The ongoing digitalisation of economies around the world affects almost all aspects of our daily lives, including the ways in which we pay.

In any small business, a lot of time is spent thinking about the product or service and how to get it into the hands of customers faster, better and more often. But all the hard work spent on making, marketing and moving the product or service can come undone at one crucial point in the customer experience: ensuring they pay.

The latest research by Xero, in their Xero Global Payments Report, has found that consumers and small businesses are worlds apart when it comes to the ways customers want to pay and how small businesses want to be paid. Their report aimed to uncover how consumers actually want to pay, and give small businesses and their advisors the insights and tools to help their customers pay that way.

Almost nine in ten consumers (86%) rely on credit and debit cards for their essential and discretionary spending. Yet around a third of small businesses still don’t offer this payment method.

Not having funds at the time is a top reason consumers give for not paying their bills on time. Yet many small businesses don’t provide alternative payment options like buy now, pay later (75%) or credit card (32%) that could give customers more flexibility over when they pay and prevent flow-on cash flow issues.

Payments are a crucial piece in the cash flow puzzle. The payments landscape is constantly evolving, which means it can be hard to keep up with changes in consumer demand and market trends when trying to do a million other things like making sales and finding customers.

While collecting payments from consumers is key to business growth, the other side to the cash-flow coin is managing the payments and bills that small business owners need to cover in order to keep their business running.

TREND #1
A mismatch exists between the payment methods small businesses offer and those consumers prefer.

Across all five countries surveyed, a vast majority (86%) of consumers use credit or debit cards to pay for goods and services. In contrast, 68% of small businesses offer credit or debit cards as a payment option. Other payment methods consumers commonly used include direct debit (66%) and bank transfer (62%), whereas the number of small businesses that offer these payments to customers today is again significantly lower at 38% and 49% respectively.

On the flip side, 43% of small businesses offer Apple Pay and/or Google Pay, compared to 30% of consumers who use these payment services.

The survey offers a couple of reasons for this mismatch, which we explore further in the third trend. One factor is the higher fee and set-up costs small businesses incur with credit cards and direct debit payments. Credit card processing fees can range between 1.3% and 3.5% per transaction, which can be a significant burden for small businesses with slim profit margins.

TREND #2
What you sell, and who you sell it to, influences how your customers want to pay

When shopping in-person, over half (57%) of consumers use physical bank cards, with 21% reporting that they only take their mobile phone with them, which they use for contactless payments through Apple Pay or Google Pay. Only 19% have cash readily available.

When looking at payment methods by industry, consumers prefer credit and debit cards for in- store purchases across all industries, with the exception of housing (rent, mortgage, bills) where 37% of consumers prefer to use direct debit.

However, cash is still a popular way of paying for some purchases, such as services like going to the hairdressers (35%) and using trades like electrical and plumbing (24%).

These preferences could reflect the nature of the transactions. In industries like hairdressing and trades, many transactions are relatively low in value, making cash a convenient option, compared to housing where consumers often need to make recurring payments or pay larger sums of money.

While more consumers prefer to use their credit or debit card to pay for online transactions, payment preferences differ across countries depending on the industry.

Australian consumers are the most likely to use bank transfers (27%) to pay for healthcare services, whereas American consumers are most likely to use credit or debit card (57%) to pay for healthcare.

Bank transfers are the most common way for New Zealanders to pay small businesses online in the trade (46%) and the housing (46%) space, significantly higher than other countries.

Consumer demographics also influence how they want to pay. Baby Boomers (aged 65 years and older), stick to more traditional payment methods: 92% use credit and debit cards (compared to Gen Z 84%, Millennials 85%, Gen X 85%), and nearly a third (29%) still write cheques to make payments (compared to Gen Z 18%, Millennials 11%, Gen X 17%).

TREND #3
Fees and security concerns are the top barriers across all countries, but so are cultural, market and economic dynamics

As explained above, there’s a disconnect between what payment options consumers want and what small businesses are offering, which can be explained by looking at the barriers small businesses face when it comes to adopting new or different customer payment methods.

Small businesses report expensive fees (33%) and security concerns (30%) as the top barriers that prevent them from offering their customers new or different payment methods. There is some variation across countries. Security is not as big a concern in Australia (19%) as the perceived fees associated with new payment methods (36%).

In Singapore, the biggest concern is payout times from payment service providers (36%), followed by the complexity and time to set up new payment methods (35%).

Consumers report similar themes, naming hidden fees or surcharges (66%) and security concerns (42%) as barriers when paying or managing payments. In fact, 37% of consumers said they would try to change their payment method to avoid paying a surcharge when making purchases. This is even higher in New Zealand, where one in two (51%) said they would try to change the payment method.

A vast majority (61%) of consumers have a low acceptance of paying a surcharge, even if the payment method is convenient for them. Almost one in three (29%) indicated they were not at all accepting of payment surcharges, despite the payment method being convenient to them.

Consumers in the UK report the lowest acceptance of paying surcharges, with almost two thirds (65%) of UK consumers indicating they have a low tolerance for paying surcharges. Consumers in Singapore have the highest acceptance of paying surcharges, with almost a quarter (23%) of consumers in Singapore saying they have a high tolerance for paying surcharges.

The different attitudes towards hidden payment fees and surcharges across countries may be explained by cultural, market and economic dynamics. For example, stricter regulations in the UK about pricing transparency might discourage the imposition of surcharges, so when they’re applied by businesses, they’re met with consumer resistance.

Small businesses could be sensitive to these consumer concerns, in addition to other macroeconomic factors. They report low transaction fees (55%), no payment surcharge fees (48%) and no set-up fees (39%) as factors when choosing new payment methods.

