In the midst of the Covid-19 crisis, here’s how payments providers are coping as merchants contend with shelter-at-home policies and other restrictions.
The word that looks to define 2020 is “pandemic.” Efforts to curtail the infection rate from the new coronavirus have included government orders to shelter-in-place and observe social-distancing requirements. And throughout the United States, merchants of all sizes—even those deemed essential and remaining open—have felt the impact of reduced consumer spending.
While it’s well-known what the impact has been on merchants—with the hospitality industry particularly affected, resulting in closures and layoffs—what has been the impact on payments providers? How have they adapted? Which measures put in place to stem the spread of the Covid-19 respiratory disease that results from the coronavirus might end up leading to lasting changes?
Prior to the countermeasures, Austin Mac Nab, founder and chief executive of VizyPay LLC, a West Des Moines, Iowa-based independent sales organization, would have been hard-pressed to imagine 70% of the company’s employees working remotely. Now, for the time being, it’s a reality.
Mac Nab is enthusiastic about creating and cultivating a workplace culture. It’s been a guiding principle since VizyPay’s founding in 2017. Before the shelter-in-place measures, none of VizyPay’s employees worked remotely. “Once we did it and incorporated video conference calls, the culture remained the same,” Mac Nab says. “It was exciting to us that we could do that in a short period of time.” To that end, no staffing changes were necessary through mid-April.
That’s been critical because sales continue to come in, Mac Nab says. VizyPay put more emphasis on its “Look Local First” campaign as a way to help its sales partners do what they can to retain merchants. Participation in the program includes a Look Local First sticker to put in a merchant’s window with social-media marketing and related efforts to boost small-business shopping.
“Our Look Local First campaign focuses on putting the public’s eye on shopping small,” Mac Nab says. It appeared to be working as new sales were coming in through the end of March and into April, Mac Nab says. VizyPay also used social media and videoconferencing to work with merchants.
‘Covid-19 Survival Kit’
At Celero Commerce, the Brentwood, Tenn.-based payment provider views the situation from an offensive and defensive perspective, says Kevin Jones, chief executive.
One of Celero’s first moves was to create a pandemic-response team that holds daily meetings to examine industry data, its own trends, and the overall situation. The need was to understand what the impact would be on Celero’s business, Jones says. That group reviews merchant activity, overall trends, and the general situation to make better-informed decisions. That’s a defensive move, he says.
Led by a project manager, the response team constantly evaluates data against trigger points that would determine Celero’s subsequent actions. The data are evaluated against three levels of impact on the company to help Celero make responsible operating and expense decisions to maintain the well-being of the company, Jones says.
On the offensive side, Celero immediately started talking to merchants to learn what they were experiencing. One local flower shop told Jones that if it had $200 a day in sales, it could keep three individuals employed and the doors open. One result of this information-gathering was the creation of the Celero Covid-19 Survival Kit, which focuses on solutions that help small businesses retain revenue.
Software that enables online ordering and curbside pickup is a component of the kit, as are virtual terminals and idea-sharing, Jones says. In one seven-day period in April, Celero hosted 13 webinars for small businesses and banks.
Both Celero and VizyPay have completed acquisitions during their pandemic response. Celero acquired payments provider FlashBanc in early April and VizyPay bought Echo Daily, a deal that will provide a second office in Nevada.
Jones says most of the payments industry halted merger-and-acquisition activity as the pandemic response evolved. In Celero’s case, it had three deals in the works at various stages when the Covid-19 outbreak happened. One, the company walked away from, another didn’t fit Celero’s risk profile, and the third was FlashBanc. “It made sense, even in this particular environment,” Jones says.
“Acquisitions came to a screeching halt mid-March,” says a research note from analysts at The Strawhecker Group, an Omaha, Neb.-based payments consultancy. “Most prognosticators predict that it will be a slow summer for M&A activity, however many expect that transactions will begin appearing in Q3. The question will be, will the sellers’ market continue, or will it switch to a buyers’ market?”
‘A Special Challenge’
Shift4 Payments LLC’s first reaction to the Covid-19 outbreak was to create a plan, rapidly, for remote operations, says D. Taylor Lauber, chief strategy officer at the Allentown, Pa.-based payments provider. It also created a program to aid merchants and a daily updated Web site that provides a state-by-state impact on hospitality transaction volumes.
“Our business has geographically disparate offices,” Lauber says, including a technology center in Lithuania. “What we had to figure out was how to get our entire 1,200-person workforce remote as quick as possible,” he says. “That was a special challenge.” It entailed deploying hundreds of laptop computers, setting up a new phone system, and training the workforce on remote operations within a week, he says.
“Productivity has been great,” Lauber says. “Part of that is everyone likes to rally around a cause.” Employee groups quickly figured out ways to do their jobs remotely, from shipping gift cards to POS equipment fulfillment, he says.
The effort paid off because merchant boarding did not slow down, Lauber says. Speaking in late March, Lauber said merchant production looked no different than it did three weeks prior. Acknowledging that may be unique to Shift4, Lauber says some merchants, even if they closed, might take on projects, such as upgrading a POS system during the downtime.
An April survey from the Strawhecker Group found 58% of small and mid-size businesses were adding new products or services to stabilize or grow their revenue.
Among acquirers, according to anecdotal information from Strawhecker analysts, the issues are varied and as different as the markets they focus on and the sales and business models they employ.
“From a straight volume perspective, some acquirers with heavy ‘Main Street’ portfolios (heavy percentage of restaurant and retail merchants) are most seriously affected by Covid-19, and are experiencing as much as a 50% reduction in overall volume which is a direct impact to their revenue,” the Strawhecker anlysts say.
“The extremes include those merchant portfolios that are focused specifically on the hardest-hit verticals, such as restaurant, hospitality, entertainment, personal services , etc. who have experienced as much as a 75% to 80% reduction in volume,” continues the report. “Conversely, portfolios heavy in recurring billing, supermarket, pharmacy and [business-to-business] have experienced much lower impacts and in some cases actually have increased their volume and revenue.”
‘A Lot of Positives’
Some acquirers suspended some fees for a period or offered additional services, such as loyalty and payroll, at little to no additional cost. Others, in an effort to prevent attrition, suggest merchants keep accounts open, with the acquirer agreeing to suspend fees, and instead become seasonal merchants, ready to reopen as the economy improves.
One payments component that is not changing is the interchange rate. Both Visa Inc. and Mastercard Inc. planned April interchange adjustments but postponed them until July. Merchants, in Strawhecker’s “U.S. SMB Covid-19 Perspectives: Survey Results” for April, said waiving, decreasing, or deferring credit and debit payment-processing fees was their top choice for relief.
But the acquiring industry is financially stressed, too. While not every acquirer is experiencing the same issues to the same degree, the impact of the pandemic response is widespread.
“At the same time that these issues are impacting acquirers from an economic standpoint, sales have plummeted and the number of attrited merchants [has] climbed, all combining to put financial stress on the industry,” the Strawhecker survey report says.
One aspect is certain for VizyPay. “There’s a lot of positives we’re learning,” Mac Nab says. “It’s teaching us a lot about what our capabilities are. We found a lot of things we’re good at that we didn’t know that we were good at.”