Payment Innovations Help Small Businesses Navigate the Main Street Maze

Payments are the lifeblood of any business, but for small businesses, they are particularly crucial.

And with the news that, in the last 12 months, Main Street businesses have operated with the lowest risk of closing since early 2020, the ways that these local merchants and hometown mainstays get paid by their customers is top of mind.

After all, Main Street businesses — those with some sort of physical presence and less than $10 million in annual revenues — are, in many ways, the engines of the U.S. economy; and the payment mechanisms they accept form the backbone of their own financial operations.

In today’s competitive landscape, providing convenient payment options can set a small business apart from its competitors. By understanding the importance of payments and catering to customer preferences, small businesses can improve cash flow, enhance customer satisfaction and drive growth in an increasingly uncertain and ever-more digital economy.

Offering diverse payment methods beyond the standard credit and debit cards and moving into mobile payments can attract customers who prefer different payment methods. And offering innovations like buy now, pay later (BNPL) and digital wallets can retain younger generations who are more likely to abandon purchases if their preferred payment methods aren’t on offer.

Read more: The State of Main Street Heading Into Small Business Week

Meeting Customers Where They Are on Payments

Offering multiple payment options and ensuring a smooth payment experience contributes to customer satisfaction, and satisfied customers are more likely to return and recommend a business to others, fostering loyalty and generating repeat business.

Wherever people shop, they crave convenience, and they have preferences for the payment types they want to use. And with 8 in 10 Generation Z and millennial consumers opting for digital wallets and contactless alternatives to traditional payment methods, it is clear that digital payments are experiencing a surge in popularity, which makes embracing and offering them a must for small businesses — particularly older ones that may be more hesitant to make the investment into new payment offerings.

PYMNTS Intelligence shows that small businesses that have been in business on Main Street for more than two decades are experiencing a decline in growth compared to younger businesses.

Shoppers’ payment preferences are evolving rapidly, and the lack of growth among more mature small businesses suggests there is room for them to learn to innovate to attract more consumer spending and mirror the trajectory of younger businesses — and providing more payments optionality is a great strategy to do so.

“There’s a huge opportunity for small businesses and mid-size businesses, and even large businesses, to continue to embrace moving away from checks and adopting other payment methods,” Jill Capicchioni, product director, payments at NCR Voyix, told PYMNTS.

Adding to the benefits, accepting digital and electronic payments reduces the risks associated with handling large amounts of cash while also minimizing the chances of fraud, such as counterfeit currency or stolen checks, which can be devastating for small businesses.

See also: Real-Time Payments Put Spotlight on Small Businesses as New Year Begins

What Small Businesses Want From Payment Providers

In “The Main Street Health Survey Q3 2023,” PYMNTS Intelligence explored the preferences of Main Street small businesses and found that PayPal and Square are the most popular payment processors among that merchant cohort, with 85% of small business reporting they are highly satisfied with their current payment processors. Other notable players such as Shopify, Fiserv and Stripe also enjoy considerable popularity.

To differentiate themselves, payment processors are encouraged to offer additional services such as banking, credit, marketing and data analytics. These services can help attract small businesses by providing more than just transaction processing. The data collected from transactions can offer valuable insights for small businesses.

“There is so much rich data that can be collected from a credit card swipe that can be used for things like marketing promotions, understanding customer loyalty and customer behavior, and even understanding your price demand elasticity,” Charles Zhu, vice president of product at Enigma, told PYMNTS.

“What we’ve seen is that payments are the foot in the door, and anyone servicing small businesses from a payments perspective really needs to start thinking of payments as a platform for offering a large variety of services,” Zhu added.

Ultimately, the landscape of payment preferences among small businesses is rapidly evolving, driven by technological advancements and changing consumer behaviors. As businesses continue to adapt to these changes, the move towards diverse and convenient payment options, coupled with the potential for additional services and insights, marks a new era in the financial operations of small businesses.