How Do Digital Payments Help Business Owners?

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If you’re still running a cash business, you might want to rethink your strategy. Digital payments aren’t just popular—they’re now ubiquitous, and consumers expect them. And it’s not just ecommerce businesses that need them. Even brick-and-mortar customers are seeking easy, convenient digital payment options. Consider that, in 2019, nearly a third of American adults made zero cash purchases in a typical week—and those who did carry cash typically had less than $50 on hand. In other words, the time to incorporate digital payments into your business is yesterday!

What Are Digital Payments?

A digital payment is any type of payment that is electronically transmitted. Examples of digital payments include:

• eWallet payments (Apple Pay, Google Pay)
• Mobile point-of-sale (POS) payments
• Payments transmitted through payment aggregators like PayPal and Square
• ACH bank transfers
• Cryptocurrency transactions

Even in-person credit and debit card transactions fall under the umbrella of digital payments as the data from each transaction is transmitted from a processing bank to an acquiring bank via an encrypted virtual payment gateway.

Why Digital Payments Are More Than Just a Good Idea

If you’re not accepting digital payments, you’re losing business. It doesn’t matter if you’re a multinational enterprise or a baker selling cookies at the local farmers’ market. The more payment options you have available, the more revenue you’re going to pull in. Consider a few statistics:

• The number of digital payments has more than doubled since 2017, and it’s expected to double again by 2027.
• 32% of mobile wallet users have at least three different mobile wallets—some Millennials have as many as nine.
• Debit cards are the most popular method of payment in the U.S., followed by credit cards. Cash is third.

It’s easy to see why you should accept digital payments, but there’s another practical reason: it’s easier than ever. You don’t have to partner with a dozen different payment providers to make all of those payment options available. In most cases, all you need is a merchant account. One good merchant provider can equip you with the tools necessary to accept credit cards, debit cards, digital wallet payments, bank transfers, and—in some cases—even cryptocurrency.

Merchant providers recognize that business owners want versatile payment options, and merchant payment processing itself is a competitive and lucrative industry. As a result, merchant providers are going to tremendous lengths to accommodate a wider array of digital solutions. No matter how many different payment methods your customers use, the funds are all transferred to the same merchant account (and then ultimately to your business bank account).

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Why It’s Difficult for Businesses to Transition to Digital Payments

If they’re so great, why doesn’t everyone accept digital payments? It’s most often small businesses that grapple with the pros and cons of whether or not to accept digital payments. For larger businesses, it’s not even an option to forgo digital solutions, but smaller businesses understandably face certain barriers.

The Cost

The cost is the most obvious barrier to accepting digital payments. Every digital transaction cuts into your profit margin. With a typical merchant provider, you have to pay a monthly subscription or service fee as well as a per-transaction fee that includes both a base rate and a percentage of the total transaction.

Some merchant providers also impose additional fees like batch fees, payment gateway fees, annual maintenance fees, early cancellation fees, and so on. Even if most of these fees are just a few cents, they add up quickly.

Larger and established businesses can sometimes negotiate lower credit card processing fees with merchant providers (paying what is often referred to as the “Qualified Rate”), but smaller up-and-coming businesses don’t have this benefit.

What You Can Do About It:

• Shop around. There are a lot of merchant service providers out there, and their rates can vary wildly. To find the best deals, it pays to obtain as many quotes as possible.
• If you’re a small business with a small number of monthly credit/debit card transactions, look for a merchant provider that offers flat-rate pricing. You’ll generally pay slightly more per transaction, but you’ll benefit from transparent fees and fewer hidden costs. As your business grows, you might benefit from switching to a tiered or interchange-plus payment option.
• If you have just a small handful of transactions or you’re selling for fun, you can skip the dedicated merchant account and just use an aggregated merchant provider like PayPal. This isn’t an ideal solution, but it’s generally the most cost-effective and accessible option for hobbyists and non-qualified merchants. This will allow you to accept credit and debit card transactions without the need for a personal merchant ID. As your business grows, you can migrate to a dedicated merchant provider.

The Industry

Some business owners have difficulty securing digital payment solutions simply by virtue of their industry. Certain industries are deemed “high-risk,” meaning that they’re problematic for payment providers due to legal restrictions or high rates of fraud. The merchant provider doesn’t want to handle your finances only to be caught up in an investigation a week later. Examples of high-risk industries include adult services, cannabis/CBD, dating sites, self-help, gambling, and telemarketing.

