By: Michael Keenan
Introduction
You need to give yourself as many opportunities to succeed in your business as possible. One way is to keep up with the latest preferred payment methods for your customer base.
It is common to accept cash and credit cards from customers. But if those are the only options you accept, you may turn away new customers and miss opportunities to enhance relationships with existing ones.
By understanding the benefits of the many payment options available, you can decide which option suits your store and your customers. Then, with the help of a flexible retail point-of-sale system, you can easily start accepting most payment options, creating better customer experiences and boosting repeat business.
Types of Payment Options
According to a CustomerThink report, nearly 50% of customers who cannot use their preferred payment method abandon their purchase. And what about the percentage that ends up buying a product from you? They are not getting the best customer experience you can offer.
This significant amount of revenue can be easily avoided simply because you do not accept many payment methods.
In other words, the best option for sellers is to accept as many payment methods as possible. Let’s take a look at all types of payment options:
Cash
Cash is, of course, the simplest payment method you can accept. Additionally, cash does not require you to search for payment processors or worry about fees.
The pandemic has slightly changed payment behavior. McKinsey reported that cash payments declined by 16% globally in 2020, with a drop of 24% in the United States. McKinsey indicates that cash payments will recover, depending on the economy’s recovery from the COVID-19 virus.
While there are some nuances in handling and accounting for cash payments, there are very few downsides to allowing your customers to pay with cash. On the other hand, there are many benefits for you and your customers:
- Cash is easy and convenient: This is especially true for customers who prefer to use cash regularly (which is particularly important if you offer a cash-on-delivery payment option).
- Speed: When customers pay in cash, their payment is in your hands (although not in your bank account) immediately.
- No transaction fees: When accepting cash payments, you keep more actual money because you don’t have to pay processing fees and other charges that you typically incur with credit cards and other payment types.
In short, accepting cash payments is still expected as a basic requirement in retail, and there are virtually no downsides to it.
Checks and e-Checks
Aside from cash, paper checks are the most straightforward form of payment. Like cash, this type does not require searching for payment processors or merchant fees.
While the number of written checks is declining by 1.8 billion checks annually, the Federal Reserve Bank of Atlanta reported that 25% of consumers aged 65 and older still prefer to write paper checks. Therefore, although accepting paper checks for your business may seem outdated, there are some benefits to keeping them as an option:
- No transaction fees: When accepting a paper check, there’s no need to worry about most merchant fees or processing fees, so you can keep most of the payment amount.
- People tend to use checks for large purchases: On average, check payments tend to be of higher value (about $300 compared to $87 for other forms of payment).
An e-check is the digital version of a paper check. E-checks use the Automated Clearing House (ACH) to pull funds from the customer’s checking account and directly deposit them into the merchant’s business bank account. E-checks operate more similarly to direct bank transfers, so there will be fees when using e-checks, but they are considered among the lowest fees in any payment option.
According to
To study the payment methods of the Federal Reserve, ACH was the only system among the three major payment systems that grew in the number of transactions in 2020. This is likely due to the increase in online sales. People are moving from paper checks to electronic checks, so even though there are some minor fees when using electronic checks as a payment system, they provide benefits to offer them as an option to your customers:
- Fewer restrictions on transaction amounts: Bank-to-bank transfers have minimal restrictions regarding amounts. So there’s no need to worry about your customers’ credit limits or whether they will reach their debit card limits.
- Low fees: Compared to credit cards and debit cards, the fees incurred when accepting electronic checks are generally much lower than other electronic payment services.
Paper checks and electronic checks are payment solutions that require no fees or very minimal fees to accept in your business. Accepting them as a payment option will only increase your business without costing you much.
Credit and Debit Cards
Credit and debit cards (issued by banks) have been around for a long time, but their usage is still on the rise. In fact, research by BAI Research and Hitachi Consulting shows that 41% of consumers frequently ditch cash, and 97% of survey respondents resort to paying with credit and debit cards instead.
With most customers and competitors accepting credit and debit cards, accepting them has become the bare minimum that merchants need to keep up with customers and competitors.
In fact, this is good for both customers and sellers alike, as there are numerous benefits to paying with credit and debit cards. Data shows that customers spend more when paying with a credit card compared to cash. This is what American Girl Scouts learned when annual cookie sales quadrupled from the previous year simply by implementing mobile credit card readers.
Additionally, credit and debit cards provide:
- Some credibility to stores. Accepting credit cards (specifically Visa, Mastercard, Discover, and American Express) is so common that stores that cannot accept credit card payments may be seen as “outdated.”
- Overall increase in sales. With more consumers completely ditching cash, accepting credit card payments means you can avoid losing sales when customers don’t have cash on hand.
- Financial benefits. Payments made via credit cards are deposited into your business’s bank account automatically, unlike cash which usually requires a specific time to have the money deposited into your account.
The only condition for all those benefits? Fees. Processing credit cards means you’ll have to accept the transaction fees associated with processing the payment. Although these fees can vary, they typically range between 1.5% and 3% of total sales.
Mobile Payments
Another payment method that has seen rapid growth in recent years is mobile payments and smartphones, also known as wireless payments. These payments include popular mobile payment options like Apple Pay, Google Pay, and Samsung Pay.
In 2021, more than four in ten smartphone users in the United States used wireless payment at least once. Mobile payment app usage like Apple Pay and Google Pay is expected to double between 2020 and 2025. There are many reasons for this increasing interest, among them: mobile payments are faster and easier for customers who generally carry their phones.
Additionally, there are some optional benefits for sellers who also accept mobile payments and smartphones:
- Convenience
Customers. As mentioned, it is easier and faster for customers to pay you this way.
