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By Greg Cohen, CEO of Fortis
Economic uncertainty has always been a variable for businesses. Still, with public market valuations down, inflationary pressures, a war in Eastern Europe, post-COVID reeling supply chains and rising interest rates, many are certain a recession is near. Even if we don’t see a full recession, it’s reasonable to expect a much more challenging economic environment. That means it’s time for payments professionals to help businesses prepare for a turbulent, not-so-distant future.
The market has already foreshadowed the future as fintech and payment company valuations have ratcheted down 40% to 80% from their highs. The entire industry was overvalued, but sagging valuations also indicate leaner times ahead. Higher interest rates make capital more expensive, and increased prices, coupled with the potential of decreased demand, create sales challenges as buyers become more cost-conscious.
As we know, when things get tough for buyers, the world gets challenging for sellers. As a result, investors are taking a closer look at how business cashflow and underlying segments might be affected in a downturn.
The value of cash flow
Each market will be affected differently. For example, businesses and fintechs that serve the healthcare sector (non-discretionary spending) are less likely to feel the full impact of a recession than those in the hospitality market. Businesses with cash and run profitably can often navigate more effectively than those without positive cashflow or the need to raise expensive capital during tough times. It’s helpful for payment professionals to think about valuations as the present value of future cashflow. So, if future cashflow decreases, and if companies must spend more to borrow money, valuation decreases – it’s that simple.
But what does this mean for the payments industry? As a payments provider with your own set of stakeholders, there may be some bumps in the road depending on what segments you serve. Regardless, transactions and meeting consumer needs will become more intricate and vital for customers and partners, but your own business may face challenges. Therefore, we must be ready and equipped with the tools to do battle in this upcoming market with a laser focus on what we do best.
Optimize revenues and cash flow
No one wants to see a period of growth come to an end, but there are steps payment professionals can recommend to help businesses prepare. First, company leaders must look at how they can drive business to new channels they may not optimize today. For instance, if the company’s main revenue channel is through its physical locations, the leader might look at ways to do more business online. If a business sells products through wholesalers, now may be an excellent time to consider ways to generate more direct business.
Dependent on the industry, there is almost always a way to increase revenue or generate revenue more quickly by optimizing the payment solution. In healthcare, a doctor’s office might use a payment solution to keep cards on file for patient payments and copays instead of sending invoices and hoping they eventually collect payment. This can also streamline reconciliation in the back office by automatically applying the patient’s portion of the balance, the remainder of which will be billed to the insurance company according to contract terms.
As industry professionals, we should champion these options when our customers and partners question how to remain profitable.
Enhancing receivables can also be an area of revenue generation where payment technology can help. It’s not necessarily about making changes to the POS, though that may be the best move in certain situations. Instead, it’s about becoming more efficient as a business overall by decreasing fixed costs while also removing the friction from purchases with experiential-based payments.
A restaurant chain might achieve greater efficiency and reduce costs with a payment solution that supports payments via an app. So, instead of needing a server to deliver a check, collect a card, run the payment and return the receipt to the customer, the customer can pay via an app, freeing up the serving staff’s time. That benefit is especially important in a tight labor market where restaurants have difficulty recruiting and training new staff.
In preparing for leaner times, we should help our customers think ahead. We should adequately serve all channels where clients need commerce and payment technology and help streamline operations. If done correctly, we can help our customers not only drive efficiency but create a better experience when it is needed the most.
Focus on core competencies
Another downturn preparation strategy relevant to all sectors is focusing on core competencies. This is especially pertinent for venture-backed software businesses and companies that haven’t yet achieved profitability, as there will be a laser focus on cash management. Cash management is also relevant as it relates to those wanting to drive their core value proposition deeper into the market.
In this scenario, it can be a good idea to advise businesses to focus on doing fewer things and maximizing the things they do best. This allows companies to engage and leverage third-party partners, such as payments professionals, to focus on what they consider important but “non-core” services. There is no need to “build” everything in-house; businesses can save some capital and leverage partners, including payment solutions.
Facing challenges and tough prioritization decisions can also lead to greater strategic clarity. Building functionality, features and channels cost money, and cash is scarce. When there’s a downturn, it’s a fundamentally different environment. Focusing on core growth opportunities and avoiding “side projects” becomes critical. Channel partners and customers will still want to do it all, but we can help them get there through partnerships as buyers and sellers still want a seamless payment experience. Upgrades and cloud migration won’t halt, and businesses will want to optimize.
Payment partners can help clients deliver these experiences instead of “building it all themselves.” Partnerships can support innovation and even distribution to deliver a better commerce experience. They provide the types of payment choices people want and streamline back-office functions. Companies that weather a downturn often emerge stronger because adversity forces them to refocus on what matters.
As a side note, we should look at this focused approach and learn a lesson ourselves – the more we focus, the better our organizations will do during more challenging economic times.
Provide real value, not just payments
As payment professionals engage, the key is to offer a specialized solution that integrates with the existing business and can expand to meet future needs. The payments industry is poised to transform how businesses think about their payments offerings during the high points and the low, rocky economic times. By optimizing payments and receivables, adopting embedded payments and enabling customers to focus on their core business, payment solution providers can deliver real value and allow companies to go into a recessionary period focused and better equipped for survival.
About the Author
Greg Cohen is a recognized financial technology industry leader who has built national and global organizations with high level exits. Cohen is the Chief Executive Officer of Fortis, a leader in embedded payments for software providers, past president of the Electronic Transactions Association and former member of MasterCard, Discover and NACHA advisory boards. He has a passion for the evolution of commerce and was an early pioneer in the integrated payments and software platform arena. He serves as an advisor to some of the fastest-growing technology companies and investment firms.
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