Male employee holds a card reader as a shopper uses a cashless payment feature.

How Small Businesses Are Going Cashless


While small retail business rely on both cash and cashless payments from consumers, economic trends show how small business can embrace going cashless.

Although many small businesses are used to handling cash transactions—especially in retail sectors such as food and small goods—cash is actually falling out of favor with many customers. This is, in part, because of the advance of mobile payment technology.

As consumers begin to keep fewer bills and coins in their pockets, small business transactions are not only increasingly digital but are also happening on multiple platforms. Consumers expect to be able to pay in a number of ways, not only with credit cards but also through payment portals on their phones and smartwatches, as well as with online transaction platforms.

As the cashless payment space has rapidly developed, small retail businesses face unique challenges: they have to consider how these new alternatives factor into their existing merchant services systems, and what kind of investment they're able to make in new POS and payment-portal technologies order to implement them.

It's often well worth the investment and effort to integrate these new technologies since there is a significant opportunity for small businesses to seize this cashless future. With the right technology, payment platform support and financial guidance, adopting cashless alternatives can not only delight customers but also open up new opportunities to generate revenue.

Changing Desires at Checkout

Even before the coronavirus pandemic, consumers not only desired—but, in many cases demanded—the ability to pay without cash. The number of people who relied solely on cash payments dropped from 24% in 2015 to a mere 18% in 2018. The same survey showed that the number of people who use cash for some of their purchases only increased by one percentage point. An astounding 29% of people polled never use cash to make purchases, up from 24% in 2018, and 2017 data from the FDIC showed that cash represented just 30% of all payments.

Now, in the wake of COVID-19, consumer desire to use contactless payment has only grown. Data from one study indicated that now, more than half of Americans (51 percent) are using contactless; the same number report depending on cash less often – or even not at all. Some research also indicates that the biggest potential impact to payments due to the coronavirus will be a move toward a preference for cashless options. Safety and hygiene are among the factors propelling this desire.

Credit and debit card transactions still lead the way as alternatives to cash, particularly with Baby Boomers, who are less likely to adopt mobile payment alternatives. Generation X, however, has embraced mobile and peer-to-peer platforms to the tune of 74% of those polled. Younger generations are even more inclined to make the switch: 49% of Millennials have used mobile payment options according to recent research, and early indicators suggest Generation Z will be even more open to these new alternatives to payments via paper and plastic.

These young consumers are also leveraging devices to pay retail—one survey showed that more than half of American respondents like using payment apps on their smartphones due to convenience, and more than half of male smartwatch owners have used their wearables to pay.

From Credit Cards to Smartwatches

Although customers still love spending on credit and debit cards, small retail businesses equipping themselves for the cashless future should focus on four emerging categories:

  • mobile payment technology (e.g. Android Pay and Apple Pay),
  • digital payment platforms (PayPal, Venmo, and Cash App),
  • messaging apps (Facebook and WhatsApp),
  • proprietary business apps (LevelUp).

These different types of payment platforms enable customers to have more seamless checkout experiences in person as well as help them breeze through online purchases—especially on popular platforms such as Shopify and Squarespace.

Each of these categories, as well as the apps under their umbrella, offers a different kind of alternative to cash. For instance, mobile payments enable consumers to do more with less, reducing their need to carry a wallet while still providing a way to make purchases. Think of a runner, carrying only her phone, who wants to stop along her route for a bottle of water. With her device, she can make her purchase if the merchant is equipped to take contactless payments.

Many consumers who have embraced these technologies see benefits that go beyond convenience, too. Some platforms offer helpful features on the customer's end that can track spending, get statistics on which businesses and services they pay for the most, and can even sweep change into a savings account automatically. For vendors, there are perks such as faster access to payments/funds, richer data on consumer spending habits, loyalty programs, targeted marketing opportunities and customized experiences for repeat customers.

Effectively Addressing Customer Demands

Small retail operations may be hesitant to adopt a wider variety of payment methods due to the additional cost of implementing new technology. Although there is an investment to make, businesses don’t need to reinvent their operations or bust their budgets. Competition in the merchant services space has meant that there are a variety of different, flexible options that have tiered pricing models and à-la-carte packages. Pricing plans are typically competitive with credit card transaction fees, and include different fee models depending on the volume and financial total of monthly transactions.

Cashless payment providers also tend to include a robust e-commerce toolkit for businesses as well. By adding a snippet of code to a new or existing retail website, most businesses can integrate new payment providers or even overhaul their existing merchant services ecosystem.

Don't hesitate to reach out to the merchant-service platforms in which you're interested; customer service teams are often ready to demo their products, and, in many cases, can work with your budget as a small business.

Is the Future Entirely Cashless?

Should you prepare to entirely eliminate cash? It's hard to tell. Although the future is pointing to a whole new approach to cashless payments and businesses will be wise to keep up, there are a few caveats to keep in mind with regard to hard money.

Some businesses that have tried to eliminate cash entirely in the quest for customer convenience have been surprised at the reception from customers. Major brick-and-mortar retailers, including Sweetgreen and Amazon's AmazonGo, attempted to transition stores to only mobile and online payments. However, their entirely cashless approach alienated unbanked customers, which caused some consumer backlash. They've since reversed their policies, and a portion of their stores now accept cash again.

With all of this in mind, embracing a cashless future for your retail business will mean finding the sweet spot between accepting cash and integrating the emerging technologies right for you.

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