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Should smaller businesses offer cashless payments?

6 minute read

Graham Charlton

Are we heading towards a cashless society? Recent trends show that while perhaps not in the near future, the direction of travel is very clear when it comes to cashless payments. Let’s take a look at the statistics, the pros and cons of offering cashless payment methods, and some of the most popular and useful cashless payment systems for smaller retailers.

Back in 2017, the British Retail Consortium announced that cash was no longer the most popular payment method in the UK. Its most recent report shows that cashless payments now dominate, with cash the third most popular payment method.

The use of cash declined from more than half of all transactions in 2013 to less than 40% in 2018. The value of cash payments has fallen too, from 28% in 2013 to 20% in 2018.

Now, debit cards account for 56.8% of all payments, followed by credit cards on 21.5%.

UK Finance predicts that there will be 3.8bn cash payments in the UK by 2028, 9% of all payments. Cash payments will still exist but will be far down the list of preferred payment methods.

Payment volumes (millions) from 2008 to 2028

Payment volumes graph

Businesses need to take note of these trends, as failure to offer cashless payment options is likely to mean lost business.

As of 2017, up to 3m small businesses in the UK were still cash only. With current payment trends continuing, many will need to offer more choice.

What are cashless payments?

Cashless payments cover a range of payment methods but mainly mean credit and debit card payments. However, with the growing popularity of digital wallets, we’ll see methods like Apple Pay and Android Pay becoming more popular. 

Contactless payments, in general, are gaining ground. This covers both digital wallets, which are exclusively contactless, and cards which can make contactless payments.

Technology is enabling cashless payments to take over in many areas where cash would traditionally be used. Schools are one such example. Squid cards now enable parents to top up balances online so that pupils can pay for school dinners and other transactions with cashless payments.

In many cases, such as paying for a coffee, cashless payment methods are simply faster and more convenient. Contactless payment options have helped to displace cash as the prime payment option.

In 2018, there were 7.4bn contactless payments in the UK, up 31% on the previous year.

UK Finance stats also show that many consumers now use cash very rarely. There were 5.4m such consumers last year, who almost never used cash, up from 3.4m in 2017. With the growth of contactless payments, online shopping, and convenient mobile options, it’s easier than ever to pay without using cash.

The number of contactless cards has grown, as has the number of places accepting them. At the end of 2018, there were almost 124m contactless cards in circulation in the UK, with 84% of all debit cards having this functionality.

What are the benefits of offering cashless payments?

The stats show the trend towards fewer cash transactions, and small businesses need to be aware of the benefits of offering cashless payment methods.

Customer preferences

Many shoppers prefer to pay using cards exclusively, or would at least pay by card if the choice were there.

Stats from Square show that 17% of British shoppers are ‘card only’ and don’t use cash to pay for their shopping on an average day. On top of this, 38% are ‘card first’ shoppers who typically prefer to pay by card.

This does mean that small businesses without the capacity to accept payment by card are missing out on potential custom. As people begin to rely more on cashless payment methods, their habits change, and they tend to carry less cash around with them.

Indeed, in Square’s survey, 27% said they hadn’t bought from a small business because they couldn’t pay by card, while 60% said they’d buy more from local businesses if they offered card payment methods.

Customers are likely to spend more using cashless payments

According to a recent review, the average person still has around £41 in their purse or wallet, but we’re carrying less cash around than before.

Unless a customer sets out to a retailer with the right amount of cash or is prepared to find the nearest ATM machine and return later, this may not be enough for many purchases.

With card payments, people aren’t limited to the amount of cash in their wallets and are likely to spend more.

Handepay tested this out back in 2015 with a ‘cashless street’ experiment. Independent retailers in one street in Manchester encouraged card payments, resulting in a 22% increase in turnover.

Larger businesses are leading the way and changing customer behaviour

As the bigger retailers and other businesses begin to push more customers away from cash payments, they’re actively changing customers’ habits and preferences.

For example, McDonald’s has been pushing digital ordering via touchscreen kiosks in its restaurants, reducing the number of tills taking cash payments.

It would take a relatively brave retailer to go totally cashless, but many are pushing cashless payment, including contactless, more forcefully, and a few are experimenting.

