For companies like Fiserv, Fidelity National Information Services (FIS), PayPal and others, selling terminals, offering payments platforms and designing checkout buttons, top and bottom lines were poised to move up and to the right.
The first quarter of 2020 should have been business as usual — especially for the payments processors and financial services technology companies — the firms that keep commerce humming across offline and online channels. Merchants, too, enjoyed the tailwinds of a strong economy and sanguine consumer mindset.
The coronavirus upended, well, everything, of course.
Earnings reports from those companies show just how abruptly things have shifted. Drill down into the numbers, and the term “falling off a cliff” comes to mind, as healthy transaction and sales volumes at key merchant customers faced massive headwinds — and only now are starting to show a bounce off their nadirs.
Commentary from various management teams at these same companies spotlight a hard pivot into digital commerce. That pivot sets a new normal for the point of sale — a “new normal” that offers lifelines to at least some forward-thinking firms. Possibly even a renaissance. If they can hold on, that is.
Setting The Stage
The stage had been at least partially set to help merchants meet the demands of life lived online and sheltered in place. A bit more than a year ago, Square launched a revamped version of its Square Online Store and Square for Retail, in a bid to help sellers to reach consumers across a variety of channels. And in commentary on the latest earnings call, CEO Jack Dorsey and Chief Financial Officer Amrita Ahuja said that the move toward online sales saw online store GPV surge by more than five times since mid-March, to a weekly run rate at $59 million, or $3 billion on an annualized basis. That flurry of activity came with strong adoption in hard-hit verticals such as food and retail, where storefronts, of course, have been shuttered and the point of sale (POS) as traditionally known simply could no longer be available.
“Notably, we saw over two-thirds of Square Online Store GPV come from our recently launched pickup and delivery service,” said the CFO, who added during the call that now the daily sign-ups that the firm is seeing across Square Online Store are higher in number than what Square’s typical sign-ups would have been for the point-of-sale app pre-COVID. Card-not-present volumes are more than 50 percent of volumes, where pre-COVID they were roughly a third of volumes.
And in a nod toward how sellers’ needs change as POS changes, during the conference call, a Square seller quick-service restaurant (QSR) in New Jersey asked whether inventory-management systems would be, eventually, built into Square Online Store. That’s an area the company is actively working on, said Dorsey, specifically “the option to organize orders by fulfillment channel out of the site, on mobile and without the app.”
And in another nod toward helping smaller firms transition to eCommerce, Square this week debuted Square Online Checkout, which helps firms accept card payments online, including across conduits such as instant messaging and social media (we note this further brings commerce into the realm of bits and bytes). It may be viewed as a direct competitive shot across PayPal’s bow, but it also is an acknowledgment that accepting online payments is critical to getting transactions completed.
PayPal’s own results underscore the embrace of POS in the palm of one’s hand.
Management said that April was a record-breaking month for PayPal, as measured both in terms of enrollment and use, with the enrollment of 7.4 million net new accounts in the month and 10 million in the quarter. CEO Dan Schulman said on the company’s conference call that the firm anticipates adding 15 million to 20 million net new active accounts in Q2. Along the way, payment transactions were up 20 percent and total payments volume was up 22 percent year on year to $68 billion.
The accelerated efforts of merchants to meet the needs of their end-users — especially in banking — were apparent in FIS’s results. Management said in remarks that it began offering free virtual terminal access for merchants and retailers to accept secure online and contactless transactions.
CFO James “Woody” Woodall noted that merchant solutions, adjusted for the Worldpay acquisition, reported flat organic growth year over year. Merchant solutions’ organic growth has been 10 percent in January, but travel and airlines slipped beginning in February, eventually seeing more than 90 percent volume declines. Eventually retail and restaurants stabilized at 30 percent volume declines year over year in April.
Where The Bright Spots Lie
“There are some bright spots,” said Woodall. He noted that non-discretionary verticals such as grocery and drugs were resilient and, here, demand was up 20 percent. Numbers for eCommerce excluding airlines and travel were up more than 30 percent and cross border was up 30 percent excluding travel and airlines.
Fiserv reported that its Merchant Acceptance internal revenues were up 6 percent, to $1.2 billion. Outgoing CEO Jeff Yabuki said there had been incremental growth in payments and digital, and said “global merchant transactions are generally on the upswing.” In the U.S. there have been early signs of recovery in April and May to date, with comparative transactions down in the low double digits, after declining nearly 30 percent in the last week of March.
U.S. debit transactions were pressured but also showed improvement in the second half of April, better than the 20 percent drop seen in the last week of March and into early last month. The payments processing solution Clover’s gross payments volume started “strong,” he told analysts, up 40 percent in February and shipments grew by 29 percent in the quarter, with eCommerce adding 36 clients through the period. Overall eCommerce transactions were strong, up 26 percent in the U.S., and 20 percent globally. Integrated payments were up, and independent software vendor (ISV) revenues surged 55 percent even in the face of late March weakness. Overall, total contracted merchant locations grew 20 percent in the quarter.
And here is where we may see some green shoots. It should be noted that no one is really giving a timeline as to just when physical commerce returns — and whether it will be the same as we’d seen pre-COVID-19, where cards at terminals were the norm. Visa’s and Mastercard’s results show that even face to face transactions have gone contactless (Visa’s tap to pay transactions were up 40 percent in the latest quarter).
But PYMNTS' own research does give an indication of how long it might take the recovery to materialize. As noted in this space, and through a survey of more than 1,000 SMBs, roughly 70 percent of SMBs believe they will return to “pre-pandemic business models” once the crisis is officially declared over. As many as 29.5 percent said they were forced to shutter their businesses — but they are reopening and running exactly as they had once the contagion risk ended. That means a significant number of firms are looking at life post-pandemic (more than 180 days from now) to be at least somewhat different.
One key finding is that 66.4 percent of SMB owners thought they would generate more online sales than they did before. And in this way, we find that offline will still be relevant, but will have to be tethered to online options.
Welcome, then, to the new normal.