Canadian small businesses, not to mention the economy at large, are at risk if they cling stubbornly to a cash-only regime in the era of digital payments, according to a recent study by the Rotman School of Management.
The study concluded that businesses that use cash will find themselves stagnate and marginalized, left behind by competitors that that have adapted to the way consumers want to do business and enjoy the business-enhancing benefits that come with electronic payments.
In fact, in a survey of small businesses that do accept credit card transactions, the majority said the benefits they get from the 2-3 per cent transaction fee they pay to be able to accept credit cards far outweigh the cost.
For businesses and policymakers that want to avoid that dismal future, here are 10 tips:
1. Stop pretending cash is free. Direct and indirect costs from cash payments include the costs of processing cash – time spent accepting it, counting and recounting to balance the till and taking cash deposits to the bank. There is also the cost of securing cash, including security systems and personnel, and the cost of cash that is lost, either by employee errors or theft.
2. Operate ethically. That means charging and paying your taxes and not supporting the underground economy. The multibillion-dollar underground economy is a cheat. It means law-abiding citizens bear a greater burden while cheats get all the benefits at no cost. Some estimates put the value of Canada's underground economy at more than 15 per cent of GDP.
3. Go for higher-value transactions. Few people carry large amounts of cash these days, or make large purchases in cash, unless they are trying to cheat the taxman. Accepting digital payments gives merchants the opportunity to get out of the low-value-transaction segment of the market.
4. Focus on customer service rather than low-value activities. All the time employees spend counting and recounting cash, reconciling the till, taking deposits to the bank, and all the other tasks related to managing cash, is time they are not spending with customers.
5. Extend beyond your immediate neighbourhood. Selling online makes your goods and services available anywhere.
6. Welcome international visitors. Accepting digital payment means business or leisure visitors can buy from you without the need for local currency.
7. Guarantee and accelerate your cash flow. Digital payments do not bounce. Nor do they become very old IOUs. The transaction is guaranteed, and the funds are transferred immediately.
8. Use your data. The report concluded that small and medium-sized businesses have at least as much to gain from data analysis as big organizations. Cost-efficient approaches, such as cloud computing, are available. "[Data analysis has] allowed for the development and deployment of strategies that have enhanced sales, customer satisfaction, repeat business and hence business growth and profitability," according to the study.
9. Calculate the value of benefits from digital payments, not just the cost. A Harris/Decima survey earlier this year found the majority of small businesses surveyed believed the benefits of accepting credit card payment outweigh the costs. More than three-quarters said they accept credit cards because their customers prefer this method of payment; two thirds said it enabled them to make remote sales by phone or online; 59 per cent cited ease of getting paid as a benefit; and 57 per cent cited certainty of being paid.
10. Adopt technology that speeds up the transaction. Rather than adding additional staff and check-out stations, businesses can increase revenue, number of customers and average purchase size by adopting electronic payments. And they can speed the process up by adopting tap-and-go payment systems, or even new mobile POS technologies, such as a card-reader that attaches to a smart phone and makes it a point-of-sale device.
Change comes hard to some organizations, but the Tapscott report shows that the costs to individual businesses and to the Canadian economy as a whole from resisting the move to digital payment systems – overwhelmingly the way consumers want to do business – will be grave while the digital opportunities to provide better service from better managed organizations upside are real and significant.
Kevin Gonyea is vice-president, head of acquirer merchant relationship management at MasterCard Canada.