An often neglected consideration in cost management is how customers are going to pay for what you are selling. British consumers have increasingly become a nation of card users, and expect to be able to pay on plastic.
However, card acceptance has historically been difficult for new businesses owing to a number of factors – cost and complexity being the most significant of these. One of the main barriers is the unpredictability of how many customers you will have paying by card at the outset.
As most card providers typically charge a monthly subscription package to rent a terminal, this commitment can make installing card acceptance unworkable without a strong indication of how many customers will pay by card. At the beginning at least, some businesses, or outlets of businesses, might only need to take one card payment a week for example, which makes subscriptions unrealistically expensive.
These elements have combined to keep card payments as the preserve of well-established companies, but leaves smaller organisations in a catch 22 – they need to take card payments to grow, but cannot afford the necessary outlay. In the meantime, they may lose custom from their inability to accept cards. A recent survey of 1,000 micro-businesses (those with 10 employees or less, of which there are 4.6m in the UK) conducted on behalf of Intuit found that only 19 per cent accept cards but 50 per cent wish they could.
However, emerging mobile technologies are having a significant impact on the payments landscape. The catalyst has been the explosion in the use of sophisticated internet-enabled smartphones. With a small, inexpensive card reader and downloadable app the device can be turned into a chip and PIN compliant card terminal. The reader “talks” to the phone through a Bluetooth connection and the cardholder enters their pin on the device. The cardholder’s details are kept as safe as with a regular terminal.
This development is set to democratise card payments because it means that businesses can effectively supply most of their own hardware – instantly cutting the rental costs for terminals that can be difficult to manage when customer volumes are unpredictable. Instead, most of these new payment systems require only an upfront investment in a card reader with PIN pad (usually at around £50) then fees of around 2.75 per cent per transaction.
Relative to the cost of handling cash and lost custom from not being able to accept cards this level of fee introduces a realistic card payment option where none has existed before – and is especially well suited to companies that rely on fleets of mobile workers to whom it would be impossible to supply terminals. This allows businesses of all sizes to take the first step into accepting plastic, with only minimal investment needed to test the water.
As mobile payments grow, they are opening up a huge range of compelling new opportunities for growing businesses. Using smartphones to accept payments is just one element of that picture – well-established and larger businesses are developing their own apps and payment systems which will allow customers to use their mobile phones to make payment in the same way they would use a card. This is turn opens up a channel between merchant and consumer that has not existed before. It enables them to market products directly via their handset as well as build up a fuller picture of their customer base.
Mobile payments will be a game-changer for the UK consumer market, and as the technology evolves, it will offer compelling opportunities for businesses of every size.
Chris Davies is managing director of Global Payments
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