This could be why 42% of small businesses choose to build fees into the price of their goods and services, rather than charge separately. It helps them avoid any unpleasant repercussions.

Overview of Australian trends

Ongoing shifts in Australia’s payment landscape are influenced by a wide range of policy and regulatory issues. The Australian government, as well as the Reserve Bank of Australia (RBA), continue to introduce reforms and regulations to address changing payment behaviours and market trends. Most notable in 2024 are the buy now, pay later regulatory reforms, the payments system modernisation (regulation of payment service providers) consultation, and consultation on the draft legislation for regulating digital asset platforms.

These policy reforms, as well as the continued reductions in ATM withdrawals and cash transactions, are likely to play into consumer and small business payment trends in attitudes and behaviours towards payment methods.

Small businesses in SA and VIC more likely to foresee impacts in a cashless economy

Australia remains firmly decided in favour of using credit or debit cards to make payments (86%), with bank transfers (66%) and direct debit (63%) also popular options for consumers. However, only 55% of small businesses accept credit or debit card payments, and only 48% offer direct debit as a payment option.

Almost seven in ten (69%) of Australians say they use cash to make payments. However, only one in four (25%) say they rely on cash and cheque to buy products and services. More than two in five (41%) consumers say they rarely use cash and cheque payments, only when a business requires it.

Moving to a cashless economy would be felt by many small businesses, with 79% of small businesses believing that if cash and cheque disappeared tomorrow it would have some form of impact on their business. Almost half (49%) believe it would have a medium to high impact.

Interestingly, the younger the small business owner, the more likely they are to believe it would have an impact on their business (Gen Z 89%, Millennials 85%, Gen X 74%, Baby Boomers 69%).

Small businesses in SA and Victoria are the most likely to believe it would have an impact on their business (SA 85%, VIC 83%; cf. NSW/ACT 77%, TAS/NT 57%*, QLD 78%, WA 72%).

The popularity of mobile payments is growing in Australia, and it’s being driven by the younger generations. Almost one in four Australians (24%), driven by a significant proportion of Gen Z consumers (40%), use Apple Pay or Google Pay to make payments. One in four Australians (25%) typically only take their mobile phone to pay when going to a physical store. Again, Gen Z consumers bring up this percentage – one in two (52%) say they only take their mobile phones to the shops.

Hidden fees or surcharges are the most common frustration among consumers

Over one in four Australians (28%) would visit another business that accepts more payment options if a business didn’t offer at least one of their preferred ways to pay. This could explain why the most important factors to Australian small businesses when choosing new payment methods are ease of payment for their customers (58%) and low transaction fees (57%).

In Australia, hidden surcharges are banned. According to the Competition and Consumer Act 2010, businesses must clearly disclose all fees and charges associated with a transaction and the ACCC enforces these regulations. Despite this, over 7 in 10 Aussies (72%) name hidden fees or surcharges as the most common frustration when it comes to paying or managing payments.

Over one in two Australians (56%) have a low acceptance of paying a surcharge fee if the payment method is convenient to them, with older generations more likely to have low acceptance of paying a surcharge fee (Baby Boomers 62% and Gen X 65%, compared with Millennials 51% and Gen Z 41%). Over one in three Australians (35%) will try to change their method of payment to avoid paying a surcharge.

This could be why over one in two small businesses (54%) report no payment surcharge fees as one of the most important factors when choosing new payment methods. Nearly half (46%) of small businesses pass payment surcharge fees onto their customers by building them into the price of their goods and services.

Small businesses and consumers most terrified about implantable payment chips

When thinking about new or emerging payment methods, small businesses and consumers are the most troubled about using microchip implants in their hands to pay for products and services.

While implantable payment microchips are not yet commercially available in Australia, almost half (47%) of consumers and 37% of small businesses say ‘terrified’ best describes their feelings towards this payment method.

Small businesses and consumers are also on the same page when it comes to digital currencies, with over a quarter of consumers (26%) and small businesses (27%) feeling anxious about digital currencies like crypto. While the EU, UAE, Singapore, Canada and many other G20 and major financial hubs have introduced regulatory frameworks for crypto, Australia has yet to do so.

Small businesses and consumers in Australia are the most optimistic about biometric authentication (eg, fingerprints and facial recognition), with around a quarter of consumers (24%) and 29% of small businesses saying they’re optimistic about this payment technology.

Small businesses and consumers have mixed feelings about digital payment methods

When thinking about future or emerging payment methods, small businesses are most optimistic about biometric authentication (31%) and bartering marketplaces (27%). This is similar for consumers, who are also optimistic about biometric authentication (24%) and bartering marketplaces (24%).

As the Reserve Bank explores digital currencies, more than a quarter of small businesses (27%) and consumers (29%) say they feel anxious about this payment method, with around a quarter of small businesses (23%) and consumers (27%) saying they feel terrified about digital currencies.

Small businesses and consumers are the most terrified about implantable payment chips and implanted microchips as future or emerging payment methods, at 43% and 46% respectively.

Give Indigo Financial a call to discuss how we can assist you to understand the best payment methods for your needs and ensure your business is not just stable, but growing and flourishing. We are not just an accounting firm – we are a fully resourced advisory specialising in all aspects of business.

With over 200 years of collective professional experience, we are a small, but widely experienced team dedicated to working with small to medium enterprises (SMEs). We have the tools, resources, skills and coaching knowledge to help you achieve business performance excellence.
As well as taxation and accounting, we specialise in:
• Financial planning
• Business services
• Business development
• Superannuation
• Property advisory
• General insurance
• Lending

Call Indigo Financial on (08) 8212 8585

Words courtesy: XERO – I want to pay that way (A report into how consumers and small businesses around the world feel about payments).