Portfolio Optimization & Retrenchment - Do. It. Now.

Adam Hark |

Payments processing companies in the COVID-19 economy are facing monumental challenges. In fact, many companies are facing daunting odds of survival. If you are an ISO, agent office, or MLS, and your book of business has merchant concentrations in restaurant, travel, and or hospitality, it’s hard to see a clear pathway forward to reconstituting your business – at least to how it was before.  But there are actions that businesses like yours - in fact all merchant acquiring businesses - can take to reposition for a better future, and it starts with a retrenchment strategy and portfolio optimization.

Beyond the direct consequences caused by the virus, the governmental policy responses to the pandemic – at the federal, state, and local levels - has caused a dearth of consumer demand across the spectrum of services and goods, with the exception of grocery, pharmacy/biotech, and healthcare. Moreover, the diminished demand that remains is being routed primarily through card-not-present/ecommerce pathways, leaving traditional brick-and-mortar commerce in the dust. Together, these changes require a top down reassessment of how payments processors approach their business model.

The first point to address is the need to retrench. A retrenchment strategy is an over-arching plan to reallocate resources and trim expenses. Retrenchment is something that comes naturally to many business owners when confronted with economic headwinds, but not to all. A good analogue to this process is what happened after the 2008 banking crisis. When publicly traded companies reported earnings, the trend was lower YOY top-line revenue, but neutral to positive bottom-line growth. Companies figured out how to run “lean and mean” by trimming what they deemed unnecessary expense line items, and propping up critical growth drivers with the thoughtful reallocation of available resources. A quality retrenchment strategy and the execution thereof are essential for all companies in this COVID-19 economy.

The second business strategy that needs to be employed, and this strategy is specific to companies in the payments processing and payments technology space, is portfolio optimization. Clearly the way consumers conduct business, and the products and services they’re seeking, have changed, continue to change, and in many cases have changed permanently. As a business owner, this needs to be accounted for in an assessment of the clients you’re currently providing services to, and the ones you ought to be targeting going forward. More specifically, it’s about understanding the financial consequences of continuing to provide services to certain buckets of existing merchants, and utilizing predictive insights, based on assumed market and economic conditions, to re-focus resources on procuring the most valuable merchants in the future. How to do this can be complex, but there are specialists who know how to run these types of diagnostics, as well as design and implement the go-forward strategy.

Times have changed. Commerce has changed. As a business owner you must be proactive: assess the present, remain thoughtful about the future, and above all, adapt.

Adam T. Hark is Managing Director of Preston Todd Advisors. With 15+ years of consulting in payments technology, SaaS, and fintech, Adam advises clients on growth, exits, and market positioning strategies. Adam can be reached at  adam@prestontoddadvisors.com