizing profitability.


For criminals, the confusion, distraction and vulnerability stemming from crises spells opportunity. With more purchase volume moving into online sales channels as a result of store closures, fraudsters are likely to find it easier to blend in with legitimate customers. Already we have heard about rises in card testing attacks and exploitation of growing vectors, like buy online/pick up in store, since the coronavirus outbreak began. ACI Worldwide noted that in March, fraudulent attempted transactional value grew by 13% Y/Y (although volume decreased by -8%) as fraudsters increased their focus on categories associated with higher ticket sizes, like electronics. Merchants need to monitor these evolving fraud patterns closely and those with heavy reliance on manual reviews should seek out automation, especially in the event of widespread illness across their fraud operations teams.

Merchants should also expect fraud to diversify. As spending-conscious consumers flock to mobile order-ahead apps like Grubhub and Uber Eats, one unique form of fraud we expect to spike is promotion abuse. A common tactic is abuse of new user promotions, whereby users generate bogus emails to reap free referral credits. Economic hardship brought on by the coronavirus may also fuel increases in item-not-received (INR) fraud and friendly fraud as cash-strapped consumers look to put money back in their pockets.

Returns abuse is also likely to rise with quarantined consumers engaging in practices such as boredom shopping. Buyer's remorse is a common byproduct of this behavior and may lead to widespread abuse of return policies after shoppers realize their impulse purchases (like a new gaming system) are no longer necessary, just prior to the end of the return window. On the other end of the spectrum, retailers and marketplaces must watch for consumers that are hoarding essential items and engaging in retail arbitrage.

Phishing scams, which are all too common during crises, are also increasing. The FBI, WHO, IRS and Secret Service have independently issued warnings about COVID-19-related scams, which have included fake charities requesting donations and sites claiming to provide a coronavirus vaccine. Fraudsters use these scams to harvest sensitive data like credit card numbers, later offloading them for a profit on the dark web.

We must also remember that criminals traditionally focusing on in-store fraud such as card skimming will plausibly begin to shift their efforts elsewhere as a result of store closures. While online fraud is a natural pivot, they may also engage in mail theft and new account fraud as waves of stimulus checks begin to hit mailboxes across the country.

Industry Mandates, Updates and Compliance

Merchants and their payment partners are constantly adapting to new industry mandates and compliance requirements. Meeting these requirements demands significant IT resources, time and funding – all of which are in limited supply as a result of the coronavirus outbreak.

To put the current challenges into perspective, 1 in 4 retail respondents to our Voice of the Enterprise: Digital Pulse, Coronavirus Flash survey told us the coronavirus outbreak has had an 'extremely negative' operational impact on their organization, 50% said they've seen a loss or reduction in customer demand and 45% noted they are currently experiencing increased strain on their internal IT resources. These factors will inevitably affect retailers' ability to meet new compliance requirements. As a result, we anticipate the timelines of several industry changes and updates slated for 2020 will be affected.

One major upcoming compliance requirement that could see an extended timeline is the October 2020 US EMV liability shift for card-accepting fuel pumps. The Merchant Advisory Group (MAG) along with various fuel industry trade groups are currently pushing the card networks for a delay given the expensive and complex upgrade of IT systems and hardware necessitated by EMV. Enforcement of strong customer authentication (SCA) in Europe, which was already extended from September 2019 to the end of 2020 due to lack of industry preparedness, may see further extension as a result of the increased operational and financial pressures that retailers and other industry participants are under.

The timing of payment network updates will see an impact as well. Visa, Mastercard, American Express and Discover, for instance, have already announced a delay of interchange fee updates, scheduled for April, to July. Additionally, the rollout and adoption of various network technology initiatives, like the Secure Remote Commerce (SRC) checkout framework and EMV 3D Secure, could very well see progress stall for many of the same reasons discussed above.

Consumer Payment Behavior

Somewhat serendipitously for electronic payment stakeholders, cash is quickly coming under fire as a high-risk vehicle for spreading coronavirus, given its widespread use and inherent person-to-person qualities. Card marketers at US financial institutions and product marketing teams at wallet providers like Apple and Google should look to coronavirus as a uniquely simple and effective messaging opportunity that can be harnessed to encourage contactless payment take-up by promoting the sanitary benefits of 'tap to pay.'

More than two dozen countries around the world have increased their contactless transaction limits to further galvanize the uptake of proximity payments in the wake of the coronavirus outbreak. The UK, for instance, has increased its contactless transaction limit by 50%, from £30 to £45, while Portugal has raised its by 150%, from €20 to €50. This should help to encourage more consumers to eschew cash at the POS in the near term, and may have the longer-term effect of building muscle memory around reaching for a card or digital wallet at checkout instead of physical currency. We may also see the outbreak further accelerate merchant adoption. Publix, a top-10 US supermarket chain, announced on April 2 that it would be enabling contactless acceptance across its 1,200+ locations in response to the pandemic.

It's also plausible that the growing industry focus on low- and no-contact payment experiences will help to finally put POS signature collection to rest across many merchant verticals. The major card networks did away with the signature requirement in 2018, but merchant adoption to date has been tepid, in part due to lagging POS software updates. Now there is a true impetus for change in the name of public health.

Another area where we anticipate seeing growing merchant and consumer adoption is installment payments. We identified this as a top trend in our 2020 Payments Outlook and envision coronavirus catalyzing momentum as consumers look for greater financial flexibility at checkout. Players such as Klarna, Afterpay, Sezzle and Affirm will be beneficiaries of this trend and payment processors would be wise to build out and promote their integrations in this sector.

Cam O'Shaughnessy
Associate Analyst

An Associate Analyst in 451 Research’s Customer Experience & Commerce Channel, Cam O'Shaughnessy covers the digital commerce ecosystem, including e-commerce, mobile payments and omni-channel commerce. Additionally, he contributes to the design and writing of the consumer insight-driven VoCUL (Voice of the Connected User Landscape) Digital Wallets survey product.

Jordan McKee
Research Director

Jordan McKee is a Research Director for Customer Experience & Commerce, and also leads 451 Research’s coverage of the payments ecosystem. He focuses on digital transformation across the commerce value chain, with an emphasis on the major trends impacting payment networks, issuing and acquiring banks, payment processors and point-of-sale providers.

 Csilla Zsigri
Senior Analyst - Blockchain & Distributed Databases

Csilla is a senior analyst for 451 Research’s Data, AI & Analytics channel. She currently focuses on decoding the blockchain market to help replace confusion and complexity with an examination of the technology, the competitive landscape and available solutions that are driving the market, as well as real-world use cases and deployments.

Want to read more? Request a trial now.