The global coronavirus pandemic has caused a shift in the way people make payments, with online payment apps and e-commerce gaining popularity. As a result, small business owners are required to adopt different payment methods. This is particularly true for businesses that had to switch from in-person to online models during the pandemic. Small businesses that accept online payment apps have performed better than those that don’t.
According to David Axler, the vice president of banking and tax at Wave, digital payments have become more widely accepted and are now a part of people’s daily routines. This has made it easier for customers to pay, especially given the physical distance between small businesses and their customers.
What do online payment apps refer to?
Online payment apps refer to digital wallets that securely store credit or debit card information and allow for transactions to be completed through a mobile device or the internet, eliminating the need for cash or payment cards. These apps can also be used for peer-to-peer payments to friends and family. Customers can either use the app on their mobile device or select the app option during checkout on a merchant’s website.
What are the advantages and disadvantages of using payment apps?
Prior to incorporating mobile or digital payment options into your business, it’s important to weigh the benefits and drawbacks. Although online payment apps are user-friendly and convenient, they still pose some risks. Here’s an overview of the advantages and disadvantages of accepting online payment apps for transactions with your customers.
Advantages of Using Online Payment Apps
Online payment apps have become widely accepted as a payment method. Before the pandemic, many consumers were hesitant to use mobile wallets or online payment apps for purchases. Although platforms like PayPal and Apple Pay had millions of users, they were not adopted by the masses. However, the pandemic has led to a surge in e-commerce and online payments. Consumers who were previously hesitant to use online payment apps are now using them frequently. According to a recent report by Accenture, digital payments will be responsible for almost 420 billion transactions worth $7 trillion by 2023. This figure is expected to increase to $48 trillion by 2030. This demonstrates that consumers have become more comfortable paying online. As Axler explains, online payments used to be less understood and less commonplace.
If you receive cash as payment, you’ll get paid immediately. However, if you accept credit or debit card payments, it may take a few days for the transactions to be processed and for the funds to be deposited into your bank account. On the other hand, if you use online payment apps, you’ll receive your money right away without having to wait for credit card sales to process or for customers to pay invoices. As cash flow is crucial for running a small business, receiving payments promptly and directly into your bank account is highly beneficial.
Retailers need to come up with different strategies to finalize sales as online shopping becomes more prevalent. One major issue for online retailers is shopping cart abandonment. To combat this, accepting online payment applications can make the checkout process more efficient. When customers can quickly and easily purchase products, they are less likely to abandon their shopping carts, resulting in higher satisfaction rates.
Cons of digital payments
One drawback of digital payments is the increased risk of fraud. While online payment apps provide convenience for purchasing goods and services, they also present opportunities for scammers to target consumers and businesses. For instance, scammers may use dummy apps that mimic legitimate payment apps and trick users into downloading them. These fake apps then collect personal information from the user and use it for fraudulent activities. To mitigate this risk, it is recommended that customers use well-known payment apps that are available directly from their legitimate vendors.
Accepting payments through online payment apps can become costly. These apps are connected to the user’s credit or debit card, and when they use the app to pay you, a transaction fee is charged for credit card payments. The amount of the fee varies depending on the type of transaction and the credit card used. As online payments fall under the category of card-not-present payments, merchants typically incur higher costs. The more risky the payment, the higher the rate of the transaction fee. According to Andi Gray, president of Strategy Leaders, accepting payments through online payment apps tends to be the most expensive option. Therefore, business owners should carefully consider their needs and explore alternative payment options if their goal is to get paid faster or reduce the number of invoices. If you do decide to accept online payments, Gray recommends keeping the transaction fee below 3%.
While online payments offer more convenience to your customers, they can be more difficult to manage on your end. Consolidating transactions from different payment apps into one accounting system can be a tedious and time-consuming task. According to Axler, when you begin accepting electronic payments, it can be challenging to link them to specific invoices or receipts. However, there are cloud-based accounting software solutions available that automatically collect all your payments in one place, giving you a comprehensive overview of your sales.
Which digital payment providers are leading the industry?
The digital payment landscape is highly competitive, with various companies striving to capitalize on the trend towards a cashless society. However, there are a few standout online payment platforms that are currently dominating the market.
One of the most well-known mobile payment apps is Apple Pay, which boasts around 500 million users worldwide. To use the app, users input their credit or debit card details into the mobile wallet on their iPhone and can then make purchases in physical stores or online. Apple Pay utilizes near-field communication technology (NFC) for contactless payments. While there are no fees for accepting Apple Pay, transaction fees do apply to credit and debit card sales.
Zelle
Zelle is an online payment app that is owned by ten banks in the US, including Bank of America, JPMorgan Chase, Wells Fargo, Capital One, and U.S. Bank. It enables users to receive payments directly from customers’ bank accounts, eliminating the need to wait for checks to clear or to handle cash deposits. Zelle charges a transaction fee of 2.5% with a maximum fee of $15 and a minimum of 25 cents, but there is no fee to send money using the app.
Google Pay
Google Pay, on the other hand, was rebranded in 2018 and has approximately 100 million users in 30 countries as of November 2020. It works with Android devices and is accessible to anyone with a Gmail account. Users can also use it to send and receive business invoices. When using the app to accept payments, the typical rate for card-not-present transactions is charged.
PayPal
PayPal is a well-known online payment app with over 300 million users and 3.7 billion transactions as of Q2 2020. It is widely used by consumers in the United States and around the world. Similar to Apple Pay, PayPal is free to use and accept, but standard rates apply for credit and debit transactions. In addition, PayPal allows businesses to send invoices through its online platform.
Cash
Cash App, previously known as Square, has more than 30 million active users, with 7.5 million using it daily. However, there are limits on the number of monthly sales that can be accepted.
Venmo
Venmo is a peer-to-peer payment app owned by PayPal and has 70 million users. Using Venmo is free for both sending and receiving payments; transaction fees are charged similarly to credit or debit card payments. Payments are received instantly when a customer uses Venmo.