As we continue to slog our way through the pandemic economy, consumer spending habits never cease to intrigue. The massive shift from brick-and-mortar traffic to ecommerce has manifested itself from the beginning of the nationwide shutdowns. This is hardly surprising given the purchasing constraints imposed by the closing of physical stores and the restrictions on movement. But it’s not so much the “how” people are spending that’s so interesting, but rather the “what” they’re spending money on that is absolutely fascinating.
Payments processing and integrated SaaS management solutions accumulate an embarrassment of riches relating to real-time data reflecting consumer spending and preferences. Having the ability to drill down into large volumes of payments data from merchant processing reports provides tremendously valuable insights. Additionally, being able to process complementary data from specialty, integrated SaaS providers with on-line storefront and ecommerce functionality – web traffic reporting in particular – builds on the payments data and allows for cross platform pattern validation of consumer spending trends. The payments data tells us which types of merchants are experiencing increased volume and transactions. The SaaS data shows us which merchants are seeing an increase in online store website traffic. The data is rich. The data is valuable.
To illustrate my point, take a look at these not-so-intuitive trends that have developed recently:
Firearm dealers have historically suffered from what we in the payment’s technology community call “reputational” risk. Given the political dimension of firearms in the US, it shouldn’t be surprising that these types of merchants attract negative sentiment from many of the conservative banks who make-up the card networks (if you see the irony here, you get a prize), and as a result, a lot of payments processors prefer to steer clear of these assets because of the potential for political blowback. Additionally, firearms dealers need to adhere to strict regulatory compliance, not the least of which is the restriction for online commerce whereby firearms cannot be shipped directly to consumer – they must be shipped to a physical location of an accredited dealer with an FFL (Federal Firearms License). Combined, these factors have historically made the economics of providing payments services to dealers not worth the hassle. But what does that mean in today’s pandemic economy? Nothing. Firearm sales are booming and it’s all in the data. Dealers are experiencing huge increases in unique online storefront visits, and in states where dealers are open (physical stores), a spike in sales volume. In states where dealers have been closed due to government orders (like mine in MA), there’s tremendous pent up demand, and I expect this trend to continue.
Pawn shops don’t typically carry the banner of reputational risk like firearms dealers. Historically they’ve been brick-and-mortar stores and cash-only businesses, which weren’t particularly good fits for digital commerce. Here too, economics made pawn shops undesirable targets for payments providers and integrated ecommerce SaaS solutions. However, in the last 5 years or so, there’s been an evolution in the industry. Though they still deal mostly in cash on the pawn side of the business, debit card transactions have slowly grown as an approved form of loan repayment. The more noticeable changes, though, have come on the retail side, where many pawn shops now have online storefronts and accept credit card payments for retail purchases. And guess what we’re seeing in the data now? The data on the payments side and SaaS side are cross-validating spikes in unique website visitors and transactional volumes. Unlike firearms sales, where the reasons for consumer spending are more speculative, the boom in pawn shop business is highly intuitive: people looking to liquidate assets for cash and shop discounted products (for better visibility into this trend, check out eBay’s Q1 2020 earnings report). I sense this boom in business has longevity given the macro-economic environment. Further, because many states have deemed pawn shops non-essential businesses, I think it’s fair to predict a mad rush to convert assets into cash when the physical stores re-open.
And then there’s porn. Adult content has always suffered from reputational risk which has kept many a payments processor away from the space. But we’re seeing that change too. In similar fashion to firearms dealers, payments companies will begin to succumb to their financial interests over their concern for reputational downside. Though the proximate cause of the increased demand is hazy, I suspect it’s somehow tied to the increase in “down time” many of us are experiencing from being stuck at home. Thus, adult traffic and revenue are way up, and I mean WAY UP. That’s what both the payments processing data and site traffic are showing. Adult content providers are surely one of the biggest winners in the pandemic economy to date. Behind food and pharmacy, I’d be hard-pressed to think of another product/service segment with a greater marked increase in revenue.
Adam T. Hark is Managing Director of Wellesley Hills Financial. 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 ath@wellesleyhillsfinancial.com.
