The Green Sheet Online Edition

March 11, 2019 • Issue 19:03:01

Diversification, service mitigate effects of negative events

During the federal government's recent partial shutdown, an estimated 800,000 federal workers were furloughed or forced to work without pay, and approximately 4 million contractors were temporarily out of work. Merchants serving government workers lost sales, many small businesses didn't receive needed loans, federal courts ran out of money and private companies delayed going public, for example. Seeking insight into how this event impacted the payments sphere, we asked our Advisory Board the following:

1. How did your business fare during the shutdown? What negative effects did you experience, if any? If you weren't affected, why is that?
2. Do you anticipate long-term impacts on your business and on merchants in your portfolio?
3. What steps, if any, did you take during the shutdown to help ensure your business suffered as minimally as possible?
4. Have you made strategic plans to protect your company from future government shutdowns or other unforeseen negative events?
5. Do you have advice for payments businesses dealing with events like this in the future?

We appreciate the busy executives who replied. Their answers follow.

Steven Feldshuh, MCPS East LLC

It has been proven each time a government shutdown occurs that no one comes out a winner. Yes, some political points may be made by one party or the other, but in the end, it's always the federal workers and businesses directly and indirectly tied into the federal government that suffer.

First-hand, my organizations saw a decline in business. We service 12 large cafeteria locations within federal government offices in Washington and Delaware. Processing volume dropped by more than 50 percent at those locations. In speaking with the management of these businesses, I learned they took a large loss during the shutdown.

The locations were immediately forced to lay off workers during the shutdown. They fell behind in paying vendors due to lost sales. The produce, milk, bread/cake, and meat vendors all complained and were hurt badly. Remember, most of these companies had to stock up in case the shutdown didn't go through or didn't last. They all had to dispose of out-of-date merchandise.

I don't believe there is anything any of us can do but elect officials to Congress that have a heart and understand the pain and suffering when they go along with shutting down the government. When you are an out-of-touch wealthy person who only cares about what's going into your own pocket, you aren't going to care if people get badly hurt if there is a political gain.

These types of events are difficult to plan for, similar to a snowstorm or hurricane. We end up losing some business for days or weeks, but like a snowstorm or hurricane, things clear up. It's important to develop your business across the United States, not just within a 50-mile radius of your sales office. So when events that put an area out of commission occur – and they will – if your business is diversified enough, you only feel a little of the pain.

Maurice Griefer, CPP, Maverick Bankcard

1. The recent government shutdown was the longest in American history and has had a significant impact on the U.S. economy in many ways. Close to 1 million people working for the nine Cabinet departments and other agencies were either forced to work without pay or furloughed. While some people and businesses were affected more than others, the payments industry experienced indirect ramifications. Without paychecks coming in, affected workers cut expenses dramatically and spent much less at restaurants, retailers and other establishments they would normally visit. Due to a decrease in overall consumer spending, many acquirers likely saw a drop in portfolio volumes, especially in cities and towns with a high concentration of federal workers.

   Therefore, the only negative effect on our business was a handful of these merchants who had a dip in sales during this shutdown. If we did not have a diverse merchant portfolio in terms of both region and industry, we could have possibly seen a much greater impact.

2. We don't anticipate significant long-term impacts on our business or with our merchant customers now that the shutdown is over, and things are getting back to normal. Federal workers are finally receiving their paychecks and can now go back to their favorite restaurants or buy the things they held off purchasing. SBA loans will get processed, and business owners will get the needed capital to grow their businesses.

   However, I'm sure some business owners who were more desperate for cash had to find alternative, but more expensive money to borrow, and they will likely see a longer recovery. We are happy to report none of our merchants had to close shop as a result of the shutdown.

