By Raj Sond, General Manager at First Data
As a small to medium sized retailer, thinking about your payments acceptance strategy probably isn’t high on your list of priorities – but it ought to be. Consider it this way; without accepting payment from your customers you don’t have a business! With this in mind it is imperative that SMEs give payments some serious thought.
The payments sector has been a hotbed of innovation in recent years. New market entrants, banks, payment service providers and established tech companies are all competing to win a share of the growing payments pie. The speed of this evolution has led to a highly fragmented industry, giving rise to multiple different platforms and solutions that can be difficult to keep pace with, as both a consumer and a business owner. That said, whilst statistics regarding cash usage, contactless or mobile payment trends might not seem an immediate knowledge requirement for SME owners, you simply can’t afford to ignore these significant changes in purchasing behaviour, and the potential impact on your business.
There are a number of factors for SMEs to consider when assessing payments acceptance, fundamentally its important business owners understand the needs of their customers. To begin with, think about the demographic factors, such as the age profile, gender and location of your customers. It’s also important to consider factors unique to your business such as the average ticket value. What follows outlines some of the industry issues that businesses should be aware of.
The cost of cash is soaring
In 2015, The Payments Council predicted that only 34% of UK transactions will be made by cash by 2024. Cash is already far less popular that is was ten years ago, particularly in the fast moving economies associated with bigger cities. Of course, the ‘cashless society’ is a perennial favourite in payment trend prediction pieces, as electronic payment methods become ever more popular.
Whilst our wallets and pockets won’t empty of notes and coins overnight (cash is still king for many), there is an undeniable trend towards the ‘tap and go’ convenience of alternative methods. Things SMEs should consider – like customer age, profile, location, average ticket value etc. Might help bring this into perspective a little more
Despite this, the Bank of England plans to introduce the Polymer five pound note in September, with ten and twenty pound Polymer notes to be issued in 2017 and 2020 respectively. The motivation for the introduction of these new notes is predominantly to make cash transactions more secure, but this will also mean some planning for SMEs. According to the Bank of England businesses will need to ensure staff who handle cash are appropriately trained.
As we move closer towards to a cashless economy in more developed markets, the price tag of cash is growing. Accepting, holding and transporting cash is becoming more expensive. When interest rates took a slump it mattered very little if your money was in the till, under your mattress or in the bank. However, with rates now steady, the longer it takes (4.5 days on average) for cash to get from the business to the bank, the more expensive it becomes.
Increase in electronic payments
It’s likely that we will see a continuation of the trend, with smaller retailers accepting more electronic payments. With the rise of contactless, new technologies like Apple and Android pay, consumers now have a variety of options they will want to utilise when paying for goods and services. Competition in the payment acceptance space is at an all-time high due to significant changes in card interchange fees. Debit and credit card rates have become more aligned and in most cases, retailers will find their Credit card processing costs have reduced. .
This recent legislation has been implemented in order to promote wider acceptance of various payment methods with card payment being the most widely used means of payment, it is important that SMEs are set up to take advantage of this just as much as the big retail players.
With this in mind, the question for smaller businesses is not whether they can afford to accept card payments, more so the question becomes can they afford not to? The inability to offer different payment methods to their customers means they may risk losing more sales as adoption grows and cash becomes less prevalent.
Loyalty schemes are in demand, even from SMEs
Not only are SMEs who do not accept a variation of payment methods failing to meet customer expectation – they are also doing themselves a disservice regarding the ability to collect valuable transaction data.
We have come a long way from the days when loyalty programmes were limited to “buy four and get the fifth free” stamp cards. Transactional data can be fed into apps helping SMEs revamp their inventory, management, loyalty, marketing and payroll systems – too good an opportunity for SMEs to miss.
Small retailers can become increasingly tech savvy by investing in the next generation of EPOS (Electronic Point of Sale), which whilst accepting all manner of payment methods, also enables the business owner to take advantage of the insights that can be gleaned from integrating transactional and businesses data. With the right EPOS, SME owners and managers can have oversight of the entire business from ‘the cloud’ – be that stock taking, sales and revenues, staff activity etc. – including having the ability to really get to know your business and your customers, based on their buying behaviour, and start to develop bespoke loyalty/promotion programmes accordingly. This evolution represents a shift in the mind-set of the SME owner – from ‘till’ to ‘point of sale’ and now to ‘point of opportunity’ regarding customer interaction.
Arguably the retailers that open their eyes to the reality of the payments landscape will reap the rewards in the long term. Today’s customer has well defined payments preferences, which they rightly expect their choice of retailer to meet. A relatively small investment into payments, via an EPOS system, will go a long way to fostering a loyal customer base and business will flourish as a result.
Regardless of whether you are a small or medium sized business, we can all learn a lesson from the larger retailers. In any business – identifying and meeting the changing needs of your customers is essential to long term business growth and success.