Few things are more important to businesses than getting paid. Back in the days of the five and dimes, it was simple: Cash and coins were kings. Today, there are more options than ever thanks to the dawn of digital payments and the rapid pace of technological innovation.
Cash, checks, credit cards, debit cards, and digital wallets are all used in today’s marketplace, not to mention online transactions. But the pendulum is quickly swinging from the old ways to a new, cashless world.
According to a 2022 Gallup poll, 64% of Americans believe that the U.S. will become a cashless society within their lifetimes. We’re not there yet, but through actions and beliefs, consumers are showing businesses that contactless and digital payments are their preferred methods.
Here are 5 types of payment options to consider for your business.
Credit and Debit Cards
Today, credit and debit cards are the preferred methods of payment. A recent Harris poll found that 78% of Americans use one of these methods for everyday purchases.
Some small businesses still choose to go “cash only” (more on that later), but for most companies, offering credit and debit payment options is table stakes. The drawbacks to accepting these payments are, of course, the fees associated with them. But for most small businesses, offering your customers their favored form of payment is worth the associated costs.
Key Consideration: Should you use a dedicated merchant account or payment service provider?
To accept card payments, you’ll have to partner with a third party to set up an account to process payments before they are sent to your bank. You can establish your own dedicated merchant bank account or use a payment service provider that aggregates clients into one account shared by hundreds of businesses.
Dedicated merchant account. This is a good option for larger, more established businesses. It signifies stability and stature and gives you more control over your funds. Because you’re not sharing an account with hundreds of other companies, you receive your funds faster, plus you’re less likely to have your funds frozen due to fraud investigations. While your transaction fees may be lower, you’ll likely have additional fees that don’t come with payment service providers that may include setup, monthly, and annual fees. Companies like Stax, MerchantOne, and Payment Depot are among the most trusted merchant account providers.
Payment service provider. Payment service providers—also known as payment aggregators—consolidate hundreds of clients into one merchant account. This option is cheaper, quicker, and more flexible for smaller and newly established businesses. Setup is usually free and nearly instantaneous, so you can start accepting card payments immediately. You’ll be charged a fee per transaction (usually around 3%) but sharing an account through a service provider allows you to avoid the extra costs associated with dedicated merchant accounts. Popular payment services providers include Stripe, PayPal, and Square.
Payment Apps
Peer-to-peer payment apps are exploding in popularity. A survey from Nerdwallet and Harris found that 79% of Americans use them. Their speed, convenience, and ability to easily split payments have made a new generation of customers fluent in their use. It’s only natural that they’ll want to use them to pay businesses.
Fortunately, businesses can use these apps, including Venmo and Zelle, two of the most popular today.
PayPal Holding Inc. owns Venmo. Recently, they made Venmo an acceptable form of payment on most sites that accept PayPal. If you use PayPal as your payment service provider, you can also accept Venmo payments. Businesses can also link their bank accounts to Venmo, allowing for quick and secure customer payments.
Zelle is an option if you have a business account with a bank that offers Zelle. That list includes Bank of America, Citi, Chase, Wells Fargo, and U.S. Bank. If you have a business account with one of these banks, you can accept payment from customers who have an account with a U.S.-based bank in the Zelle network.
Key Consideration: Should my business accept pay app payments?
It depends. Many service-orientated businesses, like beauty salons and landscaping services, use them. This usually involves including your pay app username or QR code with a bill.
Venmo allows business users to generate a QR with a price attached to it. But only one. If you’re a business that offers a single service or product at a single price, you can generate a code with that price attached. Otherwise, you’re relying on your customers to pay the proper amount when they send their payment. This works well with businesses that offer repeated services and form customer relationships, like the aforementioned nail salons and landscaping services.
Peer-to-peer payment apps are also popular in the gig economy. So much so that the IRS recently lowered its reporting threshold for businesses using pay apps from $20,000 a year to $600 to account for their widespread business use from gig workers.
This works well with businesses that offer repeated services and form customer relationships, like the aforementioned salons and landscaping services. Some also integrate pay apps into their payment options by encouraging customers to send tips directly to employees through them.
Online Payments
Approximately 70% of Americans regularly shop online. The pandemic accelerated this shift when many small businesses—including restaurants and bookstores—were forced to offer pickup and delivery services for the first time.
