When Moody’s downgraded the credit ratings of 10 small and midsized banks in July 2023 and warned of similar downgrades for larger financial institutions, alarm bells were once again set off. With Silicon Valley Bank, Signature Bank, and First Republic Bank failures still fresh in our minds, the Moody’s news spooked the markets and suggested that turbulence in the banking industry had not entirely disappeared despite having seemingly stabilized.
For retailers and merchants already struggling to navigate the impacts of inflation, high interest rates, supply chain issues and a challenging global economic climate, the news sparked renewed concerns as to how a new wave of bank failures could endanger their ability to process payments, negatively impact access to capital, and threaten the continuity of digital and ecommerce sales.
From electronic bank transfers to debit and credit card transactions, and even gift card redemptions, digital payments have become essential for retail businesses of all sizes. Just over 40% of Americans do not use cash to make purchases, according to a recent Pew Research study. Retailers conducting transactions around the world and around the clock can’t afford to stop accepting payments even for a minute. This is particularly true for smaller merchant brands, a majority of whom rely heavily on digital payments to drive revenue growth and customer loyalty. Even retail brands with strong physical presences can experience significant sales, revenue and reputational damage from even a temporary interruption in payment processing capabilities.
No matter the size of the business, the volume of digital payments activity, or the types of transactions, now is not the time for any retailer to sit idly by and wait to see if Moody’s predictions come to pass. Businesses that rely on digital payments need a proactive plan to protect themselves from even the slightest possible disruption to their ability to accept and process payments that a bank failure might pose.
Protect Your Business from Payment Disruption
The most critical element of that plan must include moving away from relying on only one bank to manage payments. Retailers must invest in global payment orchestration technologies that enable access to a much wider universe of financial partners and deliver the technical capabilities to reroute failed payments to another financial institution if a transaction is declined.
Payment provider outages that occur without warning can jeopardize any retailer. Adding a bank failure to the mix can worsen the repercussions. With the many options available today, consumers will quickly move on to another business if they can’t quickly and easily complete a transaction.
Reducing the reliance on one financial institution offers retailers a level of redundancy and greatly increases the likelihood that a transaction will be completed, even if a bank should become temporarily or permanently incapacitated. The ability to automatically reroute failed payments inherently protects merchants from unexpected outages and safeguards against the issues that a bank failure might cause.
As an added benefit, retailers that adopt payment orchestration capabilities can integrate with domestic and international banks to circumvent cross-border and foreign transaction fees, increase transaction success rates, and ultimately accrue greater revenues.
Leveling the Payment Playing Field
Historically, acquiring the ability to transact with financial institutions in different countries and automatically reroute failed payments was a costly proposition available only to retailers with the deepest pockets. This is no longer the case. Newer, modernized global payment orchestration platforms have emerged to provide all the tools any retailer of any size would need to protect themselves and ensure business continuity in the face of a bank failure.
Companies have long invested in redundant systems and networks. It’s now time for retailers to commit to the same level of protection for their digital payment capabilities. Time will tell if the Moody’s credit rating downgrades were justified. But history has certainly shown that bank failures can arise quickly with little warning and then spread like wildfire across the industry. Retailers need to act pre-emptively to protect the heart and soul of their business. This latest round of credit downgrades, warnings and pessimism towards the financial sector should provide the proper motivation for all merchants to develop a plan and take the necessary actions to insulate themselves as best as possible.
Ralph Dangelmaier is the CEO of BlueSnap. With over 30 years of experience in the payments industry, he is at the forefront of ecommerce innovation, using his knowledge to grow public and private companies via innovative payment solutions. Under Dangelmaier’s leadership, BlueSnap has grown 40X, been on the Inc 5,000 list for four years in a row and was a two-time honoree on the Deloitte Fast 500. Prior to BlueSnap, he served as CEO of P&H Solutions, which grew 15X under his leadership, with a successful exit to ACI. He serves on the Boards of BlueSnap, ETA and Stonehill College.