TD Bank looks ahead to long-term merchant recovery

As with last winter, merchants today are being inundated with payment technology options from traditional acquirers and neobanks, all of which promise to help them weather the coronavirus pandemic.

Ultimately, whatever options banks and fintechs deliver for this next phase of the pandemic must appease not only the merchants but their customers as well.

"The No. 1 concern the businesses have is does the consumer feel safe?" said Doug Mearkle, head of U.S. Merchant services at TD Bank, said in an interview this week.

Mearkle last spoke with PaymentsSource in July, at the time stressing the importance of an early response to the crisis. That meant accommodating a sudden shift to digital ordering and payments for merchants still accustomed to traditional point of sale hardware.

Six months later, the conversation with merchants has shifted to longer-term relationship building with consumers. In this context, the pandemic is less of a shock and more of a way to learn how consumers want to engage with merchants for the long term. That involves building new services on top of digital enrollment, ordering, payment and fulfillment, linking transactions with other content.

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"At the start of the pandemic, small businesses were reacting to what was happening 'right now' or what they were seeing in the media or hearing from neighbors," Mearkle said. "But now consumers are starting to get comfortable with the new things that are happening, so merchants need to adjust to that."

A good example of that is enabling mobile ordering and delivery for fine dining restaurants. That's something that part of the restaurant business would not have typically considered in the past, but should be a permanent part of their business, Mearkle said.

The timeframe for a potential recovery is also easier to see in December than it was in July. Since vaccines are expected to be widely available by summer 2021, there's a dual challenge of keeping consumers and staff safe now — with the virus spiking — while innovating for later in the year.

If consumers are comfortable with a merchant, they're more likely to return rather than shop around for an unfamiliar store, Mearkle said, adding: "As much as businesses are thinking about revenue and expense, the No. 1 trend is retaining consumers."

There are several ways the bank is trying to do that.

One is by consulting on general safety issues for workers, as well as adding mobile features surrounding the actual payment that enable more digital interaction — and less face to face interaction. Even after some of the restrictions start to ease, the timeframe of the coronavirus restrictions has been long enough to build lasting preferences for mobile and online ordering and pickup outside of physical scores, according to Mearkle.

"Even outside of automating transactions, we're hearing a lot from merchants on what they can do to gain more general efficiency out of their business," Mearkle said, adding an extension of the Paycheck Protection Program would also be helpful. "There have been a lot of small businesses that have shuttered during the pandemic, but PPP has also helped many stay open."

Beyond PPP lending, TD is also stressing supply chain and digital B2B payments by focusing on faster processing for business transactions, which Mearkle said can boost liquidity for small businesses that are awaiting payment by shortening billing windows.

Challenger banks and fintechs are also approaching B2B procurement and helping brick-and-mortar businesses adjust to digital. Square, PayPal and Stripe have all accelerated strategies that enable credit for small businesses based on payment flows, as well as ancillary services that enable non e-commerce businesses to embrace remote ordering and payments.

Square is in talks with investors for more funding that could more than double its current evaluation of about $36 billion. And the fast expansion of digital payments helped boost Square and PayPal's valuations, which have recently approached those of major traditional banks.

Square has also received an industrial banking license, which will allow it to offer banking services to small businesses without using a bank as a partner. PayThink columnist Marwan Forzley, CEO of Veem, argues digital-first institutions that serve businesses have expanded and can deliver a complete financial experience. "As we head into 2021 and beyond the pandemic, we see a wide open market with plenty of opportunity for not just challenger banks but for financial technology as an industry to set themselves apart from incumbents to gain market share."

For banks, the competitive response to technology firms that serve merchants is to move beyond strictly payment or financial product delivery to apply more general services, Mearkle said, expressing a similar sentiment to the card brands positioning themselves as technology suppliers more than payment processors.

"Small-business owners in the past have viewed banks as a place to transact," Mearkle said, adding that includes a stress on treasury management and business operations. "What we're seeing now is they are talking to banks about [business] advice and directions and what we can do to help them keep their doors open."