According to Visa, more than eight out of ten (82%) in-person payments are now contactless.
Furthermore, according to Decta, more than half of under-25s will leave a store if it does not accept contactless payment.
According to UK Finance, more than 23 million people in the UK used virtually no cash last year, and notes and coins will account for only 6% of payments within a decade.
This is why, as a small business, it’s critical to provide a variety of contactless flexible payment alternatives, such as contactless credit cards like Visa, Mastercard, or American Express, or smartphone wallets like Apple Pay or Google Pay, which connect to your bank account.
Debit cards were the most common payment option in 2021, accounting for 48% of all payments and showing the continued popularity of contactless cards. Only 15% of payments were made in cash. Of course, the pandemic accelerated this cashless tendency, leading many consumers and shops to abandon cash entirely.
So, what payment choices are available to a small business?
Credit card payment options
Visa and Mastercard often set the norm for transaction fees, with other cards such as American Express charging extra, resulting in an average transaction fee ranging from 1% to 3%.
The expense of a Visa card transaction is borne by the small business.
For example, if a consumer pays £30 for a jumper, the small business will be charged £0.63 for the transaction.
This £0.63 transaction fee is split between the small business’s bank, which charges £0.56p, the customer’s bank, which charges your business £0.06p, and Visa, which normally makes 1-2p depending on the type of card used.
Mastercard, like Visa, is in the middle of the payments ecosystem and has a four-party arrangement (as does Visa).
Mastercard has the lowest fees of any party participating in the payments chain (card issuing bank, network (Mastercard), acquiring bank, gateway, and terminal provider).
It charges scheme fees or network costs.
are levied on banks/gateways that allow businesses and consumers to make and receive payments. In addition, Mastercard is accepted at 90 million payment terminals worldwide.
According to Boston Consulting Group, the aspects and expenses of accepting a Mastercard transaction are as follows: the overall cost to the shop or business of accepting a card payment is £1.20 for an average domestic card transaction of £50. In comparison, accepting cash (£1.75p) or Buy Now Pay Later (£2.05p) for the same average transaction amount of £50 costs retailers substantially more.
The combined interchange (which goes to the card issuing bank) and acquisition fee (which goes to the merchant’s partner bank) of this £1.20 cost of acceptance for a £50 card transaction is 24p, and the scheme or network charge (which goes to Mastercard) is 6p.
Other indirect costs, such as payment terminal purchase/rental and fraud fees, account for 45p of the £1.20. Back-office costs such as invoice reconciliation, payment collection, and running point-of-sale terminals account for an additional 45p of this £1.20 acceptance fee. Obviously, Mastercard is not liable for any of these expenses.
American Express has positioned itself as a champion of small businesses, primarily through its Small Business Saturday initiative, which is celebrating its tenth year in the United Kingdom this winter, and its Shop Small campaign, which incentivizes and rewards our Cardmembers for spending at participating small businesses.
Shopkeepers have always been hesitant to accept American Express due to the higher transaction costs. These are thought to be an average of 1.5 percent merchant service charge, but can range from 0.5 to 3 percent, plus a 1p-3p authorisation cost. (American Express would not provide precise data.)
Customers of American Express charge cards, on the other hand, tend to rely on them due to Amex’s well-known point reward scheme. According to Amex data, its consumers spend over four times more annually and more than three times more frequently than the average credit and charge card user in the UK.
Furthermore, the number of establishments accepting American Express has more than doubled since 2017 to over 66 million globally.
Small businesses can take American Express payments through a direct relationship or through payment providers. Many major payment providers, such as Stripe, Square, and Zettle, will automatically offer Amex, but others will require the merchant to select Amex as a payment method.
Remember that Apple Pay, which has 43.9 million users worldwide, is neither a bank, payment processor, or card issuer.
Instead, it essentially stores your customers’ cards on their iPhone or Apple Watch and provides two-factor verification by PIN, fingerprint, or face recognition.
Apple Pay is accepted everywhere contact payments are accepted – retailers do not need to sign up for Apple Pay. To make a contactless payment, customers simply hold their iPhone or Apple Watch near a payment terminal. Every Apple Pay transaction is safe because it is verified with face ID, touch ID, or the device passcode, as well as a one-time unique security code.
Apple does not charge for shopkeepers, hospitality, or other services.
When clients use Apple Pay with a credit or debit card, the actual card numbers are not saved on the device or on Apple servers. The issuing bank or card issuer handles all payment processing, approval, and so on. Apple has no knowledge of what you purchased, where you purchased it, or how much you paid.
According to Statista, the UK was the most popular territory for Apple Pay transactions in 2021, with nearly two-thirds of people with access to Apple Pay using it at least once in stores or restaurants.
Like Apple Pay, Google Pay is free of charge for businesses to sign up to and doesn’t cost customers anything either.
Google Pay currently has over 25m users worldwide and brands that accept the payment using the app include Shopify, Uber and McDonalds.