A recent S&P Global Ratings report warns that these impacts could trigger a sharp rise in distress among middle-market companies. Even sectors once considered insulated are showing signs of weakness as macroeconomic conditions deteriorate.

The shift is already prompting a response in credit markets. Traditional banks are scaling back exposure to riskier segments while regulatory scrutiny is tightening. Some hedge funds have gone so far as to bet against private credit entirely, arguing that higher interest rates and economic stagnation will expose systemic flaws in a rapidly growing sector.

Arif Bhalwani, CEO of Third Eye Capital, views the current volatility as a turning point that will separate lenders who built their portfolios with discipline from those who simply chased high yields. He points out that private credit is now a bedrock of corporate finance, often stepping in where banks cannot or will not lend. While certain loan structures, including payment-in-kind (PIK) interest arrangements and stretched leverage profiles, are drawing scrutiny, these mechanisms are “a tool, not a ticking time bomb”, Bhalwani said in a recent social media post.

“When structured thoughtfully, (PIK) aligns capital efficiency with borrower cash preservation, and often signals a lender actively managing through cycles, not masking distress.”

The core challenge is not new: how to support businesses navigating temporary disruption without compounding their problems with inflexible capital. But the current moment is testing that premise in new ways. Many of the borrowers under stress today are not failing due to bad business models, but because they are caught in a tightening vice of input costs, uncertain demand, and limited access to new funding.

In this climate, the role of private credit is shifting from opportunistic to essential. Lenders with the experience and infrastructure to restructure deals are finding themselves in demand. The question is how many of them are equipped to manage that complexity.

The S&P report does not forecast widespread failure, but it notes that the sector is entering a phase where fundamentals will matter more than ever. Underwriting standards, deal structures, and lender behavior during the post-pandemic expansion are now under the microscope.

For firms like Third Eye Capital, which excel at bespoke lending strategies, the moment offers both risk and opportunity. Bhalwani has argued that private credit is not a monolith and should not be judged by the weakest performers. Still, the stakes are clear. If borrower distress continues to rise, the test will not be whether private credit can lend in theory, but whether it can adapt in practice.

Tariff risks are just one part of the equation. As global trade tensions escalate, the economic aftershocks will likely continue to filter down through supply chains, balance sheets, and investor portfolios. The resilience of private credit will depend not only on the quality of its assets but on the flexibility and judgment of those managing them.

In the months ahead, investors and regulators will be watching the asset class closely. The middle market’s period of stress could fundamentally reshape private credit. Whether it emerges more resilient or more fractured will depend on how well lenders handle the unfolding uncertainty. 

The post Third Eye Capital CEO Arif Bhalwani on Private Credit’s Role in Protecting Net Worth Amid Tariff-Induced Turmoil  appeared first on CEO Medium.

• The ongoing COVID-19 pandemic, which has caused supply chain disruptions and staffing shortages.
• The war in Ukraine, which has caused energy prices to rise and disrupted global trade.
• High inflation, which is reducing consumer spending power.
• The enforcement of Strong Customer Authentication (SCA), which is making it more difficult for customers to complete online payments.

Four key challenges that will determine the success or failure of businesses in 2023 in the UK and the European Union have been identified in the ecommerce report for 2023 by fraud protection platform Signifyd. 

The new normal for payments
Payments have always been a critical part of the customer journey, and merchants who take a strategic approach to payments are seeing the benefits, even in today’s challenging economic climate.

Meeting the needs of all customers
Consumers are increasingly embracing a variety of payment methods as they adapt to the new era of ecommerce. According to Signifyd’s report, buy now, pay later (BNPL) has seen a 68% increase in usage in the last year, while debit and credit cards are becoming less popular. PayPal and Apple Pay have also seen significant growth, with usage increasing by 274% and 70% respectively.

The increasing popularity of a variety of payment methods creates an urgency for retailers to diversify their accepted payment methods portfolio. Retailers need to accommodate the fact that one customer might use a different payment option depending on the situation.

Merchants who do not offer a variety of payment methods risk losing customers. A survey by UK consultancy Merchant Advice Service found that 20% of consumers will abandon their purchase if their preferred payment method is not available. This means that merchants in the European Economic Area (EEA) are losing an estimated £1.8 billion per year due to a lack of payment options.

To ensure success, retailers need to be aware of the payment methods that are trending among their target audience and integrate them into their checkout process.

