This is an update to a blog posted April 4, an early attempt to understand and project the impact of the novel coronavirus (COVID-19) pandemic on commercial payments. It seems worthwhile to revisit the topic now, four weeks further into the crisis. More specific data is available now on the cost in human life, the pandemic's curve, and the economic impact of lockdown policies at present and likely for the remainder of 2020 and beyond. Accuracy in predictions is always a challenge, and even more so at present since responses to COVID-19 vary widely by country and by state. By the end of May we should be in position to more readily assess economic conditions and the integrated effect on payments. In the meantime, we offer some added insight.
Corporate Cards (Travel)
There has been basically no change in the international travel restrictions that have now been in place in various forms since January, with incremental restrictions leading to a larger general shutdown in mid-March as the extent and rate of the global spread COVID-19 became more apparent. The restrictions have halted all but highly essential international business travel. The map below (Figure 1) illustrates the situation, with only a handful of countries allowing unrestricted international arrivals.
Domestic travel restrictions are less extensive, but travel is still severely limited due to the various lockdown policies in effect in most nations and U.S. states. In effect, little or no domestic business travel is taking place across the globe. So the question remains as to when some paradigm of normality will begin to take shape. In our previous COVID-19 blog, we projected travel card spending in the U.S. (and Canada) to be in the 4.5% growth range. Based on a series of high-level assumptions, we now expect travel card spend in 2020 to be in a range of -18% to -28% compared to 2019. One glimmer of hope appeared in a recently published survey from the Global Business Travel Association (GBTA), which has been conducting ongoing member surveys to gauge the relative business impact across the travel industry along with attitudes. In this survey result (Table 1), more than 60% of respondents anticipate resumption of domestic travel within three months, which is a quite positive outlook. Substantial resumption of international travel is expected to take six months or more. These assumptions are somewhat similar to Mercator's assumptions for early impact projections of the pandemic. North American respondents are somewhat more pessimistic about business travel resumptions than their European counterparts.
Another important survey result is that a majority of GBTA member respondents (88%) expect employees will be willing to travel once restrictions are lifted, and in this case the results for North America were slightly more positive than those for Europe. Given that population surveyed should have a finger on the pulse of their respective companies' thinking, one has reason for optimism. Much depends on how authorities around the globe, governmental and other, project and react to the growing amount of data about the true lethality of COVID-19, growing treatment effectiveness, lockdown policy follow-on impacts, and assumptions on a second wave of infection.
Other Card and Commercial Spending
In the prior blog we also made the point that other types of commercial spending will be tied more closely to overall economic activity. As most already know, the U.S. Bureau of Economic Analysis recently released Q1 2020 GDP results showing GDP at an alarming -4.8%. In effect we are already in a recession since Q2 will be worse than Q1 (a recession = two consecutive quarters of negative GDP) due to the continued government lockdown policies in most U.S. states and the vast majority of global markets as well. The near term spending on other types of commercial cards will reflect the general slowdown across all industrial sectors, which is less severe than decline in the travel and entertainment verticals, but nonetheless steep. The best case scenario is for economies to start up again as soon as possible and begin to repair the damage throughout the remainder of Q2 and Q3. This is not like turning on a faucet, since the global supply chain needs to be reconnected and refilled, which is not going to be fast, easy, nor fully resembling the pre-COVID-19 version. Figure 2 depicts U.S. full year 2020 GDP, which may contract in the range of 3.6-7.6%, according to one source.ii The range depends substantially on government policy actions during the next six weeks, in addition to the behavior and control of any resurgent coronavirus. The jury is still out on the short-term impact of CARES and other relief packages. These are certainly generating large individual payments flows and some business-to-business (B2B) flows as well, through loan payments.
As we stated in a separate recently posted blog, the broader payments industry is perhaps not as directly impacted given that various transfers of value that occur: " …the payments industry is holding up rather well. Banks are going to experience a lot of pain, but more in the credit risk side than the payments side." Our worldwide payments model had $1.4 quadrillion of value transferred in the U.S. during 2019, which puts $50-100 million in B2B cards value in perspective. We will continue to track developments and keep readers informed as more data becomes available and impending decisions are made.
Please feel free to reach out for additional discussion on these or other commercial payments topics.
i GBTA, https://www.gbta.org/blog/the-first-signs-of-optimism-emerge-in-latest-gbta-study/
ii The Conference Board, https://www.conference-board.org/data/usforecast.cfm