Going Cashless: Benefits of Digital Payments for Your Small Business

App Development
Sydney Wess
5/21/2020

Consumers prefer digital payment options, but nearly 1 in 5 small businesses don’t offer contactless payment options such as PayPal. Small businesses should adopt a digital payment method that fits their needs and appeals to customers.

Digital payment platforms such as Venmo and Apple Pay have become increasingly common among both consumers and businesses.

The popularity of online payment apps, cashless transactions, and contactless payments has spiked even further due to COVID-19.

The global pandemic pushed the Chinese government to collect, quarantine, and sanitize physical bills in hopes to stop the spread of the virus through monetary transactions.

Additionally, the World Health Organization (WHO) recommended that people opt for contactless payment methods to protect against the spread of germs.

These suggestions mean the use of online payment apps and cashless methods of payment have increased even further.

Visual Objects surveyed 500 small business owners to gain insight into which digital payment platforms they’re using and the benefits of adopting different options.

We found that small businesses use digital payment platforms to supplement traditional payment options. They are still searching for ideal ways to integrate digital payments into their businesses, though.

We also found that 19% of small businesses don’t accept any digital payments. This report will show how you can adopt digital payment methods to meet the needs of consumers during the global pandemic and sustain growth afterward.

Our Findings

  • Reflecting consumer preferences, 81% of small businesses accept some form of digital payment. Conversely, nearly 1 in 5 businesses (19%) do not accept any form of digital payment. This is possibly due to the perceived difficulty of integrating digital payment into their operations.
  • PayPal is the most popular app (63%) across regions, ages, and company sizes.
  • Across all company sizes and small business owner ages, Square (32%) is the second-most popular digital payment platform. It boasts a simple interface that appeals to adopters.
  • Venmo (22%) is a staple for younger small business managers. Its innovative, social media-inspired interface explains its appeal to younger generations.
  • Small businesses with a mobile app are 18% more likely to accept Apple Pay or Google Pay. Both payment methods are directly connected to smartphone providers, which encourages adoption.
  • Only 3% of small businesses surveyed accept cryptocurrency. This hesitation can be attributed to the market volatility associated with cryptocurrencies.

6 Benefits of Digital Payments for Small Businesses

  1. Make small businesses more accessible to consumers
  2. Offer convenience and ease of use for customers
  3. Boast simple, clear interfaces for both businesses and their customers
  4. Leverage benefits of social media
  5. Are compatible with smartphones
  6. Boost business efficiency

Contactless Payment Options Make Small Businesses Accessible to Consumers

Digital payment options are convenient for customers.

Surprisingly, almost one in five small businesses (19%) don’t accept any form of digital payment, though.

1 in 5 small businesses don't accept digital payments

Refusing to accept digital payments limits customers’ options when shopping. This is especially true as consumers hesitate to spread germs through cash or credit cards during the COVID-19 pandemic.

Jennifer Jancosek, principal attorney at Jancosek Law, an estate planning firm in California, believes that small businesses have to meet their customers where they’re at with digital payments.

“In order to stay competitive, business owners should think about making their process as easy on the consumer as possible, including the use of alternative payment options,” Jancosek said. “Those who refuse to adapt to the current situation may get left behind as consumers transition to other businesses that are more responsive to their needs.”

Small businesses such as Jancosek Law offer several cashless payment options for their customers. This makes payment seamless and convenient for all customers — no matter how they prefer to pay.

So, why don’t businesses adopt cashless and digital payment methods?

For some small businesses, it can seem too difficult to adopt a new payment method. This is especially true for small businesses without the bandwidth to welcome large operational or technical changes.

Lydia McConnell, creative director and owner of Le Chic Miami, an accessories retailer, has seen this hesitation firsthand. She noticed a trend after assisting a reluctant fellow small business owner with setting up digital payment options.

“It seems to me that small companies that don't use digital payments may have misconceptions about the difficulty and technical requirements needed to change,” McConnell said.

While integrating new payment technology isn’t necessarily common knowledge, there are plenty of resources to help small businesses.

It may not take much effort for small businesses to start accepting payments digitally, but many people don’t know where to begin.

Before deep-diving into research on hardware and technical requirements, small businesses should first evaluate their goals and the benefits of various digital payment options.

Once they understand the advantages of each option, they’ll be more equipped to find the right platform for their unique business needs.

PayPal and Square Are Convenient and Easy to Use

Compared to other digital payment options, small businesses are most comfortable with PayPal and Square.

Of the small businesses in the United States, 63% take PayPal, while 32% accept Square.

Which cashless payments to small businesses accept?

PayPal and Square are clear favorites for small businesses due to their simple processes that are familiar to the public.

PayPal Wins Due to Age, Convenience

PayPal’s established credibility in the market paired with its convenience appeals to both customers and businesses. Across all demographics, PayPal reigns supreme, outranking all other digital payment options.