Certain countries are also deemed high-risk by the major card companies. So if you conduct business in a region where credit card fraud is rampant, you may have to pay more for merchant services (or be denied merchant services) even if your own business is 100% reputable.

Finally, individual businesses can also be deemed high-risk if they’ve been flagged by credit card companies. Common reasons for this include high chargeback ratios (i.e. if a lot of your customers request refunds from the bank), accusations of financial fraud, or poor credit history.

What You Can Do About It:

• If you’ve been deemed high-risk due to your industry, location, or personal history, look for a digital payment provider that offers high-risk merchant services. You’ll typically have to pay higher fees to mitigate the risk (at least until you establish a positive track record with the merchant provider), but you’ll be able to accept digital payments.
• If your industry is particularly high-risk (such as in the cannabis space or adult services), look for a payment provider that specializes in your line of business. Spend an hour searching for payment providers online—you’ll be surprised by how many exist.
• Focus on building a positive credit history. Try to keep your chargeback threshold below 1%, remain in good standing with your merchant provider, and focus on building your business. As you establish your own business as low-risk, more opportunities will open up and better-qualified rates will become available.

The Complexity

The fact is that a lot of new businesses just don’t know where to begin. How do you get approved to accept digital payments? And then how do you integrate those payments into your business? This can be daunting even for financially savvy and tech-savvy business owners.

What You Can Do About It:

• Look for a system that accommodates digital payments with a minimal learning curve.
  • If you sell online, consider hosting your store with an ecommerce platform that allows payment integration at the click of a button (examples include BigCommerce, Shopify, and WooCommerce). Then, once you’ve chosen a merchant services provider, they’ll usually provide you with a plug-in or API that you can add easily to your web store.
  • If you sell in person, consider a point-of-sale (POS) system that has merchant services built in. All you have to do is set up your account and you’re ready to go.
• Have your merchant services provider walk you through the steps of integrating your digital payments system into your business. Most service providers have representatives that are happy to help by phone or live chat.

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How Do Digital Payments Help Business Owners?

Yes, there may be a few challenges involved in setting up digital payments, but you have to consider the benefits:

• Better sales. As previously emphasized, more payment options amount to more revenue. And if your business has any sort of online presence, it’s absolutely essential. Ultimately, it’s about staying competitive. If you don’t accept digital payments, your competitors will. And they’ll be happy to reap the sales that otherwise would have been yours.
• Reliable security. Digital payment providers are required to ensure robust security. Payment gateways are encrypted to prevent third-party interception and tested for vulnerabilities on a regular basis, and suspicious transactions can be flagged in real time.
• A detailed paper trail. When customers use digital payments, you have a complete record of their purchase history. You can use this information to investigate complaints (such as if a customer claims to have been overcharged for a purchase), dispute friendly-fraud chargebacks, make additional product recommendations, track sales trends, and measure customer loyalty. This information is invaluable.
• Access to additional benefits. If you want to secure contracts with vendors, wholesalers, and certain other ancillary service providers, you’ll often be required to submit documentation demonstrating that your business is reputable and worth partnering with. In today’s tech-driven economy, “cash only” policies are viewed as red flags by certain types of B2B service providers. By accepting digital payments, you can open a lot of doors for your business.

The Future of Digital Payments

The digital payment market is anticipated to grow by a CAGR of 15.4% by 2028. We’re gradually evolving into a cashless society, and while we won’t be completely cashless any time soon, the trend is clear: digital payments are becoming more and more essential every year.

In the coming years, we can expect to see an even greater reliance on contactless payments and digital wallets, as consumers want payment solutions that are quick and simple. And while the first half of 2022 has been rough for the cryptocurrency market, analysts predict that crypto is far from dead. It may change, evolve, and take on new names and appearances, but it’s still worth learning about and tracking. In the coming years, it may even become a dominant force in the mainstream economy.

We don’t entirely know what the future holds for digital payments, but one thing is for certain: They’re here to stay, and they’re essential for any business that wants to be competitive. So if you haven’t already done so, make digital payment solutions a part of your business. You’ll be amazed by the difference it can make.