By Richard Simon, Commercial Director at First Data
Visa recently announced its intention to award small and medium sized businesses up to £7,000 if they ditch cash in favour of credit and debit payments. This is an interesting incentive from one of the world’s best known payment technology brands, and one that will certainly garner interest from many SMEs across the UK. However, businesses would be wise to weigh up the payment options they offer in the context of their wider strategy and customer base. This final exchange plays a crucial role in the customer journey – you can’t afford to get it wrong.
Know your customer inside out
Knowing your customers’ wants and needs is fundamental to the success of any business. However, getting closer to your customers doesn’t just mean greeting them at the threshold with a smile, or offering discounts to get rid of your old stock. By utilising your business data, you’ll be able to draw valuable insights on spending patterns and behaviours. These will give you a steer on the payment options you should offer.
The only way to be sure about payment preferences is to mine the data at your disposal. To begin with, think about how you can analyse 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. This type of information is important in building a business that customers return to again and again, because you meet their needs at all levels.
Contactless creeps up for the cash crown
Analysis carried out for UK Payment Markets 2017 forecasts that debit cards will become the most frequently used payment method in late 2018, three years earlier than previously predicted due in large part to the increasing popularity of contactless.
According to Payments UK, there were nearly 2.9 billion contactless payments in the UK in 2016 – more than 2.7 times the previous year (1.1 billion). Contactless payments made up 7% of the total number of payments in 2016, with the continued growth meaning that by 2026 more than one in four (27%) payments in the UK is expected to be contactless.
Cash is already far less popular than it was ten years ago, particularly in the fast moving economies associated with bigger cities. 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. This really puts payments acceptance into perspective. The stats suggest businesses should now be offering more than cash options to stay competitive.
Don’t lose customers at the point of purchase
It’s likely that we will see a continuation of this trend, with smaller retailers accepting more electronic payments. With the rise of contactless and 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.
With this in mind, the question for smaller businesses is not whether they can afford to accept card payments, but 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.
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 no matter where they are in the UK.
Regardless of whether you are a small or medium sized business, making a careful consideration about your payments acceptance is crucial. In any business – identifying and meeting the changing needs of your customers is essential to long term business growth and success, whether you go cashless or not.