Save, make, understand money


BLOG: Is it goodbye to cash?

Chris Davies
Written By:
Chris Davies

Cash still governs the world of small businesses but new technology means this could soon change, writes Global Payments UK’s Chris Davies.

As digital technology becomes more ingrained in our way of life there is a gradual shift underway to paying by plastic. Few of us would find it strange to pay for a coffee or a few groceries by card, especially now that contactless cards are so commonplace.

However, one space that has remained governed by paper money is the world of mobile businesses. Despite handling, in some instances, relatively large amounts of money window cleaners, florists, hairdressers and handymen are still often paid in cash.

This is despite growing demand from both business and customers for card payments as wider usage of plastic grows.

For mobile businesses cash has an invisible but heavy cost; in banking, security and even the complications of tracking cashflow through the business. In addition, mobile businesses can often miss sales from customers who are not carrying cash and have to refuse card payments.

A recent survey of 1,000 micro-businesses (those with 10 employees or less, of which there are 4.6 million in the UK) conducted on behalf of Intuit found that only 19% accepted cards but 50% wished they could.

So why have window cleaners, for example, historically not been able to accept cards? Card acceptance has been difficult for small businesses owing to a number of factors – cost and complexity being the most significant.

One of the main barriers is the unpredictability of how many customers they will have paying by card, and the small size of transactions overall, both of which make signing up to a subscription package unworkable.

Card processing usually works by paying a monthly subscription fee to a provider, as well as renting a terminal. Some businesses might only need to take one card payment a week for example, which makes these costs unrealistically expensive. These elements have combined to keep card payments as the preserve of larger companies.

However, technology now looks set to democratise card payments for small businesses, no matter how tiny they are. The catalyst here has been the explosion in the use of sophisticated internet-enabled smartphones. With a small, inexpensive card reader and downloadable app the device can be turned into a chip and PIN compliant card terminal.

The reader “talks” to the phone through a Bluetooth connection and the cardholder enters their pin on the device. The cardholder’s details are kept as safe as a regular terminal that you might expect to use in a supermarket or restaurant.

This is an interesting development because it means that the individual effectively supplies their own hardware – instantly cutting the rental costs that small businesses find difficult to bear. Instead, most of these new payment systems require only an upfront investment in a card reader with PIN pad (usually at around £49) then fees of around 2.75% per transaction.

Relative to the cost of handling cash and lost custom from not being able to accept cards this level of fee introduces a realistic card payment option where none have existed before.

As new entrants such as Intuit and PayPal bring their solutions to the market 2013 could be the year that card payments finally reach the great and the good of small businesses. Next time the window cleaner calls you may find yourself reaching for your card to pay rather than your loose change.

Chris Davies is managing director of Global Payments UK