Making Money Magazine

1. 90 | MAKING MONEY | www.makingmoney.co.uk
payment systems
Payment partners
AS ECOMMERCE HAS DEVELOPED AND MOBILE
COMMERCE INCREASES IN POPULARITY, OFFERING THE RIGHT
PAYMENT OPTIONS IS NOW VITAL, DAVE HOWELL SAYS
F
or decades, cash was king. Today,
however, how consumers want to pay
for goods and services has changed
dramatically. According to research from
accountancy software specialist Sage, cash
is actually costing your business money. The
average cost of handling cash for UK small and
medium sized enterprises has reached more
than £17.8 billion a year, or £3,638.57 per
company.
“The survey also found that businesses are not
investing enough in new payment technologies,
despite consumer demand,”Sage says.“36 per cent
of consumers say they are more likely to shop at
places that offer a range of payment methods or
innovative payment types. And more than half of
businesses agree that offering a range of payment
options drives loyalty.”
AGREEMENT
There is agreement that electronic methods will
become the dominant form of payment, but there
is a chicken and egg situation at the moment,
where businesses are only embracing new payment
platforms if they are demanded by their customers.
Choosing which payment methods to support in
your business will be driven by a number of factors,
including your current payment options and what
new payment methods customers are demanding.
With so many platforms to choose from, it is vital
to ask your customers what platforms they would
like to see on offer. The trend is clearly for more
mobile-based payment systems. Security concerns
notwithstanding, the future of payment for small
businesses is certainly within the mobile ecosystem,
which will connect a consumer’s electronic devices
to the payment options they favour.
For many retail businesses, the focus will be on
supporting payments made on mobile platforms.
Banks are actively developing their own point to
point systems, which will have the effect of raising
the profile of electronic payment options. In addition,
contactless payment platforms are burgeoning, for
low cost purchases at least. Estimates vary, but one
in three businesses are set to embrace this method
of payment over the next five years.
The Centre for Economic and Business Research
predicts that by 2020, 20 million adults will use their

2. www.makingmoney.co.uk | MAKING MONEY | 91
mobiles to pay for goods and services and that
the total value of mobile payments will reach £18
billion by 2018, which represents the combined
value of all mobile payments and bank to bank
transfers.
Andrew Smith, co-founder of mobile commerce
company CloudZync, says:“A future in which the
majority of payments are made with mobiles now
seems inevitable. In this future cash and cards will
still exist, but they’ll account for an ever decreasing
proportion of transactions. In other words, the
media’s enthusiasm for mobile payments is greater
than the public’s, but the technology is there.”
For retailers, offering a range of electronic
payment options for mobile, online and in-store
is essential. The tablet offers the perfect point of
sale solution, as it can seamlessly connect with a
customer’s smartphone, make the transaction and
deliver the receipt. The use of POS equipment like
this, coupled with more cloud-based payment
systems, will give even the smallest enterprise a
raft of payment options to offer to customers. And
as research has indicated, more payment choice
means more purchases.
UNIVERSAL
Many retailers may have been waiting for the
arrival of near field communication to offer a
universal electronic payment wallet centred on
smartphones. However, the technology has taken
far too long to gain any traction in the marketplace,
with many in the payments industry wondering
whether NFC has missed its commercial window
for adoption.
On the other hand, in-app payments are a
burgeoning technology, as Paul Crutchley, strategic
engagement director at telecoms company GSMA,
explains:“In-app payments are certainly an area
we expect to grow in the coming year. Companies
such as Starbucks are leading the way with this
technology. Consumers can use a Starbucks
mobile app, tied to the Starbucks loyalty card, on
a smartphone to make payments and accumulate
loyalty points. The app has been a great success
and it is now used for 10 per cent of all Starbucks
transactions in the US.”
Is the cashless society coming? Some would
argue it is already here. Sage’s research found
that last year small and independent retailers are
missing out on £10 billion annually because they
don’t accept card payments.
But it’s not just card payments that consumers
want to see more of, the research concluded.
Sage’s study found that 26 per cent of consumers
say retailers that offer a greater range of payment
methods make them more likely to shop
with them, with 16 per cent attracted by new
and innovative types of payment options like
contactless, mobile apps and websites accessed
in-store. At the moment though, adoption rates for
these emerging technologies are low - just six per
cent of small retailers offer contactless solutions.”
Small businesses should consider the scalability
of the payment platform and its ability to deliver
payment pages tailored to each country, according
to Myles Dawson, UK country manager at Adyen, a
payment solutions provider.
Myles adds:“This is crucial in today’s world, where
payment methods are rapidly evolving and differ
from country to country. In order for a business to
thrive in new regions, it needs to offer the preferred
local payment methods in each country. This
means seeking a payment partner that has the local
expertise and specialised technology to be able to
cater for each country.”
TOKENISATION
A payment platform to watch out for is tokenisation.
Sage explains how the system works:“Purchases are
paid for using a consumer’s card as usual, but the
credit and debit card data is then encrypted by the
merchant’s payment processor and substituted for
a unique, random sequence of digits - the token.
The token can then be recalled when needed,
matched to the original card number and the
transaction is authorised. Of the businesses surveyed
in Sage’s report, 41 per cent of businesses offer
tokenised payment and have seen a related boost in
conversions.”
Choosing the right payment methods for your
business is a crucial decision to get right. At the
moment, the electronic payment environment is in
a state of flux, with a number of existing and new
players offering different solutions. Clearly, existing
players, including Visa, MasterCard and PayPal, will
have market traction, but other payment providers
like iZettle and Uber are making significant inroads
into the market.
In the future omnichannel connections with
consumers will dominate and payment systems will
be expected that offer seamless movement from
channel to channel. And, of course, small businesses
cannot ignore how mobile devices will impact on
their payment strategies. With 75 per cent of all UK
adults now managing their money online, often via
mobile devices, mobile-based options will rapidly
become the accepted - and trusted - method of
making payments. MM
20 million adults will use their mobiles to pay for goods and services by 2020