Covid-19 Spending Habits – Has The Pandemic Caused An Increase In Acquirer Fraud?

in Press

As the Covid-19 virus started to spread around the globe and a sharp economic downturn became apparent in many sectors, acquirers, and the financial institutions who maintain merchant accounts in order to accept card payments, faced a decline in the number of transactions being processed through their systems, and therefore a steep reduction in revenue. Nevertheless, not all industries and regions were affected in the same way, and while substantial losses were observed in some areas, others thrived, attracting new commercial activity.

Across the globe, the highest financial losses were experienced by merchants associated with the hospitality industry. Restaurants, bars, and cafés led the way in the number of transactions lost month to month in March, just as the lockdowns were introduced. This trend was not limited to Europe, where national lockdowns severely restricted the hospitality industry; it was also apparent in the North America, where restaurants lost around 40% of their revenue in March, compared to February.

The losses were even higher in the Asia Pacific region, with losses totalling 70%. Even though the region’s hospitality sector did not face the severe levels of restrictions seen in the West, it appears restaurateurs in APAC were generally less successful in pivoting and drawing revenue from takeaways and food delivery than their western counterparts. Similarly, hotels and other accommodation services were faced with more than a 50% reduction in revenue in the region, a consequence of strict tourism restrictions.

Interestingly, one of the sharpest drops in Asia, in terms of the number of transactions processed, was amongst merchants who sell alcohol. This was likely to be a direct result of the closure of many bars and restaurants, but also the lower numbers of tourists visiting the region, all of which was not countered by domestic consumption levels.

The opposite was true in Europe, the USA and Australia, where the sale of alcohol grew by roughly 20% during lockdown. This is part of a wider trend observed by acquirers across the world, namely a sharp increase in the number of transactions being processed by grocery shops. In the USA, this increase was as high as 30%, but the trend was visible across many regions with low numbers of confirmed Covid-19 cases, such as Australia.

Another upward trend which was broadly observed across the regions, especially in North America and in Australia, was increased economic activity among merchants offering pharmaceutical or medical services. While the operating scope of many pharmacies and surgeries was reduced to a minimum to contain the disease, new ways of offering medical services like tele-health and e-medicine blossomed. Unfortunately, this trend marked an increase in suspicious or fraudulent activity among some merchants operating in the industry.

Lockdown prompted many to take up new hobbies and make lifestyle changes, which resulted in increased transactions in garden centres, sports shops and venues selling household appliances, as people took up baking and started new diets. Hence, the number of transactions in some of these areas rose by as much as 70% in March, when compared with February, the last pre-pandemic month.

Conversely in APAC, these industries were among the hardest hit by the Covid-19 crisis. With transactions decreasing by as much as 60% for many merchants specialising in household appliances. This might have been caused by more immediate economic effects of the pandemic on the middle classes in the developing countries, leading to many seeking to make savings, even in household expenses. Nevertheless, fees paid to membership organizations, such as online classes or leadership organizations for young people rose significantly in the region, particularly in Australia. My team and I also noticed a particularly sharp increase in purchases of dogs from breeders, as buying pets became more popular globally. This was followed by increased membership fees being paid to dog clubs and training services.

Meanwhile private or fee-paying schools found themselves among the worst affected by the pandemic, according to acquirer data. This held true, not only in the regions where schools were closed, but also in Australia, where most schools remained open throughout the crisis. In markets where fee paying schools remained open, a reduction in transaction processing volumes was likely because of some parents deciding, at an individual level, to keep their children at home and switch to home schooling. As local lockdowns started to ease, the number of payments received by private schools rose sharply. With parents taking the decision to return their children to school, or schools launching online resources and classes to be become operational again, in some cases without informing their acquirers.

As the global economy emerges from the shocks caused by the first wave of the pandemic and widely introduced lockdowns, the number of transactions which merchants process is comparable to pre-crisis levels. However, the value processed in these transactions remains at a lower level. Suggesting that, while people are purchasing as much as they did before the pandemic, they are trying to spend less, possibly in response to ongoing economic hardship. In the meantime, acquirers need to ensure they are cooperating closely with their merchants during the transition, as more services are provided digitally.