Deciding whether or not you’ll offer online payments often comes down to one question: Are you ready to deliver? Many third-party vendors like Shopify and Etsy offer shipping and fulfillment services to help your business deliver your goods to customers.
But for small brick-and-mortar businesses, the decision to offer delivery services is more nuanced. For instance, consumer packaged goods (CPG) companies may struggle to compete with larger e-tailers like Amazon on speed of delivery and cost.
Offering hyperlocal delivery directly from your store is an option for more localized businesses. It keeps shipping costs down while providing customers the convenience of online shopping with the speed of delivery many now expect.
Key Consideration: Should you join the Click and Collect revolution?
Instant gratification is a crucial advantage brick-and-mortar shops have over e-commerce sites. Click and Collect shopping—also known as Buy Online, Pickup In-Store (BOPIS)—allows your business to deliver that immediacy without the costs associated with shipping and fulfillment.
In short, Click and Collect allows customers to shop and pay online, then pick up in-store at their convenience. In 2022, U.S. consumers spent nearly $100 billion through Click and Collect shopping methods. That’s 9% of all e-commerce sales.
This is a pandemic trend that looks to have staying power. It offers small businesses a way to combine the ease of online shopping with the instant gratification of in-store purchases. All without shipping and fulfillment costs.
Cash
According to a 2022 Pew survey, 41% of Americans go “cashless” during a typical week. This is up from 29% in 2018. The trend is clear. Cash is used less frequently as digital payments become the norm.
But cash is still relevant. Most businesses still offer both card and cash payment options. And some still opt to go “cash only” to avoid transaction fees—usually smaller establishments like restaurants, food vendors, nail salons, and other service-oriented businesses. But more and more, the question facing businesses is not whether to go “cash only,” but whether or not they should accept cash at all.
Key Consideration: Is it time to go cashless?
Seven million people in the U.S. don’t have a bank account required for debit and credit payments. Lower-income and minority households are less likely to have one. Taking cash payments remains good business if you serve customers on the lower end of the economic spectrum.
But if your clientele comprises medium- to high-income customers, going “cashless” is an option. The benefits include:
- Simplified Bookkeeping: Handling cash means you need to count your drawer at the end of the day and document these transactions for your financial records. With digital payments, every transaction will have an electronic trail, making bookkeeping easier.
- Security: While there are risks associated with digital payments, having cash on hand leaves you vulnerable to theft from both inside and outside your business.
- Speed and Convenience: With contactless payments like the “tap” from debit cards and smartphones becoming common, the time it takes to hand over cash and receive change can slow your checkout lines considerably. With more innovations sure to come, going “cashless” increasingly means quicker transactions for you and your clients.
Checks
Check payments are not known for their swiftness. They also can be canceled or bounced. In 2018, only 7% of U.S. consumers used them for payments. Those payments tended to be for rent, utilities, taxes, and other non-consumer transactions.
More so than cash, paper check payments—especially in-store—are becoming antiquated. It’s a form of payment that most consumers won’t miss as an option, especially in retail settings.
But that doesn’t mean removing checks as a payment option is a no-brainer. Like cash, lower-income consumers use them more frequently than other groups. If checks are valuable forms of payment to your customers, accepting them will be good for your business.
Key Consideration: Should you accept ACH payments?
Automated Clearing House (ACH) is an electronic payment between banks completed through the ACH network.
Because the transaction is done directly between banks, you can avoid processing fees associated with credit and debit card payments. Though, the processing time can take longer than debit transactions.
ACH credit payments (initiated by the payer) are most commonly used by businesses to pay bills and other larger, recurring purchases. If you’re a B2B business, offering ACH credit payments is recommended. If you’re a B2C business, offering ACH debit payments (initiated by the payment recipient) in-store or online is a more secure option than paper checks if you’re catering to customers who may not have debit or credit cards.
FedNow and the Future
In July 2023, the Federal Reserve will introduce FedNow, a service that will allow businesses and individuals to send and receive money instantaneously—real-time payments 24 hours a day, seven days a week—through online banking and associated banking apps.
FedNow will not replace third-party payment processors like Zelle, PayPal, and Venmo, nor will it replace ACH. But it will be perhaps the fastest option available, processing payments on weekends and holidays, giving your business a faster way to send and accept payments.
With the speed of technology only increasing, innovations in digital payments are sure to follow. Staying on top of the latest trends while being mindful of the traditional payment options that your customers favor will allow you to determine the best payment options for your business.