Internet & Social Media Law Blog
Recently, Pillsbury’s Deborah Thoren-Peden sat down with a panel of experts that included Millicent Calinog Tracey (former Wells Fargo SVP), Samantha Ettus (founder and CEO of Park Place Payments) and Pillsbury partner John Barton. They discussed how businesses and the customer experience have been impacted due to COVID-19 and how banks, fintechs and payment companies can maximize opportunities and mitigate risk with increased demand in the digital payments space.
Deborah Thoren-Peden: How have businesses/merchants been impacted in the last three months since this pandemic began?
Samantha Ettus: From a merchant’s perspective, it is different based on what sector the business is in and on what state they’re in. We’re also seeing that consumers are demanding a contactless experience because when they go to the restaurant or the salon, they don’t want to be touching the machine and using the pen. They don’t want to have to be giving their credit card to someone, so consumers are demanding that merchants become contactless, and many merchants still have not transitioned to that. We’re also seeing a trend toward online payments. For example, for boutiques and other businesses that never even considered selling online, it’s now a necessity, so they have to get ramped up fast. We’re also seeing a need for a personal touch—when you have a crisis like this there is such a need for in-person customer service.
Millicent Calinog Tracey: A lot of businesses, including banks, are accelerating their digital efforts. Some interesting stats: online spending is expected to account for 25% of retail spending in the near future. Before the pandemic, it accounted for just 15%. Twelve percent of banking customers have now enrolled in online or mobile banking for the first time since the pandemic began. Of those who used mobile banking before, they’re relying on it more heavily, and 52% of those consumers are now saying that they’re going to continue using it more frequently, so it definitely gave a kickstart to that. And as Sam mentioned, contactless payments have seen rapid adoption with so many consumers demanding them.
Thoren-Peden: How are payment solution providers trying to minimize some of the impacts for merchants and others?
Ettus: In our business, we are recommending surcharging in a way that we hadn’t before. Now 94% of states allow for surcharging. There are still six states that don’t, but they’re probably not far behind in terms of changing those laws. With public support to help small businesses, passing along credit card charges to customers is a way for small businesses to survive and continue to serve their local communities. It’s the perfect time for businesses to transition to surcharging. It’s a positive trend for small businesses.
Tracey: Banks are using this as a time to keep and grab new market share, so, in a way, banks and other payment solution providers are racing to provide not only the simplest solution, but the quickest and easiest setup of that solution. It’s one thing to say, “Yes, we’ve got a great solution—it’s easy and simple,” but it’s another to say how can I make it fit in to my business. That’s an important factor. Often you don’t need the best product; you just need to make it simple and make sure that it works within your environment.
Thoren-Peden: What are some legal challenges the banks are facing these days with these changes?
John Barton: There’s often a need today to get new payments solutions in place quickly. In terms of contract negotiations from the customer perspective, focus on a few issues and negotiate. (1) Think about flexibility and leverage. The payments space is changing so quickly that to sign up for a five-year deal that’s exclusive with a big termination fee is not something that you really need to do. (2) Make sure that the commercial terms are clear and that fees are aggregated in one place rather than scattered throughout the agreement; make sure you understand your minimum commitments. (3) Service continuity is also important so I would typically insist on a transition period following any termination to ensure you can transition elsewhere without disruption. (4) Understand the rights you have to data, and then understand the rights that your provider has to data. (5) From a compliance standpoint, understand the flow of cardholder data through your organization and through your service provider and each party’s responsibilities. It may be that your solution is built so that you don’t have to take possession of cardholder data which makes PCI compliance easier.
Thoren-Peden: What are some legal challenges the banks are facing these days with these changes?
Barton: The biggest challenge may be the increasing numbers and layers of people and entities in the payment space. Banks have compliance obligations. Everything flows down from the networks and through the banks. Now there are maybe three layers of payment providers below them, and they’re not connected necessarily with the merchants and entities that they have to regulate. Figuring out ways to flow down those obligations and build a more indirect oversight—and monitoring process for compliance obligations in that new environment—is one of the bigger challenges on the legal side.
Thoren-Peden: Can you go into how careful payments companies have to be in a quick sales process? What should they be doing in terms of making sure they have their ducks in a row?
Barton: Many payments services are commodities in some ways, so payment companies need to be able to move through the sales cycle quickly. Aligning with some sponsor banks may make this easier than others. Having clear terms and conditions is surprisingly important. If you look at a company like Square, they look at their terms as part of their brand and the terms are written clearly in simple English. Packaging up things clearly can help accelerate the process and perhaps be a disincentive to negotiating them. It’s also important to have a sales and negotiating team that knows what’s important and doesn’t argue over small stuff. And then make sure of course that you can articulate what’s different about your solution in terms of culture or customer service or technology.