Some experts attribute this popularity to PayPal’s presence in the early stages of e-commerce.

PayPal started in 1998, long before competing platforms entered the space. Several early e-commerce platforms started using PayPal and stuck with it over the years.

PayPal was eBay's main payment processor until 2018

Source: eBay

It was eBay’s main payment processor until 2018, so the platform is familiar to managers and consumers.

“Anyone who used eBay as a buyer or seller has probably had a PayPal account,” said Robert Livingstone, president of IdealCost.com, a financial services company. “They are well-trusted, and it had to be expected that they'd be the top contactless payment method.”

Dan Riggs, owner of tree care company Valley Tree Trimmers, uses PayPal to support his business. Because of PayPal’s consistent ability to meet his requirements, Riggs has never considered other digital payment options.

“If PayPal wasn't meeting the needs of our customers and our business, then we would definitely look at options like Square or Venmo,” Riggs said. “But as long as PayPal keeps their processing fees under 3% for small businesses like ours, we plan on sticking with them.”

"If PayPal wasn’t meeting the needs of our customers and our business, then we would definitely look at options like Square or Venmo."

PayPal’s long-term presence in the market gives it a credibility that newer platforms struggle to compete with.

Although it’s relatively easy for consumers to try out new payment apps, there’s a considerable learning curve present for small businesses looking to integrate a new payment system.

This works in PayPal’s favor. Long-time clients are likely to stick with the platform’s services to avoid acclimating to a new solution.

Square Benefits From Clear and Simple Interface

While PayPal is the favorite across all demographics, Square presents itself as another commonly used, reliable digital payment method. It’s second in popularity only to PayPal across all regions, generations, and company sizes.

McConnell once used PayPal for her business but decided to make the switch to Square because it’s easy to use.

“Square … is my main electronic payment method,” McConnell said. “I changed from PayPal to Square because of their UI/UX. I found it to be easier and clearer for sales purposes.”

Companies like McConnell’s find Square to be simpler, making it a valuable addition for small businesses. It boasts a clear interface on both its point-of-sale (POS) and mobile sales options.

Square

Source: Square

Square has also become a well-established payment option for small businesses through its simplicity and clear UX. Its mobile hardware adds value to those taking payments on-the-go.

While PayPal’s longevity and credibility make it most popular, Square’s simplicity and adaptability make it a strong alternative.

Venmo’s Innovative, Social Media-Like Interface Engages Customers

Venmo has gained significant popularity with consumers. Small business owners use it as an alternative payment method, however, rather than a primary option.

Currently, 22% of small businesses accept Venmo payments.

While some consider Venmo a supplementary payment option, it’s caught the eyes of younger small business owners.

Small business owners between the ages of 18 and 34 favor Venmo the most: 38% of them have adopted it for their company.

What's the typical age of small business owners who accept Venmo?

Venmo uses a social media-inspired approach to digital payment, which is likely attracting younger small business owners who spend more time on social media.

While accepting and processing payments is Venmo’s main function, it also enables users to connect their contacts to the app. That allows them to see what their friends are paying for and whom they’re buying from.

Venmo

Source: Usability Geek

Venmo has a global feed that presents users with a view of transactions happening outside their social network. Individuals can like and comment on transactions as well, making for a true social media experience.

This information may be fun for consumers, but where exactly do small businesses fit in?

Companies can approach engagements on Venmo as small brand-building opportunities. Through payments on the app, small businesses have yet another way to engage with their customers.

Tips to Use Venmo for Brand Building

To make the most of Venmo’s social media elements, small businesses should:

  • Set a distinct, identifiable username that matches the business name
  • Write fun yet clear captions for charges and transactions
  • Like and comment on customers’ payments to their business

Customer engagement is important for businesses looking to get the most out of Venmo. The app not only allows companies to accept payment but also engages, retains, and expands customers.

Why Small Businesses Avoid Venmo

Venmo is still a newer platform. While it offers simplicity and credibility, older small business owners may feel that its value doesn’t warrant the hassle of adoption.

Small businesses may view Venmo as a supplementary option because of its unique payment process. There is no hardware that accompanies the app. Money is digitally sent between user accounts.

That means that a user must manually transfer funds from a profile to a bank account. This extra step makes transactions slightly more difficult to track, which may detract from its appeal to business owners.

At this point, companies are largely using the platform as a secondary option to more traditional methods of payment. Even so, there are plenty of benefits to Venmo’s social media-inspired approach to cashless payment.

Apple Pay and Google Pay Appeal to Younger Generations

With Mobile Connectivity Apple Pay and Google Pay, both enabled through smartphones, are gaining popularity with digitally focused small businesses.

In fact, these payment methods are strongly backed by companies with a mobile app. Companies with mobile apps are 18% more likely to accept Google Pay or Apple Pay.

small businesses with a mobile app are 18% more likely to accept Google Pay and Apple Pay

Many apps and smartphones are already integrated with these payment systems. It makes sense that mobile-oriented small businesses would adopt these digital payment options for increased connectivity, offering a logical, seamless payment solution.

