As a small business owner, it is essential to stay up-to-date on the latest trends in payments and transactions. As customers move away from traditional forms of payment and towards digital options, businesses need to keep an eye on the new ways their customers are paying.
In the context of payments, “friction” refers to any aspect of the payment process that makes it difficult, time-consuming, or inconvenient for customers to complete a transaction. Therefore, as a business owner, it’s important to stay on top of emerging trends in the payment world so you can reduce the opportunity for friction, increase customer satisfaction, and improve your bottom line.
From ACH payments to reducing cash transactions, this article will cover three key transaction trends that business owners should be aware of—and utilize—in order to make sure they don’t miss out on unmatched customer experiences or crucial revenue streams.
1. Card Usage Has Soared
According to the Federal Reserve’s triennial payments study covering transitions from 2018-2021, cards were the most frequent form of payment compared to all other transaction devices (such as ACH, checks, and cash). This fact shouldn’t be a surprise, as the COVID-19 pandemic saw rapid growth in both users and businesses adopting contactless payment options.
As a business owner, this trend is important to understand. During the pandemic, customers developed the habit of using cards because they were a more sanitary option than cash. Now, customers may still like to use cards for cleanliness and because it’s simply an ingrained habit.
Customers that preferred cash in the past may now prefer to use cards because of how fast and easy they are. Additionally, unlike cash, cards come with a built-in transaction record, and if a customer loses their card, they don’t necessarily lose the funds associated with it (which is never the case with cash).
So what does this mean to you as a business owner? You may fall behind if you don’t have a way to easily and safely accept your customer’s cards. Customers prefer using cards now, and they’re unlikely to go back to the way they purchased items pre-pandemic because of the many benefits they provide.
So, if you don’t accept cards, you’re missing out on a $9.43 trillion slice of the payments pie. And by telling a customer, “Sorry, it’s cash only,” you’re guaranteed to create that friction you desperately want to avoid.
2. Cash Is No Longer King
With the rise of digital payments and a preference for consumers to use cards, it shouldn’t be surprising that cash usage is down. Specifically, according to the Fed’s report, ATM withdrawals dropped over 10% each year between 2018 and 2021.
Share of payments use for all payments
As a business owner, this is important to understand, especially if you only accept cash from your customers. With ATM withdrawals being down, people are less likely to carry and use cash. Thus, if you require cash only at your place of business, your customers may choose to go to a competitor simply because they don’t want to go through the hassle of finding their checkbook or going to an ATM to get cash to transact with you.
3. ACH Payments Are On the Upswing
An automated clearing house (ACH) payment is an electronic funds transfer sent from one bank account to another. ACH payments are typically used for recurring payments, such as payroll, mortgage, or utility payments, as well as one-time transactions, such as person-to-person transfers, bill payments, and online purchases. According to the Federal Reserve’s payments study, ACH payments comprised most non-cash payments by value.
This trend is important to understand as a business owner because it shows that consumers are comfortable sending and receiving transactions via ACH bank transfers. Furthermore, consumers appreciate the convenience of setting up payments to go out directly without writing and sending a physical check.
As a business owner, it’s important to leverage this trend and make sure you also allow your customers the convenience of ACH payments. Providing this option to your customers can also give them the convenience of automatic payments, which can help automate your billing and make your cash flow more stable.
Leveraging These Trends
To reduce payment friction and provide the best customer experience, offering all the payment options that your customers know and like using is important. While accepting cash may mean fewer fees for your business, consumers are moving away from cash at rapid rates and demanding more convenient options. To stay competitive, it’s important to work with a partner who can give you the tools you need to integrate various payment solutions into your offering.
By integrating various payment options and having the ability to accept payment via ACH, and various forms of cards, you’ll give your customers exactly what they want and even be able to leverage the power and benefits of payments analytics.