3. Life throws many curveballs at us both in our personal lives and in business, so it's important to have a plan for worst-case scenarios that could arise. Although we only experienced a slight drop in portfolio volumes, the government shutdown was a wake-up call for some MLSs and merchant acquirers. Payment companies working with more government-related merchants, who would typically be on the lower risk spectrum, saw a tremendous amount of risk. Although the shutdown was out of our control, we remained optimistic and didn't let this distract us from the most important task: signing new merchants and keeping existing ones happy.
4. The best protection for our company is to build a diverse merchant portfolio. This means to ensure that our business serves a variety of merchants in a large range of geographic regions. While this has been part of our company's mission since the start, this most recent shutdown prompted us to take a much closer look at our portfolio.

   We realized how important it is to evaluate your portfolio and monitor merchants on a regular basis. Just like investing, you should never put all your eggs in one basket. For example, if the majority of our merchants were located in the Washington D.C. area, it would have had a large impact on our business. Because of this government shutdown, we have evaluated our portfolio and have begun reaching out to companies in new industries and in various regions around the country that we have yet to cover.

5. During this shutdown, I more fully realized the importance of having a diverse merchant portfolio. Not only is it important to focus on different industries, but it is also beneficial to target merchants in different geographic areas.

   For example, if your portfolio consisted mostly of businesses in Ogden, Utah, which has the highest concentration of federal workers in the West, you would have seen a significant drop in portfolio revenue during this shutdown. If your largest merchants were the national parks, who collect an average of $400,000 daily in fee revenue, this past shutdown could have greatly affected daily operations in your own business.

Aside from portfolio diversification, it's also important to put yourself in your customers' shoes. If merchants reach out for help during a difficult time, similar to this past shutdown, it is in your best interest to go the extra mile for them in their time of need. The payments industry is incredibly competitive, and providing your customers with exceptional service is a key to high retention. Plus, it may even lead to referrals down the line. Be empathetic, and don't forget the age-old Golden Rule.

Allen Kopelman, Nationwide Payment Systems Inc.

1. The shut down was particularly bad for anyone who needed to get a replacement for their Federal Tax ID number and replacement letters for SS-4. The economy is very strong in many sectors. If your ISO is heavy in retail and restaurant, maybe you saw slower sales in those areas. I don't think the government shutdown caused a huge panic in the general public. We had a couple of clients who get paid by the government, and they did very low volume.
2. I don't see a long-term impact from the government shut down.
3. We didn't have to do much. We just kept chugging along, and when we could not get some documentation, we were able to get the processor to wait on getting EIN verification.
4. No plans – I'm not anticipating anything in the near future
5. Make sure you have a good relationship with your processor so you can get deals done.

I think the government shutdown was blown out of proportion by the media, and it wasn't as bad as it was made out to be. Starving workers, etc. There have been numerous shutdowns: Clinton shut down the government for five and 21 days, Obama closed the government for 16 days, an estimated 800,000 worker were furloughed, which caused more of catastrophe at the time because many essential government services were closed, and that caused a huge issue with IRS and federal tax ID numbers (EIN) and Social Security where – besides government workers – many people in the public were not getting Social Security checks and other government checks.

The media has been more polarizing in the last couple of years, and how things spread through social media makes things look a lot worse then they really are or were.

Justin Milmeister, CPPElite Merchant Solutions

1. Our business did not suffer anything material during the government shutdown. As bad as it was for government workers to be forced to work without a paycheck for so long – appalling to say the least – it sounds insensitive to even say our business wasn't materially affected, but that is the reality. I believe we weren't materially affected due in large part to the verticals we focus on as a company.
2. I don't see any long-term impacts on our business due to the government's partial shutdown unless there's another, lengthier shutdown, which is a possibility. Banking and lending depend on communications with the Treasury to operate smoothly. If the flow of money/lending is disrupted, everyone will be impacted.
3. We did not employ any actions at our firm during this time.
4. We haven't made plans related to future government shutdowns.
5. Ownership and management need to keep a pulse on internal and external factors that can impact their business. Certainly, I would recommend not putting your eggs in one basket, so to speak, with respect to your merchant concentration or services offered.

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