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Why Small Businesses Need Online Payment Apps
Fewer people are relying on cash and want to use different methods, like online payment apps, to purchase items.
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Online payment apps and e-commerce are exploding in popularity, especially among millennials and Gen Zers. That means it’s time for small business owners to embrace these different payment methods.
When small businesses don’t accept customers’ preferred payment method, they are likely to lose short-term sales — and possibly customers — to the competition. That is why small businesses that accept online payment apps fare better than those that don’t, particularly if they serve a young customer base.
What are online payment apps?
Mobile and online payments are transactions facilitated through a mobile device or the internet. They remove the need to pay with cash or payment cards. Digital payments are also used to send money to friends and family through peer-to-peer payment apps.
Online payment apps are essentially digital wallets that securely store the user’s credit card or debit card information. The customer either uses the mobile app on their phone or selects that app option on the merchant’s website at checkout.
“Digital payments have become far more accepted,” David Axler, chief strategy officer at Wave, told us. “It’s become a part of our daily routine.”
What are the pros and cons of payment apps?
Before you accept mobile or digital payment at your business, you need to consider the good and the bad. After all, these online payment apps are easy to use and convenient, but they aren’t void of risk. Here’s a look at the pros and cons of accepting online payment apps in transactions with your customers.
Pros of online payment apps
- They’re now a widely accepted payment method. Prior to the pandemic, consumers were wary of using an online app or mobile wallet for purchases. Sure, the likes of PayPal and Apple Pay had millions of customers, but digital payment apps hadn’t yet been adopted by the masses. Then the pandemic struck and everything changed. When people were stuck at home, e-commerce and online payments exploded. Consumers who previously scoffed at online payment now use it in droves. Precedence Research puts the overall value of digital payments in the United States at $36.07 billion, rising to $184.72 billion in 2034. “It speaks to the comfort level of consumers in paying online,” Axler said. “It used to be not well understood, not routine.”
- You get paid right away. Unless you’re dealing in cash, you may have to wait a few days to get sales from credit and debit card transactions in your bank account. When you accept online payment apps, you get your money right away. You don’t have to wait for credit card sales to process or for a customer to respond to an invoice. Since cash flow is vital when running a small business, the sooner you get money in your bank account, the better.
- They speed up checkout. With e-commerce heating up, merchants have to find various ways to close the sale. After all, shopping cart abandonment is a real problem for all types of online merchants. Accepting online payment apps streamlines the checkout process. The quicker and easier it is to purchase something, the less likely a customer is to abandon their online shopping cart. Also, the quicker the checkout, the higher the customer satisfaction rate. This holds true for brick-and-mortar stores, too.
Cons of digital payments
- There’s high potential for fraud. Online payment apps make it easier to purchase goods and services, but that convenience comes with risk. Scammers often target consumers and businesses using online payment apps. One way is through dummy apps that appear in the online app stores. If downloaded, these apps collect a lot of personal information about the user and use it to commit fraud. Encourage your customers to use well-known payment apps that are available straight from their legitimate vendors.
- They can get pricey to accept. Online payment apps are linked to a user’s credit card or debit card. When they use the app to pay you, you’ll be charged a transaction fee for credit card payments. The amount you pay depends on the credit card and type of transaction. Card-not-present payments, which is the category online payments fall under, typically cost more for the merchant. Basically, the riskier the payment, the higher the rate you pay. “It tends to be the most expensive way to go,” said Andi Gray, president of Strategy Leaders. “Business owners really need to know what they need the payment app for.” If it’s to get paid faster or to lower your number of invoices, she said, you should consider an alternative. If you do accept online payments, she said to get the transaction fee below 3 percent.
- They’re harder to manage. Online payments might be more convenient for your customers, but they could be much less convenient on your end. Getting all the transactions from disparate payment apps into one accounting system can be cumbersome and time-consuming. “When you start to accept payments electronically, you don’t have them tied to a particular invoice or particular receipt,” Axler said. However, there is cloud-based business accounting software that will automatically gather all your payments under one dashboard to give you a complete view of your sales. [Read related article: The Best Accounting and Invoice-Generating Software]
The best online payment apps
The online payment market is crowded — all sorts of companies are trying to get in on the shift to a cashless society. But several online payment apps in particular, including Apple Pay and Google Pay, are dominating the market.
- Apple Pay: Used by more than 744 million individuals around the world and over 60 million in the U.S., Apple Pay is among the best-known mobile payment apps. Users input their credit or debit card information into the mobile wallet on their iPhone and then they can use Apple Pay in stores and online. Apple Pay uses near-field communication (NFC) technology to enable contactless payments. There is no fee to accept Apple Pay, but you do pay the transaction fees on credit card and debit card sales. [Read related article: How to Accept Payments With an iPhone]
- PayPal: With 434 million users and $1.68 trillion in total payment volume, PayPal is a popular online payment app for consumers in America and abroad. Just like Apple Pay, PayPal is free to use and accept, but you’ll pay standard rates on credit and debit transactions. You can also send invoices to clients through PayPal’s online platform. [Find out more about credit card processing with PayPal]
- Cash App: Formerly known as Square Cash, the company’s Cash App has more than 57 million active users. This figure is projected to grow to 64.5 million by 2028. It’s used by 39 percent of consumers aged 18 to 29. Cash App charges a fee of 2.75 percent on each payment.
- Venmo: Owned by PayPal, this is a popular peer-to-peer payment app that counts nearly 68.3 million users. There are no fees to use or accept Venmo, although it generally charges transaction rates of 1.9 percent plus $0.10 for payments via credit or debit card. You get paid instantly when a customer uses Venmo. [Find out how Venmo Business works and how to get it for your company]
- Zelle: Owned by seven banks in the United States — including Bank of America, JPMorgan Chase, Wells Fargo, Capital One and U.S. Bank — this online payment app lets you accept payments directly from customers’ bank accounts. This removes the need to wait for a check to clear or to collect and deposit cash. Generally, there is no fee to send or receive money with Zelle as either a business or consumer; however users’ banks may set transaction limits and fees. Your business account needs to be registered with Zelle before you can accept payments.
- Google Pay: Google Pay has about 150 million users worldwide with 25.2 million in the United States. This Android credit card payment app was initially only for Android devices, but there’s now an app you can download if you have an iPhone. You won’t be charged any fee for taking payment by Google but expect to be charged as usual by your payment processor. [Related article: SMB Payment Processing: What to Know]
Mark Fairlie and Jennifer Dublino contributed to this article. Source interviews were conducted for a previous version of this article.
