MerchantE: An Appetite For Pandemic Risk

“COVID-19 has been a sobering reminder that pandemic risk is real, and it can dramatically affect an organization’s risk profile and resiliency,” notes MerchantE Executive Vice President of Risk and Compliance Eric Haru. He discusses the importance of managing pandemic risk and having a “refined and well-discussed view of portfolio risk and related appetite” as the effects of COVID continue to manifest.

The following is an excerpt from What Did You Change?, contributed by Laura Citron, CEO of London & Partners.

Since the onset of the COVID-19 pandemic, risk professionals have been quickly adjusting to the new challenges and dynamics in managing risk. The breadth of the crisis and the velocity of its onset revealed that traditional risk management strategies were not always effective for quantifying and mitigating the swiftly emerging risks. And while we have found ways to quickly and creatively adjust to prove our resilience, the journey has undoubtedly been accompanied by feelings of anxiety and, at times, bewilderment — especially for us risk professionals who like to be prepared for everything.

At the height of the pandemic, we watched as industry sectors — most notably travel, tourism and hospitality — were severely challenged with return and chargeback volumes that quickly outpaced sales. And with this stress on liquidity came looming concerns about contingent liability to processors who are upstream. Fortunately, in many cases, merchants successfully survived the worst of the liquidity crunch and maintained operations until the economy returned to the “new normal.” And though it was agonizing to watch unfold, risk professionals are now benefiting from empirical data that can provide a model for more effectively managing risk, specifically within their own portfolios.

To that end, a key response to the pandemic has been a re-focus on portfolio risk and related appetite, with a spotlight on pandemic risk and those sectors that have proven to be most impacted. While the known portfolio risks may not drive immediate seismic shifts in risk appetite, given that it must be balanced against overarching strategic objectives, it’s an important conversation for risk professionals to have within their organizations. While the worst has seemingly subsided, there is no clear endpoint to the pandemic, and we must be prepared for future surges with seasonality or other factors —regardless of how unlikely it may seem at the present time.

COVID-19 has been a sobering reminder that pandemic risk is real, and it can dramatically affect an organization’s risk profile and resiliency. A focus on managing pandemic risk over the remainder of 2020 and into 2021, along with a refined and well-discussed view of portfolio risk and related appetite, will better inform the organization — and will provide for improved prediction and quantification of risks as the COVID effects continue to unfold, hopefully with reduced anxiety and bewilderment.