One of the biggest things that has changed over the last three, four or five months is not just that we don't go to offices or schools anymore.
We've changed how we shop.
Shop owners and small business owners have changed how they find customers, how they engage with customers, frankly how they make money.
So, the big question is now what do these businesses do in order to number one, stay alive and thrive into thus challenging times?
And how do they prepare for a future where things might look very different I'm Dan Ackerman and today we are talking to Kevin Phalen.
He's the head of small business solutions at Visa and I'm very pleased to ask him about some research that his company has been doing.
And for one, Kevin, thank you for joining us.
And number two, the first question I really wanna ask you is, how has shopping changed for you personally?
I see this every time I go somewhere and I maybe have some cash in my pocket and I go, I'm not gonna touch this or use this.
I'm worried about the store.
What do you do when you leave the house?
And you go somewhere.
Jim, first, thank you for taking the time.
I'm really looking forward to having this conversation.
I hope you and your family are safe.
But it's a great question.
In fact, I just talked to team members about it the other day that, you go to our local farmers market out here in the suburbs of Chicago and in the past, you worry about do I have the cash I need?.
All you need is your mobile device because a year ago, nobody took Apple Pay, nobody took contact list.
I go there now and 90% of those small business, farmers and shops, they've all moved into contact list so I can do everything with my phone, which is probably the biggest change.
Yeah, I've been going to some farmers markets myself, both here in New York, up in Vermont and the change in the structure of them is really striking.
In one sense when you go there you have to sort of get in, you can enter through one point and then make sure you're wearing a mask and only two people can go in it.
You know once and then a little pause, but at the same time there's no more of this.
You dig around in the pocket hand something over.
You can do the the what my what my son calls whooping where you take the phone and you boop it on something.
Whereas maybe before you couldn't do that, but at the same time you lose some of that hand to hand sort of How you doing?
The shape that glad handing the and shaking that you have at the small markets.
Do you find and I love your example of a farmers market that there's something of a generation gap, where maybe older purveyors need a little more help getting used to this while younger people who are at the farmers market, selling whatever, selling their artisanal kombucha.
We're already doing this and they know what to do.
Yeah, I think the beauty of being somewhat of a payments geek is that when I'm standing in line or I'm paying, I can either use my phone or I can use my card to tap to pay.
And often what I found is that many of the small businesses at the farmers market didn't even know they could support Apple Pay.
And so it was an education for me and now when I see him every week, they're like, Hey, you're the guy who taught me how to do this.
Now everybody's using it.
And then typically if I have people around me feel like what did you just do and I spoken on your phone or on your card, if you see the wave pay Notice you can use your phone and you can use your card.
So a lot of people are learning that way.>> I think that if you just describe it as booming it then people will inherently understand it.
I'm going to make this a term that everybody uses.
Would you find Apple Pay to be the default that people are going to now as opposed to other forms of contactless payment?.
Now, I would say it's pretty ubiquitous.
Now you've got all of the different paths that are being used.
You've got card as a form factor that here in the United States now we're seeing many, many more cards with contactless capabilities.
And then what we're also seeing is, you know, small businesses up to large corporates.
Now, we're saying We understand in this current situation safety's first and we're going to enable the ability to do contact list.
So I think it's fairly ubiquitous in many form factors.
Are we a little bit behind the ball here in the US on contactless cards, I know my wife and I got cards from the same institution last year.
Hers included a contactless chip, but mine did not.
Which I have now family shamed for.
Yeah, it's a great question.
The reality is in some markets around the globe is I look at our business and our clients in markets like the Czech Republic or Australia.
At 90% of all face to face transactions are done in a contactless environment today, here in the United States, it's finally starting to accelerate.
And though there are not many great things about the pandemic, one thing that has accelerated as a result is the use of contactless because small businesses and consumers want the safest way to pay and that clearly is the easiest way to do it.
You think is there messaging out there that equates contactless with safety?
Number one, number two, do we feel that's actually correct that there is a safety benefit from doing contactless payments as opposed to I'm not even saying cash but that's always been true.
Handing over your card and to get back or running your card through a strange machine.
What is the actual thinking on contact with list?
Is it worth the effort to moving towards that, if right now you just have a card swipe machine or insert Question.>> Well, interestingly on the study we just did for small businesses in consumers, literally 48% of consumers said to us, they would change the way they shop.
into an environment where contact is contactless is enabled versus not the traditional way of doing payments through a physical touching of a terminal and or an exchange of cash.
