New research from global small business platform Xero reveals a disconnect in payment expectations between U.S. small businesses and consumers when it comes to how consumers want to pay and how small businesses want to be paid.
A Xero report released at Xerocon Nashville details how consumers’ payment habits are changing and how SMEs are responding. It also highlights the administrative challenges SMEs face when paying their suppliers.
A mismatch between customer payment preferences and the payment options offered by small businesses
In the U.S., nearly nine in 10 consumers (89%) use a credit or debit card to make payments, and three-quarters (74%) of Americans still use cash to pay. However, nearly one-third (30%) of small businesses do not offer cash and credit or debit cards as payment options to their customers.
Younger generations are quickly embracing new digital payment methods, with 43% of Gen Z consumers and 42% of millennials using mobile payments such as Apple Pay or Google Pay. The study found that 21% of Gen Z consumers only bring their phone with them to pay when they go shopping, while 57% of Gen Z and 56% of millennials use options like Venmo or PayPal.
The survey findings also revealed that failing to meet consumers’ payment preferences can directly impact customer retention and revenue: Nearly one-fifth (21%) of Americans said that if a business doesn’t offer at least one of their preferred payment methods, they would go to another business that accepts more payment options.
Ben Richmond, managing director, North America, at Xero, said: “The US payments landscape is rapidly evolving due to a changing regulatory environment and an increase in digital payment methods. The gap in availability of credit and debit card payments among US small businesses could be the result of real investments in new digital payment methods, such as online payment gateways (67%), mobile payments like Apple Pay and Google Pay (45%), and buy now, pay later (26%) options.”
“Giving consumers more choice in how they pay is important because consumers have indicated that if their preferred payment method isn’t available, they will walk away from the store. We also know that it has a knock-on effect on small business solvency and growth,” Richmond said.
Fees and security concerns influence payment trends
Despite restrictions on surcharges and fees in some U.S. states, two-thirds of Americans (67%) say hidden fees and surcharges are one of their biggest frustrations when it comes to payments. More than half of Americans (51%) say they have a low acceptance of paying surcharges, and more than a third (36%) say they would even change their payment method to avoid paying a fee.
Other frustrations customers face when making payments include security concerns (39%) and late fees or penalties (35%).
Benefits of new payment methods boost SMB confidence in emerging trends
Nearly one-third of SMBs that adopted a new payment method in the past six to 12 months also gained access to a new customer base (31%), faster payment times (30%), or retained more business (28%). These benefits, along with the general trend toward adopting digital payment technologies, may explain why SMBs are proactively embracing new and future payment trends.
At least a quarter of U.S. small businesses are optimistic about future or emerging payment methods, including biometric methods like fingerprint or face scanning (35%), barter marketplaces/apps (34%), and digital currencies like cryptocurrencies (33%). This compares to 26%, 27%, and 18% of consumers, respectively. One in two consumers (50%) are concerned about embedded payment chips, compared to 31% of small businesses.
As part of its efforts to execute on its strategy, Xero is building payments solutions to enable small businesses to make and collect payments more seamlessly, while helping them maintain healthy cash flow.
Bharathi Ramavarjula, SVP of payments at Xero, said: “By understanding how different consumers prefer to pay and giving them the flexibility to accommodate their preferred payment methods, small businesses can get paid faster and increase their revenue. To make it easier to collect payments, Xero is giving small businesses more ways to get paid.”
Small businesses have difficulty managing payments
Paying their supplier invoices is also a challenge for SMBs, with over half (58%) spending at least four hours each month managing accounts payable, and finding managing payment due dates the most difficult (38%).
Nearly a third of SMBs cite making sure they have enough funds (35%) as one of their biggest challenges when it comes to paying their own invoices. This may be why a significant number of SMBs say they use credit cards or installment payments to pay suppliers: 65% use credit and debit cards, and 17% use “buy now, pay later” options to manage their vendor invoices.
“Payments and invoice management is crucial for small businesses to grow their business and keep up in what is likely to be the decade of payments transformation, which is why we’re building a built-in invoice payment solution to enable business owners and their advisors to seamlessly manage, approve and pay invoices without leaving Xero,” Ramavarjula said.
