Contactless payments usage has grown 150% in the United States since March 2019, and the United Kingdom saw £66.5 billion in contactless transactions in the first six months of 2021 alone. Now, more and more corporations and public sector organizations are responding to this demand by adding contactless payments to their payment systems.
As the payments ecosystem evolves, it’s becoming more challenging for small businesses and micro-merchants to remain competitive and retain market share. Many of these businesses are cash-only or may be unable to afford feature-rich payment terminals that accept contactless payments. Processing payments in the field, in settings such as events, street vending and deliveries, can also be difficult. SMB owners must contend with fussy peripherals that easily break or get lost and unwieldy hardware that’s difficult to carry around for on-the-go payments.
Enter tap to mobile: a technology solution that turns smartphones into payment acceptance devices.
To use tap to mobile, all SMBs and micro-merchants need to do is download an app on a smartphone and create a merchant account Once connected to the payment processor, the phone automatically receives its provisioning credentials. This enables SMBs and micro-merchants to accept contactless payments from contactless-enabled cards or devices like phones, wearables and tablets within minutes.
Although tap to mobile is still in the early adoption stages, it’s progressing fast. The solution could ultimately democratize payments, making digital and contactless payments more accessible for SMBs and micro-merchants as an affordable and flexible electronic payment processor.
What small businesses and consumers think about tap to mobile
NMI recently surveyed 300 small business owners and 1,000 consumers in the U.S. and UK to get a snapshot of the market for tap to mobile payments.
We asked small business owners about the potential of using tap to mobile, their contactless payment capabilities and the challenges they face in managing their current payment systems. We also engaged cash-only SMB owners to see why they’re cash-only and what effects being cash-only has on their business.
In addition, we asked consumers about their preferred payment methods to gauge contactless payment usage and their experiences shopping at cash-only businesses. We also took a pulse of consumers’ feelings on tap to mobile and the benefits they think the technology could bring to their shopping experiences.
Here’s what we found when it comes to the market for tap to mobile and how the technology can help small businesses and micro-merchants meet consumers’ evolving payment needs.
1. There’s strong support from small business owners and consumers for tap to mobile payments.
While tap to mobile is a new, emerging payment option, small business owners and consumers both noted a strong desire to use the technology. Ninety-five percent of SMB owners said they would consider using tap to mobile payment technology, including 92% of current cash-only businesses.
Additionally, 83% of consumers said they would likely use tap to mobile payments if it were offered by a business. And 85% said they would be more likely to shop at a business that offers tap to mobile as a payment option.
The top factors that would influence SMB owners’ decisions to offer tap to mobile payments for their businesses were:
Cost (i.e., cost of the technology, maintenance, etc.): 66%
Customer demand: 55%
Security (i.e., the security of business and customer transaction data): 54%
Tap to mobile solutions address all three of these concerns. First, tap to mobile requires a minimal financial commitment. The solution runs on smartphones that many people already own and only requires businesses to download an app — there’s no need to purchase additional equipment.
Second, consumers have a clear desire to use tap to mobile. Of consumer respondents who said they’re more likely to shop at a business that offers tap to mobile as a payment option, the top reason why they would be more likely was convenience (76%), followed closely by speed (73%). Moreover, the top shopping situations consumer respondents said they’d most likely pay with tap to mobile were restaurants, deliveries and events.
Shopping situations consumers would most likely pay with tap to mobile
Street vendors: 36%
In-home appointments: 26%
Street performers: 7%
Finally, with regard to security: Tap to mobile must adhere to a rigorous data security standard outlined by the PCI Security Standards Council, a global forum of payments industry stakeholders that develops and mandates the adoption of data security standards for safe payments.
2. Small businesses can’t ignore how important contactless payments are to consumers.
Although 93% of SMB owner respondents agreed that customers are looking for more contactless payment methods when making a purchase at their business, many still aren’t delivering, especially in the U.S. Over a third of U.S. SMB owners (34%) said they don’t offer contactless payments, compared to only 9% of UK SMB owners.
When asked why SMBs are unable to accept contactless payments, the majority of owners (55%) said they simply haven’t upgraded their systems to accept contactless payments. And even though customers are seeking more contactless payment methods when they shop, 37% of SMB owners that don’t accept contactless payments said they don’t see the need to offer them.
However, SMB owners should consider how a lack of contactless payments could impact their businesses: Eighty-nine percent of UK consumer respondents and 76% of U.S. consumer respondents agreed they have preferred using contactless payments whenever possible since the COVID-19 pandemic started. In the UK, contactless credit/debit card payments (76%) were also consumers’ most regularly used payment for in-person purchases. In the U.S., contactless credit/debit is used regularly by over a third of consumers (36%), second only to credit/debit cards with chips (81%).
