As the majority of small businesses still use cash on a daily basis to settle transactions, the payment landscape is undergoing a rapid transformation, with small and medium-sized businesses (SMBs) increasingly adopting alternative payment methods. The COVID-19 pandemic has accelerated the decline of cash transactions, prompting SMBs to explore diverse payment options that cater to customer preferences. This blog post delves into the impact of alternative payment methods on displacing cash in SMB transactions.
A recent Forbes study reveals that since the onset of the pandemic, 20% of SMBs have implemented alternative payment solutions, a notable increase compared to previous years. This highlights the growing significance of alternative payment methods within the SMB sector. The study also discovered that 60% of SMBs pivoted their businesses during the pandemic, fueling the demand for alternative payment options.
Half of SMBs would prefer to receive payments either via real-time payment rails or same-day ACH, but payers’ most preferred methods are cash, checks, credit cards or ACH.
The key to satisfying both buyers and suppliers is payment choice: utilizing a platform or service that allows businesses to pay and receive funds using the terms that match their in-the-moment needs without disrupting payment experiences or inconveniencing the seller or receiver with long wait times.
An all-in-one payment solution allows transactions to happen seamlessly by prioritizing payment preferences for both sides of the transaction.
The surge in contactless payment systems is also a primary factor driving the transition away from cash transactions. These systems offer speed, security, and convenience, making them increasingly popular among consumers. SMBs are adapting to this trend by incorporating mobile payments and digital wallets into their payment methods.
Furthermore, the emergence of alternative lending options is propelling the shift away from cash transactions. To access financing for business growth, SMBs are turning to alternative lenders offering invoice financing, merchant cash advances, and peer-to-peer lending. This enables SMBs to obtain the necessary capital without relying on traditional banks.
The rising popularity of digital payment solutions, such as PayPal and Square, and the emergence of all-in-one platforms like 2Checkout, Stripe, PayU, Adyen, Ebanx, and dLocal also contributes to the decline in cash payments. These user-friendly solutions provide various features that simplify payment management while offering faster processing times and lower transaction fees accompanied by a set of value added services and solutions that address multiple pain-points across the payments value chain. This helps SMBs save money and enhance their cash flow.
However, the growth of alternative payment solutions poses disintermediation risks for card networks. Open-source technology, decentralization, and cloud computing advancements have enabled fintech companies like Adyen, Stripe, and Square to disrupt the payment space. These agile, modular systems facilitate the adoption of innovative technologies like blockchain, Directed Acyclic Graph (DAG), and AI, driving the next generation of card and payment technology.
Although still in the early stages, these disruptions could bring significant change. Card networks must adapt quickly, reevaluate their business models, and invest in updating existing platform architectures to stay competitive and address evolving customer needs.
In conclusion, alternative payment methods are significantly impacting the displacement of cash in SMB transactions, a trend likely to continue. As the payment landscape evolves, SMBs must stay informed about the latest trends and technologies to maintain competitiveness and cater to customer needs. Embracing alternative solutions is key to thriving in this ever-changing environment.
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