Adapt and innovate – how merchants survive the COVID-19 pandemic

The shifts taking place amid the COVID-19 pandemic have pushed merchants to rethink their payments operations and how they interact with customers. Retail, travel, and hospitality are several sectors affected by the increased adoption of contactless, online, and mobile payments. Discover^® Global Network has analysed the state of play in the merchants’ business environment to offer an extensive overview of how merchants have adapted to challenges since the beginning of the pandemic, and what lies ahead in terms of surviving and thriving in the competitive payments space.

Undergoing changes for ecommerce businesses

State of affairs in retail

Lockdowns across the globe have forced consumers to change their overall lifestyle as well as an inherent part of it: their shopping habits. Ecommerce transactions surged amid the COVID-19 pandemic, and even after the quarantine rules were relaxed in most of the countries worldwide, consumers have continued buying products online. The digital transformation has been accelerated, and merchants – especially those operating in prospering sectors such as retail and hospitality – had to rethink their payments infrastructure, and in some instances, even their business models.

E-wallets and contactless cards replaced cash even in countries like Germany, Italy and Brazil, where cash has traditionally been king. Some retailers have started processes for adopting new online payment methods while also employing more technological tools to enable multiple forms of digital payments.

To maintain the loyalty of their customers, both large and medium-sized retailers have reassessed the level of conversion at checkout. Some merchants started accepting new (and local) payment methods to enable cross-border payments. Due to the high volume of transactions, retailers also had to make sure their ecommerce websites were highly responsive. In addition, customers needed to access more delivery options, such as Buy Online, Pick up In Store (BOPIS), which registered a huge spike during the pandemic, as well as Buy Online, Pick up At the Curb (BOPAC). The latter, in particular, was a struggle for many retailers, which needed to handle logistics, ensure staff training, and coordinate fulfillment—all in an effort to make the curbside pickup a seamless process.

Despite the rise of ecommerce, in-store payments remain the preference of many customers who are increasingly seeking touchless payment terminals, so retailers have accelerated the adoption of contactless technology. However, for some small and medium brick-and-mortar businesses, or mom and pop establishments, these are challenging times. Contactless technologies can bring a great return on investment, yet  touchless terminals come with various types of costs (merchant account, transaction fees, payouts etc.) that can now heavily affect small retailers’ budgets, as some of these businesses have limited financial resources. To help small merchants cope with liquidity issues, several PSPs extended payout times, while others temporarily exempted their merchants from payments.

Shared economy gains momentum

For restaurants, the lockdowns were particularly challenging as they needed to adjust their business model to a new market reality. To survive the pandemic, restaurants partnered with delivery platforms to further enable consumers’ access to their products. This move was of great advantage for one part of the shared economy – the food delivery platforms. Also evident was increasing solidarity towards small businesses from delivery companies, as they waived fees for some partner restaurants based on specific criteria. Even so, the ride-sharing businesses saw profits decline, consumers being reluctant to use these services.

Buy Now Pay Later – an increasingly popular option

Retailers partnered with Buy Now Pay Later solution providers to enable installments-based purchases and help customers adjust their finances. Some large retailers have tested pay later services, while others have started to offer installment payments to their customers.

Trying times for airlines vertical

Given the challenges, many airlines have been attempting to create a customer-friendly environment that airlines traditionally sought to promote. Several airline companies across the globe have implemented policies with regard to waiving change and cancellation fees, including both top international carriers and major US-based airlines.

Chargeback rates also increased dramatically during the pandemic as travel restrictions forced customers to cancel their trips and ask for refunds. The current situation also brought a surge in more friendly fraud – lately, online travel agencies (OTAs) have experienced illegitimate chargebacks, which led to costly investigations on their end.

According to chargebacks expert Monica Eaton-Cardone, one travel company saw an increase of 300% in chargebacks in one week alone during the pandemic, and the statistics show that 40% of consumers that file an uncontested chargeback will file another in 60 days. Since airlines and OTAs don’t have optimistic scenarios ahead, they are advised to protect their revenue now so they can continue to serve their loyal customers in the future.

Fraud attempts have surged

This highly competitive market is also a big target for fraudsters who might exploit any available loophole. With the increase in practices like BOPIS and Buy Online, Return in Store (BORIS), the affiliated fraud types came along too. Fraud attacks have doubled in 2020 – with consumers spending mostly via online channels. For criminal groups, it is now easier to detect patterns in customer behaviour and use this knowledge for malicious purposes. More card not present (CNP) payments also means more CNP fraud -- card fraud losses have spiked as fraudsters find new methods to steal data or money from cardholders. Stolen data are still valuable for cybercriminals, with data collection a good source for account takeover and social engineering. This is particularly worrisome now, when new customer accounts are opened, and those with less experience in the online space are likely to use weak passwords, making themselves more vulnerable to account takeover.

The road ahead

The final quarter of 2020 is likely to be a challenging one, with a second wave of global COVID-19 infections, followed by quarantine and aligned with the pre-holiday sales season. To stay relevant in the current environment and be ready for whatever may come, merchants should consider some best practices regarding a high-converting and secure checkout.

Checkout convenience

A seamless, simple checkout experience will be increasingly desirable among consumers. Click to Pay is a payment method that has been developed based on to the EMV^®* Secure Remote Commerce (SRC) Specification to address common online checkout challenges. For consumers, it means fewer steps at checkout and the elimination of laborious key-entry of personal account numbers and information. For merchants, it means an efficient digital checkout solution that can be used with multiple card brands. For instance, Discover^® Global Network recently launched Discover^® Click to Pay for use by Discover^® Cardholders. Discover Click to Pay provides an easy to use, consistent, password-free, and faster checkout experience across all participating merchants.

Merchants are also encouraged to reinforce their payment infrastructure and operations to add more local payments if they plan to expand their presence cross-border. Plus, they should explore cost-efficient alternative payment methods, such as Account to Account payments or online banking e-payments for instant ecommerce transactions.

Enhanced security and authentication

Consumers expect an “invisible” authentication process when shopping online, as well as a personalised experience. The Discover Global Network solution, Discover^® ProtectBuy^®, can enable retailers to offer their customers an authentication method that adapts to each user, making the transaction as seamless as possible. ProtectBuy is also useful for retailers that must meet Strong Customer Authentication (SCA) compliance under the PSD2 by the end of 2020. ProtectBuy, based on the EMV^® 3-D Secure Protocol and Core Functions Specification, deploys an authentication process that can be set up to challenge only the riskiest transactions, thereby helping prevent false positives and reduce cart abandonment.

Ecommerce businesses should prepare for increasingly sophisticated fraud attacks (or attempts) in upcoming weeks. They need to ensure their fraud-prevention solution provider backs their system with a holistic approach. Considering the large number of card-not-present purchases that, by extension, require people to authenticate online, a technology with enhanced security is key to protect their personal and transactional data.

Several segments have managed to tackle the accelerated digital transformation, yet for others there’s still a tough row to hoe. To further respond to change and efficiently assess potential future challenges, merchants are advised to focus on consumers’ behaviour, analyse what shifts are likely to be permanent (or a trend for at least five years now), and most importantly, leverage and strengthen the collaboration with their business partners. Discover Global Network is ready to support all our clients in this difficult journey. We acknowledge merchants’ efforts in keeping their heads above water and we encourage them to contact us directly if they have specific needs or concerns.

*EMV® is a registered trademark in the U.S. and other countries and an unregistered trademark elsewhere. The EMV trademark is owned by EMVCo, LLC.

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