Why Small Businesses Need Online Payment Apps

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 payment 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. As of 2023, digital payments are on track to reach a total of $9.47 trillion globally and $2.04 trillion in the United States alone, as reported by Statista. By 2027, that will increase to $14.79 trillion globally and $3.53 trillion in the U.S. “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 goes 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 500 million individuals around the world, 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 can then use Apple Pay in stores and online. Apple Pay uses near-field communication technology, or NFC, 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.
• PayPal: With more than 435 million users and $376.5 billion in total payment volume as of the second quarter of 2023, PayPal is a popular online payment app for consumers in the U.S. and abroad. Just like Apple Pay, PayPal is free to use and accept, but you’ll pay the normal rates on credit and debit transactions. PayPal also enables businesses to send invoices through its online platform.
• Cash App: Formerly known as Square, the company’s Cash App has more than 45.5 million active users and is projected to grow at an average rate of 7.7 percent a year through 2027. It is used by 39 percent of consumers aged 18 to 29. There are limits on the number of sales you can accept monthly.
• Venmo: Owned by PayPal, this is a popular peer-to-peer payment app that counts nearly 90 million users. There are no fees to use or accept Venmo; like its parent company, it charges transaction rates as if the payment were via credit or debit card. You get paid instantly when a customer uses Venmo.
• Zelle: Owned by 10 banks in the U.S. — 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. Zelle charges you a fee of 2.5 percent of the transaction amount, with a maximum fee of $15 and a 25-cent minimum. There is no fee to send money with Zelle.
• Google Pay: Google Pay has about 150 million users worldwide with 25.3 million in the U.S. Google Pay works with Android devices and for anyone with a Gmail account. You can also use it to send and receive business invoices. Payments you accept through the app incur the typical rate for card-not-present transactions.

Jennifer Dublino contributed to this article. Source interviews were conducted for a previous version of this article.