So we've seen a significant change happen and consumers are doing that.
Every day and that's why it's really important for small businesses to embrace this digital world that we're in.
What's the build out required if I have a small shop someplace that's not you know, my own personal I'm the owner.
Maybe I haven't I take credit cards but I haven't switched over to contactless payments.
And I know now that I should have realized several months ago but now I'm like, Okay, I have to do this.
What's the ramp up for me generally look like in terms of things I may need to buy technical knowledge, I may need to have questions I may have to answer from, you know, consumers that come in Yeah, I would say fundamentally there are so many enablers now in the ecosystem, that making that switch from the physical to the digital is really rather easy because if you think about again, just probably two years ago you were used to seeing the dongles that people were swiping or dip the chip.
Now all of those are enabled to also handle the contactless card and or mobile device.
So the transition was easy.
I think the thing that really is driving it now is the demand coming from that consumer saying, I wanna be safe because that safety is top of mind.
It's really important for those small businesses to make that migration into that digital support because if they don't, they could end up losing that sale.
And what we have found is those that have made that change are really thriving.now.
That's interesting because for a small business or single owner business, especially to retail one, it should be relatively easy to do that upgrade but I have been Over the past several months in some pretty big stores and pretty big chains, always, of course, mask and shopping carefully where I get to the checkout.
And I am shocked by the lack of contactless options and the fact that I have to take my precious precious card and slide it in some some dirty little pinpad that.
Who knows how many other people have been using?
And maybe at best I get a little note taped above it like download our proprietary you know contactless payment that you can't use Apple Pay here and I shrug my shoulders and I go, I could talk to the guy with the antique store in my neighborhood and help him get on board.
What do with mega company x Yeah, I think look at like any, any change in payments or just brought infrastructure, it's a bit of a chicken in the egg.
And the vast majority of merchants in the United States have enabled the ability to take contactless, but they were also waiting for consumers and financial institutions to enable it and again in the COVID world that's been accelerated.
We are always working with our merchants to enable them, but it's gonna take a little bit of time.
I'm really excited that when I look at how small businesses have been embracing it, I think that's really important because for them to thrive in this environment They have to move on into that digital environment.>> That's interesting that makes me think that maybe because it's a large chain or multiple teams with many, many stores, there's a big cost involved with updating the actual hardware because that's a hardware switch for them.
They can't just turn it on they have to have a New pin pads and card readers with centers that is that correct?
No, I would say for the most part again each large organization is going to be in a different age and stage but if you look at what I would say your everyday shopping places, whether it's Pharmacy, healthcare, groceries, all of those have made the investment and they've moved into that environment.
I think as we see larger ticket organizations and merchants, ultimately they will move over there.
But your small businesses realize that they have to do it now in this new environment.
I think for them, it's as easy as connecting it into their mobile device.
And it's, you know, quite honestly, they don't have to worry about printing anymore because as we all know, those receipts are just automatically sent to our devices now.
That's true, they turning down the receipt is the new move.
Would you like to receipt?
No, thanks, I'm good.
Or you can email it to me or phone or to me.
I loved your reference a few minutes ago to the cart.
I I think we'll never see the end of the square readers on the ends of phones that.
It'll take generations to get them out of some people's hands, even though they're not truly contact list, but do you see a shift especially in the research that you and your organization have been doing, where small businesses in particular are shifting online and they're trying to drum up More business that is not local business even though they may have traditionally been local community neighborhood stores.
And that's probably the biggest shift we've seen.
So from the study that we did and eight markets around the world talking to thousands of small businesses.
Across the globe in those markets nearly 30% of them,had traditionally never ever tied to social media.
And just as importantly almost 30% of them were not settleling online.
And now they are,and that's just sents the much typicall time frame.
So you see a lot more appetizing,but then you also see many many more of them Actually now selling online, and that's been a big shift and it's it's one that we expect will continue to grow and look at you and I see it every day.
In the past you'd have to physically go into a store and now you can go to a curbside and pick things up.
You can call to pick up to go And many of your local shops in the past may not have done that.
That's intresting, you bring up a good point that I had not thought about, thinkning about small businesses and how they make this ship, there is really two things that they need to do.
