How the payments industry's COVID-19 response changed, month by month

No one could predict the full impact of the coronavirus pandemic. Many companies in the payments industry first saw it as a short-term threat that they must endure, rather than a transformative event that would still be raising obstacles almost a year down the road.

Many of those companies had to pivot sharply in just a month or two. Others were rewarded richly for their earlier investments in digital technology.

This story was compiled from reporting by PaymentsSource writers including John Adams, Kate Fitzgerald, David Heun, Michael Moeser and Daniel Wolfe.

January - An early warning

Starbucks sign mirrored
Most of the world hadn't even heard of the coronavirus when its impact showed up inStarbucks corporate earnings .

Like a peek into the future, the virus created headwinds for Starbucks' aggressive expansion into China, where it gets about 10% of its revenue. In a scene that would play out globally, Starbucks was forced to close stores and instill safety workarounds that would add to its cost, cut into its business and become part of a routine for merchants of all sizes and categories.

February — A virus still a world away

empty grocery shelves in China
At the start of the year, it was hard to imagine a city of 24 million on virtual lockdown, but that’s what the coronavirus had already done to major Chinese cities like Shanghai.

It was the first unwelcome test of new retail technology that allows consumers to shop with minimal interaction with others. China was already a bit ahead of the U.S. in opening checkout-free retail stores, but it was still an uncommon experience, and nobody knew quite what to expect given the emergency that had hundreds of millions of Chinese citizens at home most of the time, but still in need of supplies.

By the end of the month, the card brands had started to publicly admit: Things were OK for now, but if coronavirus becomes a pandemic, all bets are off.

Because a major portion of Mastercard's business in China occurs through e-commerce, and the company is not hurt as much by canceled travel plans, president and CEO Ajay Banga was hoping for the best. “If it becomes a much bigger crisis, then we’ll take a look at those numbers. Have to take that as it comes; it’s the only way to look at this,” Banga said in March.

Visa CEO Alfred Kelly also advised caution, acknowledging the uncertainty that surrounds all companies in contemplating how to counter the virus and keep business losses to a minimum. "When we look at our numbers in China, we see some declines, but the Chinese New Year was a month earlier this year and spending slows around that holiday period," Kelly said.

American Express CEO Steve Squeri told analysts that the New York-based company, a leading provider of cards for business travel spending, had seen significant reductions in spending in certain parts of Asia, including Hong Kong, Taiwan and Singapore, which have been harder hit by the coronavirus than many other parts of the world.

Discover CEO Roger Hochschild said that those card companies that are most exposed to the travel and expense category will likely feel the effects of the coronavirus outbreak first. The Discover CEO also said that the card issuer had begun taking steps to prepare for a scenario in which the employees at its customer centers need to work from home.

March — Feeling the impact

Stack of U.S. dollars
Even before the U.S. formally went into lockdown, the pandemic dramatically changed how people handle payments.

Consumers were extremely wary of handling cash — some merchants already urged customers to pay with plastic instead, and food delivery companies like Uber Eats and Deliveroo introduced the concept of no-contact food deliveries.

Contactless cards, in turn, became a hit. By March 3, about 38% of consumers said they now saw contactless as a basic need or feature of payments, up from 30% a year earlier, according to The Futurist Group.

Arizent, the parent company of PaymentsSource, conducted a survey of its own in March, found that many customers had already changed their primary way of interacting with their financial services or fintech provider. Seventy-three percent of respondents reported customers were making fewer visits to the branch or office, 60% saw an increase in phone calls and 52% saw an increase in digital tools.

April — Everything changes

Visa and Mastercard acceptance sticker
Following March's lockdown in the U.S., disruption hit full force in April.

Mastercard reported a spike in chargebacks — particularly for airfare, where airlines were reluctant to issue the refunds that locked-down consumers demanded. For the airline category, chargebacks had risen from an average of .5% to 20%. Friendly fraud was also on the rise as consumers tried to undo purchases made in moments of anxiety, the card brand said.

Digital payment companies fared better. Stripe, for example, raised a fresh $600 million from VCs, helping its valuation skyrocket to more than $36 billion. As part of the investment, Stripe said it enabled a bundle of coronavirus-related programs, such as "fast access" to funds via instant payouts and other measures to help small businesses access government aid.

Credit card terms began to change. Card brands like Mastercard Canada, seeing a rush to contactless payments as people feared handling cash, raised the contactless payments limit to CA$250 from an earlier limit of CA$100. Meanwhile, as jobs suffered, issuers such as Discover started lowering spending limitsto hedge against risk. And as more transactions moved online, more scrutiny came to the interchange rates for card-not-present payments.

Earnings reports began to show the severe impact of the pandemic. After two strong months to start 2020, Amex, like most other businesses, saw its revenue and merchant network crash during stay-at-home mandates and mounting unemployment in the U.S. and Europe. Amex reported first-quarter net income of $367 million, compared with $1.6 billion a year earlier. This factored in a 95% drop in travel and entertainment spending on Amex cards.

May — Long term impact

PayPal sign
By May, it was clear that the coronavirus pandemic would not end soon, and that its impact would be transformative and lasting.

Visa gave gas stations yet another extension for EMV compliance, in light of the challenges fuel stations faced when motorists stopped commuting. Visa also delayed a planned update to interchange rates.

