Arising Payments Related Risks From COVID-19

This piece was first published on March 6, 2020.

The situation regarding the emergence and transmission of COVID-19 remains concerning and rapidly changing. The effects on global and regional activity and commerce continue to escalate, and it is clear that consumers and business are changing their behaviors, especially around activities such as travel and interpersonal contact.

We expect that your organization has enterprise-wide planning and mitigation activities underway. However, there are some specific ways that COVID-19 may uniquely affect payments businesses. We have framed these as potential payments issues and ways to adapt or mitigate impacts, split into tactics that are practical to implement now, and those that should be considered to avoid adverse business outcomes — losses, service disruptions, customer experience — in the future.

Potential payments issues	Ways to adapt and mitigate impacts
Chargebacks For volume that constitutes prepayment for future services (e.g. prepaid travel, deposits for future services), consumers may cancel plans and attempt to recover funds, even if contractually non-refundable, through chargebacks. This may cause an increase in operational burden and financial losses to merchants. Conversely, during this period of extreme uncertainty, customers may be unwilling to transact unless they have some flexibility, amplifying other effects already suppressing purchase volume.	Now: Be prepared for any increase in chargeback volume and to robustly utilize processes to minimize losses such as timely representment and adequate documentation. Review refund, return and chargeback policies during this period to mitigate customer uncertainty and build goodwill (similar to flexibility offered in the Travel industry around adverse weather events). Balance these policies against impact on business economics. Future: Ensure form of payment choices and service pricing adequately reflects payment reversal risk for prepaid payments.
Third-party / supplier risk Often key payments activities (e.g. processing, customer service) are provided by outsourced vendors. Frequently responsibility for monitoring and managing vendor business continuity falls to Enterprise Risk, who apply an enterprise-wide prioritization lens. Is this aligned with the priorities of your payments business?	Now: Proactively engage with key suppliers to ensure contingency plans are in place to meet SLAs in case of adverse events such as staff shortages or facility closures. Future: Consider the robustness of your payments supply chain in the context of business continuity planning, including availability of redundant / backup suppliers, hidden supplier concentrations for example by geography.
Fraud risk It is an unfortunate truth that some seek to use times of crisis and volatility for personal gain. Fraudsters may attempt to exploit any changes in customer behavior — which could render the traditional patterns used to identify illegitimate transactions temporarily less useful — to mask fraudulent activity.	Now: Consider whether emerging changes in customer behavior warrant any short-term changes to fraud detection logic (e.g. adding rules, tightening thresholds). Future: Assess extent to which fraud detection practices are dynamic and robust to changing conditions.

With good fortune, the current situation will moderate and pass quickly. In the meantime, steps can be taken to ensure your business is appropriately prepared and you can answer Board and Senior Leadership questions regarding readiness and choices to be made in the immediate term.