Number one is, Advertise often on social media or Google AdWords but frankly Facebook is really where a lot of that is going right now.
And then they need the online storefront and the ability to take payments and maintain inventory and have a a virtual basically a virtual shop.
And that's so complicated for people.
What do you guys see small businesses doing especially if they have not been in this space before?
To number 1, get comfortable with this.
And number 2 to find, solutions that are scalable.
For someone who's just starting out.
I'm going to put a couple of things online.
I'm going to buy an ad on Facebook and targeted people in my neighborhood now, but I don't know what I mean.
I find Facebook ads confusing.
I've been doing it for years.
What I would say, Dan, what we try to do as a network working with our financial institutions, one of our key focuses right now, for small businesses, how can we make them smarter How can we give them data and solutions so that they can move online, so that they can have their payments managed online, so that they can take that local contactless payment.
So I think the main thing that we do Is give them access to information and data, along with the financial institutions that help enable them.
And then all of a sudden they can see the benefit of what can be done.
And that's the beautiful thing in today's technology, there's a lot of great integrators.
There's a ton of enablers Working with financial institutions to help them in this new world that they have to operate in.
Are we in the broader technology and commerce question?
Are we in the era now where a small business owner really can do a lot of this themselves, whereas even a couple of years ago that They would have said I gotta hire a web guy.
I gotta hire someone to design my site.
I gotta hire someone who knows how to do payments.
I gotta hire someone who knows how to do the buy buttons.
How is that, what shift has happened there?
And is there anything accelerating this year that you're aware of?
That's really going to help people be able to do this themselves, especially because a lot of small business owners take great pride.
Being complete DIY shops I design my story open it up, I manage the cash register.
I did the books.
Yeah, I would say Dan and Dan like, I love the way you started the conversation at the beginning when you can't interact anymore with the person at the farmers market.
I have found the changes that are happening allows you to interact more.
And one of the conversations I've had is I've seen these folks for many years.
And I'm like you've now moved in where we can order what we want ahead of time.
We can pick it up when we go to the market, like how much of a lift was that for you?
And what I find is the vast majority of them either working through their financial institution on the payment side, it's an easy plug and play We're working with other integrators.
They've been able to bring up their websites very, very quickly and manage them extremely well.
And so most of these folks, they're farmers, you know, they're raising cow and sheep and everything else and trying to sell it.
Their job isn't to figure out how to become social media experts and repayment experts.
The good thing is lots of companies.
I've really helped to enable that for them around the globe.
You don't necessarily need a standalone, fully functional website for your farmstand.
But you could probably figure out how to put up a Shopify page.
Yeah, if you think about impasse you would like, who's your UX and UI designers, and things like that.
Not really needed anymore.>> I mean, we've made such a shift in that over the last,five, six years, whether it's Squarespace or Wix or anybody else where it's so plug and play now that that's that whole industry of professional small business, web builders they've they've moved into companies that need The extra the level two, level three, the level one guys can really handle it themselves.
And that's part of what I see as I think some of the long term changes that our current crisis is accelerating, but we're happening anyway.
So which of these changes that are really at 100 miles an hour now, do you see Staying even past our current moments.
Well, I would say first and foremost the move to digital Is gonna continue and it's gonna continue to accelerate, it needs to especially for those that wanna be participating in the economies of the future.
I would say the other thing is that right now small businesses are trying to find new ways to get closer to their consumers and try and get customer relationships.
So I do think it's gonna be important for them to look at every channel in which they can touch their clients and figure out the best way to interact with that consumer.
And that's again what we have found in the study, whether it's coming in through the front door Through contactless payments, through social media and the like, they're all looking to leverage all of the different channels.
And for those that succeed, they're using all of those channels today.
And we as a network have to help and Knievel,
having talked to so many small businesses and surveyed them, I turned to you for insight into their concerns and their thinking.
I'm very interested in especially for small businesses
What their concern level is in terms of reaching out to and engaging current customers and consumers, people they've worked with in the past too are not leaving their homes right now as often and not just casually going out shopping on a Saturday afternoon and using these enhanced digital tools and the ability to frankly, take payments Online through their phone through you, I could I could Venmo you so you could tell me your Venmo name and I could vendor you after we have the Zoom meeting, you're reaching out to new customers who may be more distant they may have not interacted with before.
What's the balance there?
Keep the old search for the new try to balance it.