For example, Waitrose opened its first cashless store in Sky’s campus in Osterley in 2017.

Totally cashless stores are likely to be restricted to places like the university campus or office canteen for some time, simply because a significant minority will still want to use cash. The backlash against some Amazon and Walmart cashless stores in the US is evidence of this.

Customer experience

Used effectively, cashless has the potential to make the payment process faster and easier, meaning a better experience for customers.

Contactless payments are one way to achieve this, with payments able to be made quickly without the need for cash or PIN numbers.

Barclaycard stats show that contactless payments are 15 seconds faster than cash transactions, and 7 seconds faster than chip and pin.

Using mobile POS is another way to improve the experience in stores, and is used by several retailers, such as Schuh and Apple. It removes the need to queue and frees up staff from tills to help customers directly. In busy periods it means more transactions can be processed. 

Why are some businesses reluctant to adopt cashless?

Many of the retailers not offering cashless have their concerns. Some may worry that offering card payments opens them up to the possibility of more fraudulent transactions. For businesses with small margins, this can look like a big risk.

A Barclaycard survey found that 21% have put off accepting card payment methods as they think it’s too expensive, while 11% think it’s too complicated to set up.

Card payments can cost more to process, especially credit cards. BRC figures showed that in 2016 debit cards cost 5.55p per transaction and credit cards 16p compared to 1.46p for cash.

Transaction costs like these can eat into retailers’ margins, but they also have to consider the missed sales from not offering card payments. 

Cashless payment options for small businesses

First of all, retailers need to set up a merchant account, which allows them to accept and process card payments and acts as a holding pen while payments are authorised. A payment gateway is also needed to authorise customer payments and check for issues such as fraud or lack of funds. Once you have these in place, it’s about choosing a card machine or terminal to accept payments.

The most common option is a counter-top card machine which is electronically linked, usually through a telephone line, to your merchant account. They work with the basis of chip and PIN and are recognisable and trusted by shoppers.

Mobile card machines process transactions through smartphones, by using add ons and apps. They’re cheap to set up and ideal for use on the move. Wireless card machines are also portable and great for convenience. Since they’re portable, you can bring the terminal to the customer. 

Then there are contactless payments to think about, especially if you have relatively low average transaction values. They’re a great way to speed up payment and make transactions easier for your customers.

Businesses need to weigh up the various options here to find the right balance of cost and customer confidence and convenience.

There are several machines on the market, including:

1. Paypal Here Card Reader

PayPal’s reader is a popular option and currently retails at around £50. It allows retailers to accept payments from major cards, as well as Apple Pay and Android Pay.

PayPal Here card reader

The drawbacks are that other readers offer a greater range of card options, while PayPal’s fees tend to be higher than others, from 2.75% to 1% per transaction.

2. Square

Square’s card reader is slightly cheaper (£19) and offers similar functionality. It can be used alongside a free mobile app, and payments are usually deposited within 1 working day. Transaction fees vary between 1.75% to 2.5%.  

3. iZettle

This reader is cheaper than PayPal’s, generally around £30, but accepts a greater range of cards (four more than PayPal). Fees are lower than PayPal too (around 1.75% for card transactions) but, payments take 1-2 working days to reach the retailer’s account, which is slower than PayPal.

iZettle card reader

4. Sum Up

Sum up’s card reader retails at around £30, and takes a similar range of cards to iZettle and Square.

Its fees per transaction are relatively low (1.69%) but payments take longer to be deposited in the business account, up to three days.

In summary

With steady growth in cashless payment methods, it should be obvious to retailers that this is the direction we’re heading in. Customers find it more convenient, and people are less likely to carry cash.

I don’t expect cash to die out anytime soon, but we’re now at the point with cashless payments where businesses are missing out on potential custom if they remain cash only.

Costs are a potential barrier of course, but that should be weighed up against the value of missed sales and higher average transactions through cashless methods.

As for going completely cashless, it makes sense for certain businesses, if they see customer behaviour heading in that direction, but I think most businesses will continue accepting cash for years to come.

Graham Charlton is Editor in Chief at behavioural marketing company SaleCycle. He has previously worked for Econsultancy and Search Engine Watch, and has written several best practice guides on e-commerce and digital marketing. Follow him on Twitter

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