As we know, the global payments landscape is undergoing rapid transformation, but small businesses and consumers appear to be at odds when it comes to payment preferences.
This misalignment, highlighted in the 2024 Xero Global Payments Report, exposes a significant gap between the payment methods consumers want and those small businesses are prepared to offer.
The report, which surveyed over 6,000 consumers and more than 2,500 small business leaders across five countries (United States, United Kingdom, Australia, New Zealand, and Singapore), identifies the key trends shaping the future of payments.
Key Trends Driving Payment Discrepancy
According to the report, Trend #1 is the stark mismatch between the payment methods consumers prefer and those offered by small businesses.
Globally, 86% of consumers rely on credit and debit cards for purchases, while only 68% of small businesses provide this option.
This gap is even more pronounced when it comes to modern payment methods like Apple Pay and Google Pay, where only 43% of small businesses offer these services, despite 30% of consumers wanting them.
Further complicating matters, businesses in certain sectors, such as trades and housing, are even less likely to offer the payment methods consumers favour.
For example, while direct debit is the preferred payment method for housing-related expenses, only 37% of consumers use it.
In contrast, credit and debit cards dominate most other categories, from groceries to healthcare.
This payment method mismatch is having real-world consequences.
A significant 25% of consumers said they would visit another business if their preferred payment method wasn’t available, a finding that should raise alarms for small businesses unwilling or unable to adapt.
Industry-Specific Preferences Impact Payment Methods
Trend #2 reveals that what a business sells and who their customers are, directly influences payment preferences.
For instance, over 57% of consumers still prefer to use physical bank cards when shopping in-store, but preferences shift dramatically depending on the industry.
For example, credit and debit cards remain dominant in retail, while cash payments still hold sway for hairdressers and tradespeople.
In addition, consumer demographics also affect payment choices.
Baby Boomers overwhelmingly stick to traditional payment methods like cheques (in the US!), with 92% still using credit and debit cards, compared to younger generations who are more inclined to adopt mobile payments.
The report highlights how over 50% of Gen Z consumers use Apple Pay or Google Pay regularly, a trend likely to grow as younger generations make up a larger share of the consumer base.
Understanding these industry and demographic nuances is essential for small businesses looking to keep pace with shifting consumer demands.
Barriers Preventing Small Businesses from Adopting
Despite the clear consumer demand for more payment options, Trend #3 shows that small businesses face multiple barriers that prevent them from offering the payment methods consumers want.
Cost remains the largest obstacle, with 33% of small businesses citing expensive fees as a key reason for not adopting new payment methods.
Credit card processing fees, which can range from 1.3% to 3.5% per transaction, are particularly burdensome for businesses with slim margins.
Security concerns are another significant factor, particularly in markets like the UK, where strict regulations around pricing transparency heighten business sensitivity to fraud risks.
In Singapore, the most pressing challenge for small businesses is long payout times from payment service providers, a problem cited by 36% of respondents.
The complexity of setting up new payment methods also plays a role, with 35% of small businesses in Singapore stating it was too time-consuming to implement.
These challenges create a cycle of reluctance among small businesses to embrace change, leaving them behind as consumer preferences continue to evolve.
The Hidden Costs of Payment Surcharges
One of the most striking findings in the report is consumers’ deep frustration with hidden payment surcharges.
Globally, 66% of consumers identify hidden fees as their top frustration when paying for goods and services. This frustration leads many consumers to change their payment method to avoid extra costs, with 37% saying they would do so.
Small businesses, for their part, are keenly aware of this sensitivity.
More than 42% choose to build fees into their pricing to avoid charging customers additional surcharges, while 48% of businesses say no payment surcharges are among their most important criteria when selecting new payment methods.
The reluctance of businesses to adopt new methods comes at a cost. By not offering a wider variety of payment options, they risk losing customers to competitors who do.
The Path Forward: Aligning Business and Consumer
The Report makes one thing clear: businesses that want to thrive in the modern marketplace must adapt to changing consumer payment preferences.
Offering more flexible payment options – whether that means adopting digital wallets like Apple Pay or providing buy now, pay later (BNPL) services – can help bridge the growing gap between what consumers want and what small businesses currently offer.
For small businesses, this means overcoming the hurdles of cost, security, and complexity to modernise their payment systems.
By doing so, they can not only meet consumer demands but also unlock new revenue streams and improve cash flow management.
According to the report, small businesses that adopt new payment methods see benefits such as increased sales, faster payments, and access to a broader customer base.
As we move through 2024, it’s clear that businesses need to prioritise ease of payment for consumers.
Failure to do so will leave many at a competitive disadvantage, struggling to keep up in an increasingly digital economy.
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