“The majority of local consumers are either Android or Apple smartphone users and may forget their purse or wallet, but their phone is always with them,” said Caterina Bidni, owner and designer at Bidinis Bags, a leather handbag company. “Google Pay and Apple Pay are convenient ways for consumers to make purchases on-the-go”

Currently, 51% of Americans carry cash inconsistently or never. By using a payment method that’s built into phones, businesses can reach customers who are no longer dependent on their wallets.

"Our young customers kept asking to use them … so we pivoted to accommodate their requests."

Despite the major advantage of smartphone digital wallet compatibility, these platforms are still relatively new. Because of this, younger small business owners and managers have been most inclined to adopt Google Pay and Apple Pay for their business.

Small Business Owners Ages 18-34 Most Likely to Accept Google Pay and Apple Pay

Demand from younger generations is encouraging older business owners to expand their digital payment offerings, too.

“My children informed me that these applications were the wave of the future,” said Dawn Kelly, CEO of Nourish Spot, a health-focused restaurant in New York. “Our young customers kept asking to use them … so we pivoted to accommodate their requests.”

Companies are open to adopting Google Pay and Apple Pay due to their interconnectivity and consumer demand. While they may not replace other traditional options, these platforms offer a way to appeal to younger demographics.

Cryptocurrency Benefits Lag Due to Perceived Volatility

Despite the enthusiasm and excitement surrounding cryptocurrency, small businesses are hesitant to adopt it as a payment method.

At this point, only 3% of small businesses accept cryptocurrency.

Only 3% of small businesses accept cryptocurrency payments

While cryptocurrency has been billed as the next big thing in digital payment, small businesses aren’t adopting it due to:

  • Market volatility
  • Lack of consumer demand

Market Volatility Limits Cryptocurrency Use

In December 2018, bitcoin plummeted to about $3,100. In just seven months, it soared past the $11,000 mark. While this increase was good for crypto investors, extreme drops in value are common. For a small business striving for stability, this is a big turn-off.

“The volatility in valuation puts me off, as well as the degree of difficulty in implementing it into our checkout,” said Tristan Swanwick, CEO of Swanwick Sleep, a blue light protection company.

Lack of Consumer Demand for Paying With Cryptocurrency

Consumers aren’t showing interest in paying with cryptocurrency.

It doesn’t make sense to add a new payment option if customers aren’t asking for it. According to McConnell, that’s the major roadblock stopping her from considering cryptocurrency.

“We haven't had a customer ask if we accept cryptocurrency,” McConnell said. “I would be willing to try it and adapt if there was a demand in my business.”

This lack of consumer interest could stem from common misconceptions about what cryptocurrency can be used for.

In a recent report, Visual Objects found that most people use cryptocurrency to buy food and clothes. However, people associate the currency with the purchase of drugs and illegal items. This may be causing both consumers and businesses to keep cryptocurrency at an arm’s length.

"We haven’t had a customer ask if we accept cryptocurrency. I would be willing to try it and adapt if there was a demand in my business."

Typically, small businesses are looking for simple digital payment solutions that can be easily integrated into their current operations without disruptions.

Cryptocurrency’s niche, yet devout following, may confuse its demand for the average consumer. Market fluctuations, customer misconceptions, and a general lack of interest discourage curious small businesses from accepting cryptocurrency.

Contactless Payments Are Efficient and Credible

Consumers are flocking to online payment apps and other cashless options because of their many advantages.

PayPal presents itself as the most established, therefore convenient, cashless payment option. It’s widely trusted by its large user base.

Square is another popular digital payment method, largely favored by those in search of a streamlined, clean UX.

Venmo’s interface incorporates aspects of social media, making it ideal for growing companies wanting to build their brand. Its early popularity with younger generations demonstrates its potential for more widespread adoption.

Apple Pay and Google Pay are popular with consumers because they’re connected directly with their smartphones. Small businesses can highlight their commitment to customer demand and connectivity by integrating these payment systems into their current processes.

Although several cashless payment options have been well-received by small businesses, cryptocurrency is still perceived as being volatile, without much consumer demand. Small businesses are unlikely to accept cryptocurrency payments until assured of their reliability and ease of use.

Due to increases in consumer demand, small businesses can reap the benefits of digital payment by selecting the options that are best for their company.

About the Survey

Visual Objects surveyed 500 people in the U.S. that own or operate a small business. Our definition of small businesses includes companies with between 1 and 500 employees, which corresponds with the Small Business Administration's definition of small business.

The data was collected from December 20–26, 2019.

About 61% of respondents are female; 39% are male.

About 15% of the respondents are ages 18-34; 42% are ages 35-54, and 42% are ages 55 and older.

About 82% have 1-10 employees; 18% have 11 or more employees.