Where are these small business owners looking for relief Yeah, I would say they have to pivot and they knew they had to pivot.
I mean, many of them literally in March really had that fundamental choice they had to make do I stay the way I used to do things were to pivot into the new way.
They had to address consumer safety.
Which many of them have done.
They also said, I've gotta bring new consumers to us because quite honestly, some of the consumers that I was previously being able to contact, I may not be able to contact them.
So I've gotta move into new channels for contacting them.
And that was really, really important again showing up in our service.
The last thing It was really, how do I think about my business in a much more digital environment?
And for some that have made that transition, what they've seen is they've brought new consumers to them and they quite honestly have been able to thrive in these difficult times.
But safety's been the primary driver for most of them.
That's that's super important because I think a lot of the story that businesses especially small businesses are telling people is about trust.
And do you trust a large retail chain to wipe down everything in the store and make sure it was wearing a mask or do you trust, Your local merchants who maybe you've already known.
And that the buck stops with me in my store and how do you get that messaging across?
How do you how do you promote that?
Is that is that a key for small businesses to say, trust us, we're in your neighborhood in your community.
And you can find me when there's a problem versus Giant mega store x.
And it's a great question that asked him because as we went through our study, we found that fundamentally small businesses even in the COVID world, are optimistic about the future.
Literally 75% said they're optimistic for the future of their business.
On the flip side, when you go to a consumer and you ask them, how often are you exclusively shopping small business, only about 9% said they were doing that whereas 15%, 15 one 5% of consumers were shopping.
Shopping at large merchants.
And so the position of those small businesses is to drive that safety drive that digital enablement and we believe over time that you'll see those numbers come Come closer together and a greater balance between small business shopping and large merchant shopping.
But I think that safety message is really important is one of the key things that came out in a recent study that that we'll be sharing today.
I think that interestingly, my shopping has been roughly 5050.
Small merchants versus big stores if you include hardware stores because everyone's kind of nesting right now and building stuff in their homes and redoing their decks and things.
If you take out hardware stores then I'm 99% small business But man, I'm at the hardware store every week now.
One of those hardware stores does not have contact with famous.
Let's talk [LAUGH] I do want to ask you because I feel like you must have some unique insight into this especially talking to all these small business owners.
Are seeing growth maybe a strong term but are doing well or showing some gains which industries are really bearing the brunt this I think about personally travel must be down,food related services around delivery enactors must be up I think of things like uber which were.
as I did when I did my taxes I was shocked at how many thousands and thousands of dollars I spent on Hoover's last year.
That's got to be way down this year along with other you know, car service type things who who is doing better and who is really in trouble right now?
You know, it's an evolution and it's rapidly changing.
I think if there's a good message right now is we're seeing improvements in the vast majority of all categories, the things that have really not only been able to sustain but have been able to grow.
Are all of the e-commerce environments that we've been in for shopping, food service, food delivery, all of that has continued to accelerate.
And then when I think about specific categories, health care, food, all of those have continued to actually grow throughout the entire pandemic.
But the good thing is, in every market we're starting to see all categories increase.
I was gonna ask you if you think this will happen, but I'm sure it will.
So I'm gonna ask you more the timeline.
When does the physical card go away?
And when is it replaced entirely by payment apps person to person payments, just literally flinging money from my phone to yours and the physical card becomes obsolete as Physical money is for a lot of people now.
Hey, Dan, it's funny you asked that because for the I've been a payments geek for most of my life.
And for ten years I've been answering that question, saying three to five years from now.
And so that's been over the last ten years.
I do think again, that just given the shift recently in digital.
That you're going to see the greater ubiquity of using your mobile device using your phone for tap to pay.
I'm using a physical plastic.
So I think it's gonna stick We'll be here for a while, I still think it's it's a great way to connect with that small business and that consumer from a branding perspective, so I think it's still going to be there in the wallet.
I think over time, what you're going to see is much greater shift towards digital forms of payment, whether it's tap to pay or whether it's contactless using a mobile device as an example.
But I found after the last election, I should never make predictions in this case.
I've made this prediction like three times and it hasn't happened yet, but I do think you'll see an ongoing and accelerated show I'm going to come back in 3 to 5 years and we're going to compare how many plastic cards if any, we still have in our wallet.
Thank you, Kevin Phailin from visa for helping us answer.