Taking the money

With the public falling out between Amazon and VISA, we look at how payment technologies have evolved and which payment options should small businesses consider offering to their customers.

How we all pay for the goods and services we buy has been rapidly evolving, especially over the last five years, which saw the introduction of Chip and PIN and the massive expansion of contactless payments. And with the continued popularity of mobile wallets, using services such as Google Pay and Apple Pay, the consumer payment landscape is still in motion.

The pandemic has also transformed the payments landscape with a massive shift to online retail; how consumers make their payments has changed forever.

In its payments market summary 2021, UK Finance concluded: "While overall card payments in 2020 declined, their share of payments increased with over half (52%) of all payments being made by cards in 2020. This was due to many retailers encouraging card and contactless use, along with lockdowns resulting in many people opting to shop online while physical stores and contact-intensive services were shut.”

Even in the face of an almost wholesale shift to card payments, cash is still in rude health as Nigel Constable, chair of the UK Cash Supply Alliance, explained to Croner-i: Business Inform:

“Cash is still a highly valued method of payment in the UK. However, a cashless society remains a distant prospect. In October 2021, 141 million cash withdrawals were made at LINK Scheme ATMs, with a value of over £7 billion. These statistics remained broadly stable since summer when the Government moved England to Step 4 of the Covid plan. In addition, LINK estimates that transactions accounting for a further 20% of these numbers will have been performed outside of the LINK Scheme by customers using their own bank's ATMs.

“The Post Office also provides important cash services to UK consumers by enabling cash withdrawals and deposits over its counters. Cash remains the payment method with the lowest economic friction, particularly when the high costs SMEs face for accepting low value and volume card payments is considered.”

Card and cash payments have a clear future but, for small enterprises, one more payment trend must be considered: The buy now pay later (BNPL), where retail purchases can be divided into equal payments usually over three to 10 months depending on the value of the sale.

Services such as Klarna and DivideBuy have seen phenomenal growth over the last two years. According to the Financial Conduct Authority, £2.7 billion was spent using these services in 2020 alone. The lack of any interest added to these payments has made them highly popular with consumers. Small businesses with an e-commerce component can easily add this payment option for their customers.

New payment landscapes

We spoke with Simon England, Managing Director, business payments specialist, Equals Money.

With so many payment options small businesses could offer their customers, what's your advice to them as they choose which payment types to provide?

“Be flexible. There will be times when the ‘usual’ payment you use may not be the best, either from a cost perspective or operationally. Having options allows you to choose the best for you at the time.”

How has Brexit impacted the payments landscape? Has this adversely affected smaller enterprises in particular?

"The recent spat between Amazon and VISA is a high-profile case of Brexit fallout, with VISA's move to charge higher fees for UK-issued cards being used for payments based within the EU.

“In reality, this is less of an issue for most businesses are they are likely to have payment acceptance locally rather than offshore, so impact is minimal. The wider impact is regulatory, moving the UK outside the EU’s framework means payment providers must adapt to regulation from two bodies if they wish to serve both markets.”

What impact has contactless payments and the use of smartphones as digital wallets had on the payments landscape small business owners must navigate?

“The move to more device-based transactions has meant smaller business owners have had to ensure they are not only capable technically, but also financially for taking contactless and device-based payments.

“Whilst taking non-cash payments may at first appear more expensive, the cost of handling cash will likely increase, and the increased potential for reaching customers that have stopped using cash already should be viewed as a positive overall. The most critical aspect is ensuring you research payment acceptance and get the best deal possible for your type of business."

And with all this talk of digital payments, what is the current state of cash? Is cash still in rude health, or are we seeing the beginning of the much-publicised cashless society?

"Whilst use of cash has decreased during the pandemic, the calls for business to move back to accepting it shows that it is far from being a dead payment tool. On the contrary, cash will always be part of the system until financial inclusivity allows access to banking facilities.

“This goes for businesses as well as individuals. The increase in new payment technologies and a lower cost to serve customers will speed this up, but don't write off cash just yet. Businesses should look to the most cost-effective tools for accepting the most forms of payments, in order to expand the customer pool they can serve.”

Beyond the card

Payment security has continued to be a concern for card-issuing banks. The continued popularity of digital wallets lends themselves to more advanced security such as biometrics.

For example, BNP Paribas has already created a biometric payment card. This technology will continue to develop. It's not inconceivable that payments could be made with just a scan of a customers' face. The till-less Amazon Go stores and the recent check-out free Aldi supermarket show a clear path of travel to more contactless payments.

The payment option your small business offers to its customers’ needs continuous assessment. Cash isn't going to disappear anytime soon. Traditional debit and credit card payments still hold the lion's share of consumer payments.

However, there are clear trends with digital wallets and contactless payments in general that show no sign of their popularity waning. And testing BNPL with your customer base could open a whole new revenue stream. Blending a range of payment options tailored to your specific customers will always be the best way to offer the payment options your business’s customers want to use.