There’s no denying the trend toward cashless payments in the retail industry:
- Business services firm Accenture forecasts that 420 billion transactions representing $7 trillion in consumer spending will shift from cash to credit cards and digital payments worldwide by 2023; the amount will increase to $48 trillion by 2030.
- According to Statista, the total transaction value of digital payments in the U.S. is projected to increase at a compound annual growth rate of 13.4% from 2021 through 2025, exceeding $2 trillion in total value by 2025.
- A survey conducted by the Federal Reserve found that consumers’ use of cash for retail transactions declined from 40% in 2009 to 30% in 2019, and in a six-month period from late 2019 to early 2020, 40% of retail customers report being influenced by a store to use a card-based payment option instead of cash.
Retailers that are considering a cashless payment system need to ensure that the solution they choose is the best option for their customers and unique business operation. These are the five questions at the top of their “need-to-know” list.
What Are the Benefits of a Cashless Payment System?
Rising above all other good reasons for supporting cashless payments is the plain and simple fact that it’s what your customers want. COVID-19 has heightened awareness among consumers of the dangers inherent in bringing customers and employees in close contact. That includes the shared touching that is unavoidable when handling cash.
However, the advantages of cashless transactions for customers and retailers alike extend far beyond potential contagion:
- Cashless transactions can be completed more quickly than those involving an exchange of bills and coins. For example, the salad chain Tender Greens found that cash transactions are four to five seconds slower than cashless ones, and the chain Sweetgreens was able to process 5%-15% more transactions per hour after switching to a cashless payment system.
- Stores save money by not having to handle and transport cash, which the Federal Reserve Bank estimates costs small and midsize businesses tens of billions of dollars annually. Customers benefit when retailers pass those savings on to them in the form of lower prices.
- Going cashless eliminates a potential source of shrinkage: internal and external robberies. Cash-intensive businesses are prime targets of robbers, according to the FBI, and the National Retail Federation estimates that a dishonest employee costs a retailer an average of $1,203 in losses.
While cashless payment systems have a considerable list of benefits that would modernize any business, they also have their own sets of risks.
What Are the Downsides of Implementing a Cashless Payment System?
The primary reason retailers choose not to go completely cashless is also customer-related: some people aren’t able to use any form of payment other than cash. Many people below the poverty line often don’t have bank accounts or credit cards, so cashless payment systems could exacerbate economic inequality by placing an added burden on underserved communities.
In addition to locking out some potential customers, cashless payment systems have other potential disadvantages for retailers:
- Credit card processing fees will increase as retailers process more cashless transactions. In the U.S., there is no cap on the fees credit card companies can charge, although the average fee is 3%, according to Fundera; by comparison, such fees are capped at 0.3% in the European Union.
- Relying solely on cashless transactions heightens the privacy risk for customers because the transactions collect sensitive information about them that is increasingly valuable to hackers.
- Depending on digital transactions makes stores more susceptible to lost sales due to a power outage or technical glitch. For consumers who aren’t tech savvy, using digital wallets and other cashless payment systems can be frustrating and time-consuming.
Just like a cashless payment system, every new business venture or operational change has its benefits and risks. What matters is figuring out if the benefits outweigh the risks for your business.
How Do I Know Whether Cashless Payments Are a Good Fit for My Business and Customers?
The last thing any retailer wants to do is alienate their customers. Before implementing a cashless payment system, carefully consider any potential obstacles to going cashless:
- Which cashless payment options will your customers demand, and can those options integrate seamlessly with your store’s POS system?
- Will the ability to accept cashless payments create new opportunities for the business to connect with customers?
- Will the cashless payment system support mobile transactions bringing the “cash register” to the customers?
- Will customers respond positively to the store’s cashless payment options, and will the systems make your employees more efficient and productive?
If your answers to these questions prove encouraging, it’s time to decide which types of cashless payments to accept.
Which Types of Cashless Payments Should My Business Offer?
One of the first decisions a retailer has to make when planning a cashless payment system is which digital payment apps to support. For example, payment services charge a range of merchant fees:
- Apple Pay doesn’t charge for debit card transactions but imposes a fee of 3% for credit card purchases.
- Similarly, Google Pay adds no charge for debit card payments but charges 2.9% for in-store credit card purchases; online transactions are subject to fees ranging from 2.87% to 4.35% based on the level of risk determined by the credit card processor.
- PayPal charges a 2.9% fee for U.S. transactions, plus a fixed amount based on the type of currency. Outside the U.S., transaction fees are 4.4% plus a fixed amount for whichever currency is used.
- Samsung Pay treats all transactions the same as other credit card payments.
- Venmo applies the rates of PayPal’s Braintree service, which are 2.9% plus 30 cents per transaction (plus 1% for transactions outside the U.S. or using non-U.S. currency).
Each cashless payment type comes with its own unique fees and limitations that need to be factored into your overall decision-making process.
How Do I Ensure That Cashless Payments Are Secure for My Store and Customers?
The best way to keep customer accounts and private information safe when they take advantage of cashless payments is by relying on the security features built into cloud-based POS systems. All transaction data transmitted via contactless credit cards that use near field communication (NFC) are automatically encrypted. This is in addition to the security features built into chip-based credit cards, digital wallets, and other mobile payment apps.
Security is further enhanced when retailers offer their customers prepaid options such as gift cards and loyalty cards that reduce their potential exposure to hackers. An important component of implementing cashless payment systems is educating your customers about the benefits of the technology and how to take advantage of them.
The relationship between customers and retailers is built on trust gained incrementally with each interaction, whether it’s simply answering a question or completing a major purchase. By meeting their customers’ demands for cashless payment options, stores demonstrate both their commitment to technology and exceeding their customers’ expectations.
When you partner with talech for your retail technology needs, we devote our time to identifying your business challenges. We use this information to work with you to apply an innovative cashless payment system that will level the playing field.
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