The power of data in payments
Merchants are being encouraged to use data throughout the entire customer journey to improve their risk management and approve more legitimate orders. According to research by CMSPI, merchants lost £21.7 billion (€25 billion) per year in 2021 due to false declines and £1.9 billion (€2.2 billion) to fraud.

Data is key to using machine learning to improve authorisation rates, drive loyalty, and understand customers better. These are all essential aspects of the ecommerce game, especially as Strong Customer Authentication (SCA) is causing friction in the checkout experience and leading to cart abandonment.

How COVID-19 has changed the way we return items
The COVID-19 pandemic accelerated the shift to online shopping, and with it came an increase in online returns. According to Mintel, 38% of customers became more comfortable with the idea of returning goods during the pandemic.

However, this comes at a higher cost for retailers, who are expecting lower annual revenue due to the increase in returns during the cost-of-living crisis.

While some of these returns are legitimate, others are fraudulent. As the checkout process is becoming more difficult to penetrate due to Strong Customer Authentication (SCA), fraudsters are finding other ways to exploit the online customer journey. Some of these methods include:

While it is important to protect against fraudulent returns, it is also important not to deter legitimate customers. The key is to find a balance between the two. This can be done by having return-friendly policies for legitimate customers and by building barriers against those who would take advantage of the system.

New growth opportunities
Global e-commerce is poised for exponential growth despite current economic headwinds. Online sales have continued to grow rapidly, increasing by 33% year-over-year in 2021, according to a report by Signifyd. While shoppers are returning to in-store shopping, which is almost back to pre-pandemic levels, the online shopping space has solidified its place in the retail market.

The rapid growth of global e-commerce presents a vast opportunity for businesses to expand internationally and reach a wider customer base, which can lead to increased revenue. In fact, cross-border sales are up 45% this year compared to pre-pandemic figures, according to Signifyd.

Customers appreciate the convenience of online shopping and are looking for foreign goods at the best possible price. This is a great opportunity for businesses to capitalise on this demand and give their business a boost, especially if they have reached a plateau in their home market.

Expanding globally can be challenging, and it is important to carefully consider if this is the right move for your business. Some of the things you need to do to prepare for cross-border expansion include localising your content, diversifying your payment methods, and becoming familiar with local fraud trends.

Each market is unique, so it is important to do your research, use data, and ask yourself the right questions before expanding into a new market. These questions should include why you are expanding into the market, where you want to expand, and what you are willing to risk.

If you’re considering expanding internationally, now is the time to do it. According to Signifyd’s ecommerce report, 85% of UK consumers are already shopping cross-border. Foreign markets are hungry for new and innovative products, and you can gain a competitive advantage by being an early mover.

Overcoming the challenges of SCA
The enforcement of Strong Customer Authentication (SCA) was the biggest change in online payments since 2007. It was designed to reduce fraud in the wake of the booming e-commerce sales and create a safer online shopping environment. However, the two-factor authentication that comes with SCA has had an unintended consequence: it has caused friction in the customer journey, leading to frustration.

Customers today expect a fast and seamless online shopping experience. Any disruption, no matter how small, can lead to a negative customer experience. In fact, a report by Signifyd found that 71% of UK consumers rate unsuccessful checkout experiences due to SCA as five or higher on a frustration scale of one to ten.

As a result, customers are likely to leave their shopping carts unpurchased, decide not to shop with a particular retailer again, or even worse, switch to the retailer’s competitors.

Although the enforcement of SCA has been met with some challenges in the UK and the European Union, the experience has not been the same across the region. Some countries have experienced less friction than others, but what is it that sets them apart?

3D Secure, the EMVCo’s SCA authentication protocol, is the main factor that differentiates countries’ experiences with SCA enforcement. Some countries are still using the original and outdated version of 3D Secure, which is causing significant transaction declines. For example, Signifyd’s analysis shows that 42% of Italy’s approved orders were met with significant friction due to the 3D Secure version 1 review, and 22% were rejected and abandoned.

This means that merchants need to implement an SCA-friendly strategy that takes into account exemptions and out-of-scope transactions. This will help to reduce the friction caused by SCA and improve the customer experience.

2023 is shaping up to be another great year for e-commerce. While there are many challenges ahead, merchants who have the right tools and a strong strategy will be able to overcome them and thrive.

Sources

https://fintech.global/2021/08/17/nearly-2bn-lost-annually-by-online-retailers-due-to-lack-of-payment-methods-in-paytech/

https://cmspi.com/eur/en/resources/content/card-costs-soar-as-european-retailers-feel-the-heat-from-inflation/

https://www.bbc.com/news/business-61822539

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