Increasing demand for contactless payment services and increasing competition from payment processors has let banks show off their services to potential customers.

Just as the Paycheck Protection Program gave community banks an opportunity to respond to the needs of local business, 2020 has also brought opportunities for local lenders to showcase their payments-processing products to business customers who might be lured away by larger, national competitors. 

“When it really comes down to supporting the local community, your local bank is going to be that top-notch supporter and have that partnership with the community to ensure that the community thrives and stays strong,” said Daniel Sousa, vice president and cash management officer at Peabody-based North Shore Bank. 

With businesses and consumers having to change how they interact because of COVID-19, payments processing has had to adapt as well – from a higher demand for contactless payments to businesses wanting to receive funds through digital channels. 

As adaptations become expectations for businesses and customers, community banks that offer payments processing as part of their suite of cash management services will need to adjust as well.  

Community banks will also be challenged to bring in and keep customers as large banks, financial technology companies and, in the near future, challenger banks all compete in the payments processing space. 

Pandemic Brought More Competition  

Amid early fears that shoppers could contract COVID-19 from contaminated surfaces, many merchants sought to add touchless payment systems to cashier stations in addition to traditional credit card readers. At the same time, said Aite Group senior analyst Thad Peterson, the number of fintech companies facilitating payments rapidly increased – companies like Square, Stride and Braintree that accept payments and often bring businesses on board in more efficient ways than banks. 

Many of these payments facilitators focus on the same small and midsize businesses that make up many of a community bank’s customers, Peterson said, posing a problem for lenders. 

The annual J.D. Power U.S. Merchant Services Satisfaction Study recently showed that while U.S. small businesses were satisfied with technology, companies with significant sales declines during the past year also reported more challenges with customer service, cost of service and underwriting and onboarding at their merchant services providers.  

The study also found that businesses that experienced COVID-19-related disruptions had significantly lower satisfaction with their provider’s contact center representatives, automated voice response services, underwriting and onboarding and cost of service. 

But the competitive challenge these companies present to community banks can also be an opportunity, Peterson said. 

“The reason [community banks] exist is to maintain strong relationships with community businesses and their customers,” he said. “They have a deeper and stronger relationship than a payment facilitator might, and that’s an opportunity if they have the right kind of payment capabilities inhouse.” 

One way community banks can remain competitive in payments processing is by accelerating onboarding and underwriting capabilities, Peterson said, especially with businesses that already have a relationship with the bank. He added that some payment facilitators can onboard a new client in 15 minutes. 

Peterson said other keys for community banks include being able to offer contactless payment options to merchants, food service businesses and restaurants, as well as mobile or portable point–of–sale technology. He added that community banks should also keep in mind two things small businesses have little of – time and cash – by minimizing the amount of time companies need to spend managing payments and their business, while also committing to real-time payments processing to avoid clearing delays. 

Lenders’ Opportunity to Show Off 

In the face of these challenges, Massachusetts community banks have found opportunities during the pandemic to show businesses what their payments processing services can offer.  

Whitinsville-based UniBank is hosting a webinar later in February to show prospective business and nonprofit customers how they can use its online system, UniPay, to accept payments from customers.  

UniPay is an in–house system originally built in 2004 to help municipalities accept money online from residents. Justine DeNorscia, UniBank’s executive vice president, said the bank in recent years saw that small businesses and nonprofits could also use the online payment portal with their customers. The pandemic accelerated those efforts. 

“The biggest difference with the pandemic and what’s changed over the year is the driven need for community businesses to have another venue for payments acceptance,” DeNorscia said. “The focus of 2020 for us was accommodating those businesses that needed a platform that was conducive for their users to go on and make a simple payment to them.” 

The bank saw a 22 percent increase in online payments through UniPay in 2020, including businesses, nonprofits and municipalities. The bank also provides support to users. For the 2 million payments made in 2020, the bank received 40,000 emails and 8,000 phone calls from users – including for help with passwords and how to use the system.  

Businesses can get help from the bank’s general support team and also have relationship managers available to them.  

Security, Simplicity Offer Draws 

DeNorscia said business customers appreciate the safety that comes from the bank’s regulated environment and security measures. She added that having an in–house product lets the bank make fast decisions about enhancements without much red tape.  

North Shore Bank also has an online payments module as part of its suite of cash management services, and Sousa said the bank has seen an uptick in its use during the pandemic. The bank partnered with one of its vendors, COCC, to integrate the payments system into its online banking platform.  

One way the bank remains competitive, Sousa said, is to offer flat-fee pricing so that businesses know what to expect for costs. Larger businesses can earn credits to offset fees.  

Onboarding time varies, Sousa said, and a more complex client could need one to two months to complete. But he added that bringing new customers on is a continuing process as the bank makes more tools available. 

Diane McLaughlin

North Shore Bank has about $1.5 billion in assets, and Sousa said the bank’s size allows it to enhance its services and adapt quickly to client’s needs in ways that larger banks might not be able to.  

“Technology clearly is always going to evolve, and North Shore Bank is committed to ensuring we’re in line with those evolutions of technology and ensuring that we have those fundamental tools that all business customers need,” Sousa said. 

Payments processing will be important competitive terrain even after the pandemic, and community banks can expect to have more challenger banks, like SoFi, to compete with in the future as well, Aite’s Peterson said. 

“It’s really important that community banks leverage the strengths that they have with the relationships in their communities to provide the level of service and capabilities that are starting to show up in the challenger banks out there, because clearly those banks are going to become increasingly important going forward,” Peterson said.