Major issuers like Capital One announced staff would stay home for much of the year. Card brands like Visa and American Express made similar declarations.

Point of sale credit emerged as a popular pandemic spending option, giving shoppers a way to spread out payments without running up their credit card balances.

Payroll tech took the spotlight, as employers adopted earned wage access systems to ease workers' financial stress.

PayPal's new account signups skyrocketed as consumers shifted to digital spending. At the time, the digital payments company was still suffering from a sudden halt in consumer spending, but the new enrollments were a sign of better times ahead.

June — Tech takes over

Gold Google sign from its Berlin office.
With cash use in decline due to a mix of germ fears and remote commerce, digital payments experienced a sudden surge of interest.

Google took early steps to extend its voice payment platform, enabling more options for making purchases via a voice assistant.

Cannabis dispensaries, which already struggled to operate legally in the U.S. states that permit them, had to consider alternatives for their cash-heavy clientele.

Food trucks shifted to a hybrid online model, enabling contactless payments for street food.

In the U.K., pubs, taxis and pharmacies all adopted digital payments once it became clear that their old methods would not help them survive the pandemic.

Independent sales organizations, which have long held traditional sales practices, had to become digital to not only attract new customers, but to demonstrate the benefits of online commerce.

July — Digital dollars, unpredictable earnings

irs building
Governments took digital ID and digital dollars more seriously, as the challenges of distributing stimulus funds became clear.

EMVCo issued new guidelines for the travel industry, allowing the troubled market to use 3-D Secure to address fraud in airline, hotel and car rentals.

Universities started to worry about international students, a concern that extended to the companies that handle tuition payments.

Digital payments cushioned earnings for Mastercard, Visaand Amex, all of which predicted a year of uncertainty.

PayPal had its best quarter since its IPO, due to the massive interest in digital payments that accompanied the pandemic. "This is our time and we intend to seize the moment," said Dan Schulman, president and CEO of PayPal, on an earnings call.

August — Time to pivot

Western Union outdoor sign
Merchants that faced rising costs associated with noncash payments were more receptive to credit card surcharging.

Retailers like 7-Eleven became highly digital, shifting considerable business to mobile apps and delivery as a way to compensate for absent foot traffic.

Work on real-time payments accelerated, as a response to the heightened cash flow needs that consumers and businesses faced.

TD Bank and other major companies began to embrace digital-first relationships not only for consumers but for vendors.

Western Union and MoneyGram saw a rise in digital remittances, but it wasn't necessarily their walk-in customers adopting new habits. Rather, these were entirely new customers. "The world is in a different place since COVID-19 started, but these customers are new to us and digital customers stay with us," Western Union CEO Hikmet Ersek said during the company's earnings call.

September — A new normal

Airplane meal service
Companies finally began to move ahead in September.

Payment brands like Mastercard and American Express reopened some offices at reduced capacity.

Fast food companies underwent bigger transformations, such as allowing walk-up lanes in addition to drive-thru lanes as they built new stores with much smaller footprints.

Travel rewards became all-purpose rewards as a way to maintain loyalty for a largely grounded audience for travel cards and airlines.

October — Holiday shopping starts early

Shopping mall at Christmas
As the world braced for lockdowns to continue into the winter, many consumers chose to begin their holiday shopping early.

Brick-and-mortar stores successfully grew sales during lockdown by adopting new technology. Nearly 60% of merchants say the pandemic forced them to refocus their business toward online sales, while 40% are considering closing their store entirely and becoming online-only, according to research from PaySafe.

Holiday shopping provided hope for Discover's earnings. Sales volume climbed 4% in September and 7% in the first half of October — enough to offset a 49% drop in travel spending by late October, Discover said.

But a surge in spending invites a surge in fraud, and merchants were bracing for that trend as holiday shopping rose.

November — Preparation pays off

pfizer coronavirus testing
Payment companies and banks are seeing results from their digital shift.

Visa reported success in its small-business strategy, which involved visiting small shops in 66 U.S. cities to help proprietors shift to digital.

PayPal reported its strongest growth in total payment volume in its history. It is also pushing harder into brick-and-mortar sales by using QR codes for contactless payments.

ATM maker NCR announced antimicrobial coatings, which could help address fears of using PIN pads and cash amid virus fears.

News of a vaccine from Pfizer provided hope for the card brands, but the payments industry is still expecting a long recovery.

December — Winter is coming

TD bank branch door
The payments industry's progress faces the challenge of a surge in virus cases and stricter lockdowns.

Spending growth on Visa cards slowed as COVID-19 took its toll on spending. Holiday shopping helped boost retail sales, but all other spending categories saw their growth slow down.

Banks were still playing catch-up in December, but saw their earlier investments pay off — such as Bank of America's use of the Zelle P2P network. In the third quarter, more than 12 million active Zelle users at BofA sent and received more than 117 million payment transfers, a 70% increase year over year.

TD Bank's strategy for merchants shifted to one that looks at long-term growth rather than short-term survival. "At the start of the pandemic, small businesses were reacting to what was happening 'right now' or what they were seeing in the media or hearing from neighbors," Doug Mearkle, head of U.S. Merchant services at TD Bank, said in an interview with PaymentsSource. "But now consumers are starting to get comfortable with the new things that are happening, so merchants need to adjust to that."