For the first month-and-a-half of the COVID-19 pandemic, I found the “new normal” expression amusing. In retrospect, the humor derived from this phraseology stemmed from an earnest belief that the then (and now) catastrophic economic and epidemiological situations were being over-hyped in the media, and that both were going to be short-lived. Yet here we are – yesterday’s “new normal” is today’s normal.
As an advisor to fintechs, payments processors, SaaS providers, and ecommerce companies, I find these times challenging, as do my clients. Every day I process prodigious amounts of industry and marketplace information in an extraordinarily fluid environment. The value I bring to my M&A and strategy clients is my ability to leverage that same information in order to make accurate projections, and then to work backwards from these projections to assess how clients’ businesses can be optimally positioned now.
For my clients with merchant facing businesses, the current environment is especially difficult. These clients – the payments processors and SaaS providers to SMB retail merchants – are having to rethink their whole approach to creating value for their customers. Thankfully there’s quality data out there to help me help them.
One recent source of particularly high quality data has come from the card networks ( $MA , $V). They have been a key source of rich, valuable, real-time data, capturing real-time consumer spending preferences: how much consumers are spending, what they’re spending it on, and most interestingly to me – and by extension my clients – how they’re spending (i.e. the modality – traditional swipe or contactless). A recent study sponsored by Mastercard revealed a 40% surge in contactless payments worldwide, between January and March, 2020. This is a not-so-inconsequential rise in contactless payments usage. In fact, it can be argued that in this pandemic stricken, germ-centric world, this is going to be the preferred payment modality of the consumer.
As of the writing of this piece, there’s zero indication that the pandemic-induced constraints forced upon both consumers and businesses will be ephemeral. And these constraints, I would argue, will permanently change the way consumers and businesses behave. As it relates to the consumer, they clearly prefer a no-touch, contactless mode of commerce, and there’s no logical argument that I can see that would cause a reversal of preference. And herein lies the premise of this post: SMB merchants will no longer adhere to the pre-pandemic mindset of equating value from their payments processing and software providers with products and services that “make their lives easier”. Consequently, SMB payments and SaaS providers will need to readjust their business models to account for this redefinition of value and change their focus from the merchant-centric to the consumer-centric.
Going forward, payments processors and SaaS providers who service the SMB space will need to accommodate and abide by the new notion that it’s the consumer they have to focus on when selling and providing their solutions – not the merchant. What the merchants need from their service providers are commercial solutions to facilitate commerce in a contactless scheme.
Neither cash discounting from merchant processing nor operational efficiencies from SaaS based business management solutions are going to save a merchant’s business. Let’s not kid ourselves. The “new normal” is here to stay. When the government subsidies run out, and rent and mortgage forbearance programs cease, SMBs are going to be thrown into survival mode. For SMB merchants to remain viable, and for the payments and SaaS companies who service them to do the same, the business strategy will have to focus on getting the consumer back in the door, and that will depend on those schemes and technologies that make the consumer feel comfortable and safe.
Adam T. Hark is Managing Director of Wellesley Hills Financial. With 15+ years of consulting in payments technology, SaaS, and fintech, Adam advises clients on growth, exits, and market positioning strategies. Adam can be reached at ath@wellesleyhillsfinancial.com.
