TD taps into iPhones for a leg up in merchant acquiring

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Years after companies like Square convinced micro-merchants that they could accept payments with their smartphones, banks are starting to make the same pitch — without the need for an add-on "dongle" or similar hardware.

TD Bank, for example, last week added Tap to Pay on iPhone to a growing bundle of products that it sells to businesses. Tap to Pay, also called softPOS, enables Apple or Android handsets to accept payments from contactless cards or mobile wallets. More payment companies are using Tap to Pay to enable fast and cheap contactless payment upgrades. PayPal adopted Tap to Pay last week to enhance the products it offers to merchants. Financial institutions can also use it to reduce merchants' reliance on third parties.

"Small businesses are inundated with a number of applications to manage cash flow and back offices," said Jo Jagadish, executive vice president and head of commercial banking products, services and innovation at TD Bank, where she leads the bank's business payment strategy.  "Payments is just one of those capabilities that merchants use, but it can drive usage for other products."

The bank noted a massive consumer shift towards contactless payments that started during the pandemic, creating ongoing demand for merchants to adopt contactless payment, according to Jagadish. Tap to Pay enables businesses of all sizes to access mobile commerce and banking, but is particularly useful in reaching smaller merchants, she said.  

Tap to Pay is an Apple technology, but Apple is not a payment processor, creating an opportunity for other companies to sell the technology to banks or merchants. TD Bank added Tap to Pay through its collaboration with Autobooks. TD Bank is an investor in Autobooks, an accounting and bookkeeping provider, which it uses to support digital invoices, debit and credit card payments, cash flow management and accounting as part of the TD small business checking account. 

TD Bank has added other merchant services accessible via the checking account over the past few years, including Zelle and digital invoicing. All of these functions involve the mobile phone, making Tap to Pay a good fit, Jagadish said. 

"The majority of our customers use Apple devices," Jagadish said.

TD Bank is upgrading its business banking operation as it faces challenges in other areas that involve technology. The bank is upgrading anti money-laundering systems amid a regulatory probe of AML practices at the bank and is also in the midst of an institution-wide cost cutting initiative. The bank's public relations office said the Tap to Pay deployment and related merchant services products are not part of the AML issues. 

Autobooks clients include Citizens Bank, Zions Bank and hundreds of small community banks. It has licensed its technology to FIS, Jack Henry, NCR and other firms that sell payments and financial technology. About 50 banks are live with Tap to Pay contactless payments via Autobooks.

Another user, Centier Bank, has also used Tap to Pay as a bridge to a larger merchant product bundle.  Centier, a $7.5 billion-asset bank that operates mostly in Northwest Indiana, offers accounting, checking and digital invoicing, among other merchant services. 

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"By using Tap to Pay, a business can support payments, sending and receiving through their bank account with us rather than worrying about a third party. We think that's an advantage for us," said Tim Coleman, senior vice president and director of wealth management and small business at Centier Bank.

Tap to Pay enables the bank to support digital payments for all merchants, regardless of size, according to Coleman. The bank's clients include about 20,000 businesses, ranging from "side hustles" to larger manufacturing businesses, with a diverse mix of other merchants. "It's an intersection of businesses. You never know where the demand is going to come from," said Coleman. 

TD Bank and Centier — and thousands of other financial institutions — are battling JPMorgan Chase, the largest merchant acquiring bank in the U.S. JPMorgan recently upgraded its merchant acquiring business by launching a platform that integrates payment channels alongside a set of tools that support checkout and other functions in stores, online and in mobile apps. JPMorgan added support for Tap to Pay for iPhone in 2023, and plans to add biometric check-in and additional contactless payment features in future deployments. 

All three banks compete with merchant-focused fintechs like Stripe, PayPal and Block, all of which have adopted softPOS or Tap to Pay. Adyen, a Dutch payment technology company, is using Tap to Pay to bolster its point of sale technology in brick and mortar in tandem with its e-commerce technology. 

Banks can integrate new products into existing services as a way to compete with larger institutions to attract merchants, including smaller businesses, according to Mattew Golden, president of Totavi, a card consulting practice. 

"The proliferation of standardized payment platforms such as Square, Stripe, Shopify and Toast means that fewer businesses are proactively making decisions about their underlying merchant acquirer; instead they are choosing a platform and then that platform is choosing an acquirer," Golden said, adding that to respond to this trend, institutions can connect businesses to newer payment technology using application programming interfaces or similar connecting technology — thus reducing the need for extensive integration. 

"As always, another area where smaller institutions can succeed is in service and support," Golden said.