Be Aware of Key Changes in the Payment Industry

Small businesses have a lot to consider when it comes to how their customers pay them: from Apple and Samsung pay to mobile wallets; from online to mobile; from EMV to contactless; and now, from payment by social media to payment by text — it seems there are more options coming all the time. For the moment, however, let’s narrow the focus to the rest of 2017 and into 2018. What can small businesses and merchants expect when it comes to how they get paid?

The payments industry is an ever-changing environment, so we at Sage Payment Solutions are constantly talking to businesses and shoppers to stay on top of the latest trends. We recently surveyed 1,110 U.S. business decision makers and 1,062 U.S. consumers. Following are three key trends we expect to see play out this year and into the next. Some of our findings were very different from what we expected. (Download Sage’s exclusive 2017 Payments Landscape Report for the full story.)

1.    Consumers drive change in payments, but it’s a slow process

In 2017, as in 2016 and in previous years, consumers will continue to drive the adoption of new payment technologies. Our survey suggests the transition from cash and cards to smartphone apps and the like will be slow and gradual.

There is, however, a word of caution for small businesses merchants: Given the slow rates of adoption outlined below, businesses could easily think there’s no penalty for waiting to offer their customers new ways to pay. However, our research shows that with consumers, perceptions do matter: 87% of the consumers we surveyed said having a range of ways to receive money was important in making a business seem up to date.

Consumers’ old payment habits die hard: Our survey shows continuing growth around credit and debit cards; 89% of respondents to our survey say they regularly carry cash; and 20% carry checks (more than the 15% who use Apple Pay).

By 2020, Sage research indicates, a significant faction of consumers fully expects to be using their smartphones much more when buying goods: 35% of consumers expect Apple Pay to be the most popular way to pay three years from now, and 28% think Samsung Pay will be the favored way to make purchases. A larger group, however, thinks plastic cards will continue to be widely held in the future, with nearly half of the people we surveyed saying that credit cards will be most popular in 2020, and 37% citing debit cards.

2.    Security is still a big concern

Americans lost $16.3 billion in fraudulent credit card transactions in 2015, according to payment industry publication the Nilson Report, and this figure is projected to more than double to $35 billion in 2020. According to Sage’s research, 78% of consumers have concerns about fraud when paying for goods or services online — topping concerns about cost, convenience, and speed.

We’re seeing small and medium businesses increasingly focus on security, with the average amount spent on fraud prevention (almost $20,000 annually) outstripping the average amount lost ($16,557 a year). Nearly two-thirds (65%) of businesses are worried about cyber security. Getting the balance right between how much a business spends to protect itself versus the amount invested in growth is an increasingly difficult decision for businesses.

With technology and new ways to pay on the increase, fraud prevention will continue to be paramount. Consumer perceptions of security — whether accurate or inaccurate — also matter in helping businesses choose new payment technologies.

According to Sage research, PayPal, pre-paid cards, and gift vouchers are seen by consumers as the most secure methods of payment. Peer-to-peer mobile payments are seen as one of the least safe ways to pay: 58% of people rate them as somewhat or highly insecure. People also seem to have little trust in making payments within apps, with 41% rating them as insecure. Many people are also unsure about Apple Pay and Samsung Pay, with 34% saying they are insecure.

3.    For businesses, getting paid—and financed—faster is important

Making sure small and medium businesses can get paid, make payments, and manage money is crucial to their survival, and to that of the wider U.S. economy. Two-thirds of the business owners we surveyed said that accelerating payments in and out is a priority, with many (29%) saying it’s a high priority. In 2017 and beyond, any operating model, technology, or innovation that can help businesses get paid more quickly is absolutely critical.

Closely related is the way a business is financed. The most popular type of crowdfunding is incentive-based, where those who invest do so for a reward such as early access to the product or invitations to meet other investors. 14% of businesses we surveyed have used this type of crowdfunding over the past 12 months, with 11% using equity crowdfunding.

Of the businesses we surveyed, 62% cited their bank as a source of finance over the last year; however, different types of crowdfunding are also becoming popular, with 53% saying that they would consider alternative funding in the future. Indeed, 34% say banks aren’t doing enough to make capital available to them, and 36% want the government to put more pressure on banks to lend.

The Fintech revolution is driving major changes in the ways consumers pay and businesses get paid. According to Accenture, Fintech investment grew 44% in 2015 to nearly $15 billion. At this stage in the revolution, the best choice for businesses is to stay abreast of the trends and be selective in choosing new payment methods to offer customers.

Visit Sage Payment Solutions’ site to learn more.