Digging Into Data To Navigate Adverse Economic Environments

“While it may feel counterintuitive to look backward in order to move forward in the face of significant economic events,” Payrix Chief Risk and Compliance Officer Billi Jo Wright told PYMNTS, “applying the proper data mining, data analytics tools and action plans to your business’ wealth of transactional data may provide a roadmap through adverse situations.” Learn how Wright mines data to power Payrix and its clients in Black Swan, a special report exclusively from PYMNTS.

The following is an excerpt from Black Swan, contributed by Payrix Chief Risk and Compliance Officer Billi Jo Wright.

How Learning From History and Digging Into Data Helps Steer Through Adverse Economic Environments

In the midst of a black swan event — and certainly in the early days of understanding what the United States and the world face amid COVID-19 — the downturn often feels sudden and unexpected. Looking surface-level at the defining black swan events of the past few decades – from acts of terrorism to the bursting of a major industry bubble to a global viral pandemic – you’d no doubt see few similarities in the events that came before.

But for businesses scrambling to reforecast and plan for potential economic developments (McKinsey is currently outlining three potential scenarios, ranging from a quick recovery to a global slowdown to a full recession), there are rich insights that lie within historical transactional data.

There are a number of key factors and fields that can be scrutinized and analyzed to enable a business to more successfully steer through uncertain times. A holistic view of payments data includes analysis at an industry and vertical level, taking into account geographic regions, company sizes, chargeback trends, and transactional clusters and patterns before, during and after an economic event. That information can then be used to proactively prepare or stabilize your portfolio.

Highlighted below are two key focuses for navigating and preparing for uncertainty.

Distilling Insights Within Historical Payment Data

To determine the potential business impact, look at past payment volumes to understand how an event could impact your business, monitor trends in chargebacks or refunds to advise merchants on what to expect, and consider isolating merchants and payment volume in affected areas. Margin-sensitive or event-contextual verticals will inform where to prioritize retention versus acquisition efforts and where to find resourcing during tight times.

Analyze Concentration Risk

The risk of amplified losses that may come from having a large portion of processing volume in a particular vertical is significant. A diversified portfolio requires ongoing and proactive analysis to minimize concentration risk in an economic shutdown. In the current environment, we can expect to see industries like nonprofit, travel (hotels, airlines and cruises), events and service (bars, restaurants and salons/spas) in despair.

While it may feel counterintuitive to look backward in order to move forward in the face of significant economic events, applying the proper data mining, data analytics tools and action plans to your business’ wealth of transactional data may provide a roadmap through adverse situations.