In addition, well over half of consumers across both markets (59%) said they’re less likely to return to a business that doesn’t have their preferred payment option, and nearly three-quarters of respondents (72%) said the availability of their preferred payment methods is important when they leave an online review for a business.
Our data shows that contactless payments are fast becoming a priority for shoppers in both the U.S. and UK, meaning the expectation for businesses of all sizes to offer them will only increase. On the upside, barriers to offering tap to mobile payments are extremely low — SMBs and micro-merchants can quickly adopt the solution to help meet this consumer demand.
3. Tap to mobile could alleviate many payments pain points for small business owners.
Just over a quarter (26%) of SMB owner respondents said they were cash-only, while the rest of the non-cash-only group used money transfer apps (70%), mobile card readers (69%) and standalone terminals (52%) to process in-person payments for their businesses.
When it comes to SMB owners’ challenges setting up their payment systems, the most significant challenges all pertained to onboarding, including paying for the system and system setup (47%), setting up the system equipment and hardware (46%) and training employees how to use the system (39%).
Additionally, there was common ground between both cash-only and non-cash respondents — both groups were concerned about transaction fees and hardware costs. When asked what would convince them to move away from using their mobile card reader system to a new system for processing mobile payments, SMBs with mobile card readers said the top factors were less expensive hardware (49%) and less expensive transaction fees (47%). Comparatively, when asked why they are a cash-only business, over half of the cash-only SMB respondents (52%) said they don’t want to pay expensive transaction fees for credit card purchases and more than a third (36%) also cited expensive payment systems hardware and equipment.
Transaction fees aren’t going away. And while it’s understandable why some merchants want to lower operational costs with a cash-only business model, going cash-only comes with costs as well (see point 4).
Given the challenge of hardware expenses across cash-only and non-cash-only businesses, tap to mobile can help SMBs and micro-merchants reduce these costs and offset the impact of transaction fees. Most SMB owners and employees, as well as micro-merchants, already own smartphones — making the devices an accessible gateway to accepting payments with tap to mobile.
4. Cash-only business models create negative consequences for small businesses and consumers.
While cash-only respondents indicated various reasons why they leverage a cash-only business model, there were trade-offs to this choice. The vast majority of cash-only SMB owners (78%) said they’ve lost a sales opportunity in the past month because a customer didn’t have cash available.
In addition, 84% of cash-only SMB respondents said at least one customer has left a negative review because they only accept cash at their business, with nearly a third (32%) saying customers have left 4-6 negative reviews. On the consumer side, nearly half of respondents (49%) said they were unable to make a purchase because the business they were shopping at only accepted cash. More than a third of these affected consumers (37%) also said they didn’t return to the vendor where their purchase was denied due to a lack of cash.
Cash-only operations can also affect employee tips. In the past 12 months, 41% of consumer respondents said they were unable to tip a worker anything because they didn’t have enough cash. Twenty percent also said they were unable to tip as much as they wanted to because they didn’t have enough cash.
The most common settings where respondents said they were unable to make a purchase because the business they were shopping at only accepted cash included food trucks, local restaurants and coffee shops, and farmers’ markets.
In which of the following settings have you been unable to make a purchase because the business only accepted cash?
Food truck: 40%
Local restaurant/coffee shop: 36%
Farmers’ market: 30%
Street vendor: 28%
Street performers: 15%
Sporting event: 14%
Landscaping services: 6%
The cons may outweigh the pros when it comes to cash-only business models. Trends like missed sales, negative online reviews, non-returning customers and lack of employee tips all carry significant consequences. However, many cash-only businesses may not be able to incur the costs for an advanced payment solution or don’t want to disrupt their business models. Considering that 92% of cash-only SMB owners are open to using tap to mobile, a shift could be imminent as tap to mobile continues to develop and make digital payments more accessible than ever before.
With liberty and payments for all
Tap to mobile is set to revolutionize the entire payments industry by democratizing payments. Hardware and system costs no longer need to be barriers to entry for SMBs and micro-merchants looking to build up their businesses. And with contactless payments becoming more universal among consumers, the arrival of tap to mobile can open up revenue opportunities for SMBs and micro-merchants in this evolving business landscape.
NMI is at the forefront of developing tap to mobile solutions and we’re ready to help power the next generation of entrepreneurs. Whether you are a payment solution provider or an ISV looking to expand your app’s payment capabilities, we’re ready to serve as your trusted partner. Contact us today to learn more.