Thoren-Peden: Let’s dive a bit more into some of the customer and user experience. How are customers evaluating payment technology?
Ettus: Customer service counts more than ever. We are seeing a shift back to basics, which has been great because, as John said, payments are a commodity. The differentiator for us is our sales force and the way we deliver the customer experience. Also, ease of use is important and contactless payments are necessary. That’s the biggest change we are seeing—we were talking about contactless payments and their importance in 2019, but now it’s a customer demand, and we are recognizing how important that customer experience is and merchants are recognizing that.
Tracey: Businesses are looking for the solution that can get them up and running quickly and have a minimal impact on their customer. When I say customer, it’s actually both internal employees as well as external customers. Internal employees need to be involved in the payments process. On the customer side, you don’t want to put in a new payment solution—even if it’s great for you and your cash management strategy—if your customers can’t figure out how to use it. There is a change management element there, both internally and externally with your customers.
Thoren-Peden: What are you seeing in terms of room for improvement from the banks or solutions that they might implement in the current environment?
Tracey: One gap I see is putting the customer first, whether a consumer or a business customer. One mantra that we operated under was, “put the customer at the center of everything we do”—whether customer service, development, etc. Have an advisory board of customers that you meet with on a regular basis, so that you can stay close to what their challenges are. A customer’s payment challenges do not change that often, but their urgency does. Stay in touch with them, know their business, understand how the changing landscape impacts them. And then taking their feedback and analyzing it and using it to prioritize your digital efforts is important and can do a lot to also help with your processes like customer service implementation.
The other thing I see is what I call “digital lipstick.” Just because you put your business online does not mean you are online. If you are really online, you can actually transact online and that includes being able to make a payment. Don’t just put your existing offering on a website—make sure your customers can have a meaningful experience and do something on there.
Thoren-Peden: Samantha, what are you seeing in terms of where payments companies could fill gaps that some banks cannot accomplish, or accomplish well, at this time?
Ettus: In the payments industry, an intermediary is required to reach small businesses. Park Payments is trying to change that experience completely and create a professional and meaningful relationship as an outsourced payments partner. We partner with merchants which can sometimes be a harder thing to follow through on and deliver when you are bigger. It’s easier for a nimble company like ours to deliver on that promise and handhold our customers through the ups and downs of this crisis. The other gap we can fill is making sure we are keeping our customers up to date on industry trends. Being the eyes and ears for our customers has been easier for us to do. It’s also made it easy for us to adapt to industry changes like surcharging and contactless payments and the things that are becoming really important for our customers and potential customers.
Thoren-Peden: If you were talking to a bank right now, what is the one piece of advice you would give them in regard to payments?
Tracey: Implement real-time payment methods where businesses can get the funds in real time. It’s going to help business clients get those funds in and track and more effectively manage their cash and then make them available through all of your channels to your customers such as online channels, consolidated payables channels, even API channels.
Barton: Online banks have different allowances for risk and the way they approach these new models. There’s also increased need to get into new areas and to market, and I think the banks that are able to do that and understand the risk profile and adapt to it are going to be more successful than those that are standing by their same policies and contract terms and things that they backed for the last 10 years.
Ettus: It’s important to partner with sales forces that are diverse and mirror the populations they’re serving. Partner with companies like Park Place that have diverse sales forces and are looking a lot more like the customers we serve.
Thoren-Peden: And what about if you were going to talk to an investor?
Ettus: The days of going with the shiniest product are over. It’s much more a return to basics and making a focus on the merchant experience with payments and the personal experience. Investors should be focused on bringing diversity into payments and I think that’s going to be a bigger and bigger trend in the future.
Tracey: Invest in companies that truly know their target customers problems. What value do they bring to their customers? Most payment challenges that businesses have, they don’t necessarily change during recessions or pandemics, but their urgency does. If a company has a good handle on their customer payment experience and has an easy way for their customers to pay them, like a subscription model, I feel like those are probably safe to invest in.
Barton: From an investor perspective, I would be interested in how a payments company deals with compliance. A lot of payments companies are startups that move quickly and don’t think about this area. Understanding whether a payments company has thought through data privacy implications or whether they need a money transmitter license. Some of these can cost millions of dollars in either licenses or fines. Compliance is a good indication of the culture of the company and how they are operating their business.
(This Q&A is an excerpt from Pillsbury Industry Innovation Roundtable: Digital Payments Platforms. It has been edited for clarity. Click here to listen to the full recording.)