- Cash flow. Mobile payments, similar to credit and debit cards, reach your business account in about three days from the sale.
- Data availability. When customers pay using their smartphones, you can receive and track customer data, including how often they shop with you and how much they spend, and you can interact with customers throughout their in-store journey (by sending location-based updates about sales, discounts, and more).
Integrating alternative payment methods such as digital wallets, mobile transfers, and bank transfers increases customer loyalty and purchase rates because people tend to shop where it is most convenient for them. Jason White, retail investor and CEO of All About Gardening
Gift Cards and Store Credit
Gift cards and store credit are a payment method you might not hear about often, but they are one of the strongest retail tools for merchants. Simply put, store credit allows you to deepen and maintain existing customer relationships, while gift cards help attract new people to your store in a low-risk way.
Gift cards, store credit, and discounts are tools you can use to boost customer retention and loyalty. Additionally, there are several other key benefits for merchants:
- Gift cards encourage customers to spend more in your store. Customers are willing to spend more money with your store when they know you offer a great return policy – it’s like a safety net. When it comes to returns and exchanges, you can issue gift cards or store credit instead of cash refunds, giving you flexibility and creativity. For example, Kaligh Moore, a marketing expert, shared an interesting experience when she returned a product at a retail store: The company offered to add 120% of the original purchase price to store credit if the customer chose store credit instead of a cash refund.
Overall, store credit and gift cards allow you to keep revenue within your economic system. Even if the gift card isn’t spent or the product is returned or exchanged, those sales remain with your business.
Custom Payment Methods
As mentioned earlier, a good point of sale system provides you with the flexibility to accept various payment methods according to your needs and those of your customers. This includes custom payments such as:
- Split payments. Classic examples here are when a group wants to split a restaurant bill among multiple credit cards. In a retail environment, this might look like two people buying a gift with two credit/debit cards.
- Split funding. Some customers may prefer to pay part of their order in cash and put the remainder on a credit card.
- Partial payments. For some merchants, it makes sense to accept a partial payment upfront and offer credit or payment plans (like deferred payments) to collect the rest. Alternatively, merchants can accept an initial payment in-store and the customer can pay the remaining balance online, which can increase the average order size.
- Zero payment or debt. Similarly, some merchants may offer payment plans or other payments without any upfront payment. Your point of sale system should be capable of processing these transactions.
The main benefit of custom payments like those mentioned above is that they allow merchants to be more flexible, benefiting both the store and the customer.
For some merchants with physical stores, custom payments like split payments and split funding may be essential to meet customer preferences and keep up with competitors. However, paying with multiple credit cards may mean your store incurs higher credit card processing fees, so it’s important to consider the costs of offering these custom payment options.
Currencies
The Encrypted
Cryptocurrencies are digital currencies protected by encryption technology, which is a secure communication method that transmits information in encrypted content. They are almost counterfeit-proof because they exist on a decentralized network called blockchain. They cannot be manipulated by any government or organization.
Cryptocurrencies are being increasingly adopted. Between 2018 and 2020, the number of global users of all cryptocurrencies increased by nearly 20 million. Now, even commercial companies like Whole Foods and Home Depot accept cryptocurrencies as a payment method.
Although cryptocurrencies are a newer type of payment option, they offer benefits to those who adopt them:
- More secure than credit cards. In 2020, the FTC reported receiving 4.7 million reports of credit card theft and identity theft. 34% of those reporting incurred losses. With cryptocurrencies, there’s no need to worry about data breaches or identity theft because your customers’ information is not stored in any centralized location. It is only stored in their digital wallets.
- Low fees and no international fees. Cryptocurrency exchanges offer lower fees than most other merchant fees. For instance, PayPal charges fees of around 4% per transaction, while some Bitcoin exchanges charge less than 1%. Additionally, there are no fees for cryptocurrencies related to foreign payments since they are not tied to any single country.
- Refunds in the hands of the company. Cryptocurrency payments can only be refunded by the party receiving the money. Customers cannot cancel the payment from their side or change their credit card number, making it easier for the company to track cash flows.
The year 2020 saw a 13% increase in the number of people aged 18 to 34 interested in buying Bitcoin. These are the individuals who will be your customers in the future. Part of creating a successful and lasting business is staying ahead. Offering a payment solution like cryptocurrencies that will meet future customer needs is part of this equation.
Advantages and Disadvantages of Different Payment Methods
Cash
Advantages:
- Cash is easy and convenient.
- The money goes directly into your hands. There is no waiting time for the deposit to become available in your bank account.
- There are no transaction fees with cash. All you have to do is go to the bank and deposit it.
Disadvantages:
- Customers can only carry a limited amount of cash.
- You need a safe on-site or to go to the bank frequently.
- Having a lot of cash on-site can make you a target for theft by employees and outsiders.
Checks and E-Checks
Advantages:
- There are no transaction fees for paying by check.
- People tend to use checks for large purchases.
Disadvantages:
- You need to go to the bank to deposit the check, and it may take a few days for those funds to become available in your account.
- People can write fraudulent checks, checks can bounce, and they can stop payment, leaving you without payment for your product or service.
Credit and Debit Cards
Advantages:
- They make your store look more credible.
- They generally increase sales.
- They have financial benefits.
Disadvantages:
- Processing credit card transactions requires paying associated processing fees.
- Data breaches can cause cardholders to stop shopping at your store.
Mobile Payments
Advantages:
- Faster and easier for customers.
- Payment reaches
Source: https://www.shopify.com/retail/retail-payment-options
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