Payments in a Time of Plague

The Covid-19 pandemic is overhauling payment habits, and hence payment technology. How long-lasting are the changes?

On 9/11, when terrorists attacked New York City and Washington, D.C., they commandeered passenger airliners and used them as flying bombs. Nobody knew in the heat of the moment how many more might be hijacked, so authorities grounded planes on the runway. An unintended consequence was that checks, which were then still largely transported by air  around the country, couldn’t settle.

The solution was a relatively new technology called image exchange, which replaced paper items with electronic images. Expedient at the time, the move proved to be a permanent change.

Now some observers are wondering how payments technology will change this time, under the cloud of the Covid-19 crisis. And they’re asking which new ways of doing payments will prove permanent, like image exchange, when the emergency is a distant memory?

Like the terrorist attack on 9/11, “this [pandemic] exposes the ways we’re vulnerable,” says Steve Ledford, a senior vice president at The Clearing House Payments Co. LLC, the country’s largest private-sector provider of real-time payments. “And we’ll find a better way of doing it. Once people find a better way, they don’t want to go back.”

So what are the “better” ways in the face of a killer virus that seems to spread so frighteningly fast? Contactless payments can let you use your card to pay in a store without touching a keypad touched by countless others. Autonomous checkout adds the further advantage of allowing you walk out of that store without having to interact with anyone.

Real-time processing speeds money to people in need for a host of reasons. Same-day automated clearing house transactions aren’t quite as fast, but fast enough for many purposes. E-commerce lets you shop and order meals from the safety of your house while under stay-at-home orders. By the second week of April, such directives were in effect in 42 states, three counties, nine cities, the District of Columbia, and Puerto Rico, affecting 316 million people.

A Sea Change

Perhaps the biggest near-term shift could be to contactless payments, involving either plastic cards or mobile phones. “We’ve crossed a barrier here, where merchants won’t be as passive as they have been in the past in terms of encouraging the use of contactless,” predicts Randy Vanderhoof, executive director of the Secure Technology Alliance, a Princeton Junction, N.J.-based trade group.

Shortly before he spoke, the big Publix grocery chain announced it had equipped its more than 1,200 stores with contactless capability. The stores accept Google Pay and Apple Pay in addition to antenna-equipped plastic.

Retailing giant Walmart didn’t go quite that far, but it did rig its self-checkout machines to allow customers to sync Walmart Pay on their phones using a Quick Response code. Before, they had to touch an icon on the self-checkout screen to choose a payment method.

Observers see a sea change in progress. “The United States has been the slowest [country] to embrace contactless, but the pandemic changes that,” says Eric Grover, principal at Intrepid Ventures, a Minden, Nev.-based consultancy (for more of Grover’s thoughts on the subject in Endpoint, this issue). “Issuers are going to be mass-issuing contactless cards to show they’re with the program.”

Contactless is coming to gas pumps, too. For example, Sound Payments, a Jacksonville, Fla.-based payments technology firm, is marketing an EMV solution for pumps in advance of a directive from the major card networks to convert by October. The technology includes contactless capability from point-of-sale equipment provider Pax Technology.

Bill Pittman, senior vice president of sales and strategy at Sound Payments, expects heavy usage. “We’re habit-forming creatures,” he says. “You have the benefit of the faster transaction. Once [consumers] start doing it, they will continue. Nobody wants to go backward.”

There are tentative signs that may be true for smaller businesses across industries. A survey last month of small and medium-size businesses sought to find out how their payments technology had been affected so far by the pandemic. Some 27% reported an increase in contactless transactions since the onset.

‘Pretty Crazy’

Still, the results are too tentative for Jared Drieling, senior director of consulting and market intelligence at The Strawhecker Group, the Omaha, Neb-based firm that conducted the research for the Electronic Transactions Association. “From a consumer’s standpoint, you’ve got to have ubiquity. There’s still a hurdle on that front,” he says. There are still too many stores where cashiers don’t know what contactless is or whether it’s turned on, he adds.

A related application, the cardless ATM, may also hold appeal in the shadow of Covid-19. These machines allow consumers to pre-stage a withdrawal on a smart phone, then arrive at the chosen ATM and use the phone to link to the machine via near-field communication or a QR code. “I used to think the value proposition [for this] was lacking,” says Sam Ditzion, chief executive at Tremont Capital Group, a Boston-based investment bank specializing in the ATM industry. But not any more, he adds.

Online commerce is likely to get a boost, as well, with tens of millions of consumers cooped up at home. But not all the beneficiaries will be virtual merchants. Restaurants forced to close their dining rooms are turning to online ordering to fill the gap.

That’s creating an opportunity for big online-ordering firms and delivery outfits, but also for independent sales organizations. Bryte Payment Solutions in Jacksonville, Fla., developed software last year for online ordering, then put it on the shelf. With the onset of Covid-19, it’s embarked on a crash course to get it into the hands of eateries. “This whole thing is pretty crazy,” says Dave Humphrey, president and cofounder. “These people are throwing in the towel.”

The software takes two days to set up, he adds, and Bryte has waived its licensing fees and monthly minimums for usage. As of April 10, the company’s independent agents had signed up 127 restaurants. “I’ve got reps I never heard of connecting with me on LinkedIn asking, ‘hey, can I sell this?’” Humphrey says. To handle deliveries, he encourages clients to bring back people they’ve laid off.

People staying home want to order from restaurants, but they also want to pay others, and fast. That’s driving usage for services like Zelle, the real-time peer-to-peer payment service owned by Early Warning Services LLC, a technology firm controlled by some of the nations’ biggest banks. Bank of America, one of Zelle’s biggest backers, reported a 76% increase in Zelle transactions in the first quarter, compared to the same time last year, as sheltering users look for ways to pay remotely.

Nearly one-third of the memo fields in Zelle transactions are filled out, according to Jamie Armistead, vice president of product line for the service. That gives the company some insights into what users are paying for, as well as to whom. Right now, the big uses are rent and gifts. But paybacks are big, too. “We’re seeing a decrease in dining and entertainment, offset by some of the payback memos for groceries and charities,” Armistead says.

Will the Covid-19 pandemic, in the end, change deeply embedded customs and social mores? Probably not. But it is clearly bidding to rework some of the ways people exchange value, in some respects with permanent effect. Says TCH’s Ledford: “Of course it’s going to change payments.”