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Although the pandemic may not be the final nail in the cash-coffin, the vast majority of payments are now digital – whether face-to-face or online. And while this is great for digital payment providers (and the taxman), merchants must now ensure their business models and payment methods are in line with consumers’ cashless expectations.
The trend towards cashless payments creates a number of difficulties for smaller merchants. Cash dependent physical stores will have to buy new kit to accept electronic payments which will fundamentally alter their business model and the way they operate. Given that merchants cannot charge a premium for card payments anymore, they will also have to consume the cost of becoming digital.
Smaller merchants are also being forced to set up shop online, making their offerings more accessible to more consumers. However, this presents another cost to merchants – processing online payments. Open Banking hasn’t yet enabled merchants to accept bank payments from consumers, so investing in a third party who can process these payments is essential. And the smaller the merchant, the more expensive integrating payment systems can be. Higher volumes of transactions lower the cost of handling.
When taking all of this into account, it’s clear why smaller merchants are hesitant to partner with traditional providers. Not to mention that many traditional banks won’t serve smaller or more “risky” merchants so could reject their applications to become digital altogether.
However, there is hope for those with digital ambitions. New acquirers and mobile POS players are moving into the market to better serve smaller merchants, bringing down the cost of acquiring services for both online and physical electronic payments. The models are getting to the stage where the cost difference between handling cash and using an acquirer is now negligible for small merchants.
This shift is important for two reasons. Firstly, accepting online and electronic payments has the benefit of improving cash flow. Time-consuming manual processes, such as taking cash to the bank, lengthen the time it takes for merchants to access their money. Cash flow has never been more important as during this crisis and being able to pay salaries and third parties on time is critical.
Secondly, this shift is important as acquirers will now have visibility of all electronic and online payments coming in and out of a business. This will benefit micro-merchants, not only with cash flow, but in unlocking other insights they’ve been starved of, from supply chain to loyalty analytics.
Digital banking and acquiring go hand in hand. A lot of merchants don’t have a business bank account because they aren’t in the appetite of the high street banks or they just view the process as too much hassle. Offering banking services, either directly or in partnership with a challenger bank such as Tide or Starling, is the likely next step for payment providers. This will result in a fresh new wave of smaller merchants using business banking services for the first time.
In the same way Monzo and Starling gambled on becoming their customer’s mortgage and loan lenders of the future, there’s a window of opportunity for new acquirers and mobile POS providers to help the small business of today, which will become the big businesses of tomorrow.
By Luc Gueriane, CCO at Moorwand