Greg Cohen is the CEO of Fortisa leading integrated trading platform.
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Economists are divided on whether or not a recession is imminent, but according to a recent study by Morning Consult nearly half of consumers believe the US is already in a recession, and another quarter think a recession will happen within a year. Opinions about the soil are important and can even become self-fulfilling prophecies.
Pessimism about the economy and related concerns about job stability and rising inflation rates naturally influence purchasing behaviour. But like everything else in the post-pandemic period so far, predicting exactly how it will all play out is complicated, not just for economists, but also for payment solution providers and the customers they serve.
Recession fears mean consumers will spend less overall and are likely to shift their money from discretionary spending to necessities. For example, consumers could squeeze in a single dentist appointment instead of two. They can still buy an item they want but don’t necessarily need, but they might compromise with a trade-in, such as swapping a luxury handbag from Louis Vuitton for a more reasonably priced one from H&M.
On the other hand, due to pent-up demand, discretionary spending remains strong in some sectors, which is a complicating factor for forecasters. Payment providers and the businesses they serve will need to adapt their strategies to adapt to and accommodate changing buyer behavior. In addition, providers play an important role in guiding their customers through economic volatility. Here’s a closer look at how you can do both.
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Payment solution providers face challenges and seize opportunities.
For payment solution providers, the current economy is a mixed bag: Rising prices due to continued inflation mean more economic benefits from individual transactions, but lower volume in general is not healthy and often outweighs ticket size and translates into less revenue . As a result, payment providers are examining budgets and some have reduced staff. Others focus on channels that are more reliable in a recession environment, such as healthcare or utilities, and emphasize or even abandon others. Solution providers with higher debt or a need for capital to operate are feeling the pressure the most, but everyone is preparing.
That said, there are still opportunities. In these times, businesses are looking for ways to preserve their wallets by improving the customer experience, and payment solutions can help them achieve that goal. In my industry experience, the best payment solutions offer a value proposition that helps customers not only generate revenue (with a better consumer experience), but internal efficiencies through automation and built-in reconciliation, while accelerating cash flow by automating or digitizing the accounts accounts receivable processes. This makes the business more effective when cash is scarce, helping to drive sales.
Playing attack when others are defending has advantages.
Payment solution providers can help customers navigate uncertain times by providing guidance that can help merchants, healthcare providers, hospitality companies, software providers, B2B customers, etc. to provide better experiences for buyers and consumers. I advise payment providers to tell customers that now is not the time to fall back on great customer experiences. This is the time when you should advise companies to differentiate themselves with simple UX improvements, which will enable more sales and boost retention.
We can also guide customers in evaluating their options, pointing out cost-effective alternatives such as exploring lower-cost media, eliminating peripheral costs and resources, and generally focusing on core competencies. Help software solutions enthusiasts see that partnering with an advanced payment solution provider is a great way to keep their focus on their core business while enabling the kind of modern trading experience their customers demand.
I’ve had the opportunity to lead teams through a number of different economic cycles, including the dot-com bubble and the financial crisis. I found that if you manage it right, on the other hand, you can become a stronger and more focused company, and the payments industry is usually the first to recover as the economy recovers. While it is impossible to predict what will happen in the coming months, there is little evidence so far that a recession this year will be deeper than the most recent historical precedents. So while some degree of belt tightening makes sense during a period of uncertainty, drastic action is not yet warranted.
It’s also worth bearing in mind that some of the most well-known brands in the world were founded during bumpy economic periods. That includes disney, launched during the Great Depression; Microsoft, founded during the stagflation crisis in the mid-1970s; and Uber, which hit the road during the Great Recession. As those sloppy startups showed, at a time when other companies are playing defensively, an attacking company can stand out.
The same is true now, both for payment solution providers and the companies they enable to provide a better experience for their customers. Like it or not, we live in challenging times, and while it’s important to prepare for the challenges, it’s also crucial to seize the opportunities.
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