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Report On Business Smaller retailers look to a future without cash registers

Dormie Workshop, co-founded by Jeff Bishop, does most of its sales online but could take a payment at its facility using a Square reader.

Paul Darrow/The Globe and Mail

Dormie Workshop, a leather goods manufacturer based in Halifax, doesn't usually accept payments at the company's facility as it doesn't formally sell things from there.

But if someone walked in off the street and wanted to purchase a leather head cover for a golf club or any other Dormie product, a sale could still be arranged because of new payment technology.

"I would just log-in via a Square reader and process it," says co-founder Jeff Bishop, referring to the small device that connects to a cellphone and accepts credit card swipes. "We don't have a cash register or a terminal, but that's fine."

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The way small businesses are accepting payments has changed – it's no longer just cash or even debit and credit – as mobile payments and digital currency have become even more prevalent in the retail sector.

Security is important in this emerging digital marketplace but the bigger roadblock small businesses are facing is the ability to get all this new payment technology to mesh with their existing accounting and payment processing software.

Dormie Workshop processes most payments virtually, via its website. It uses PayPal for transactions done internationally and a separate digital-only processing software specific for Canadian orders. For the rare walk-up sales at the warehouse, it uses the Square reader, which allows merchants to accept credit card payments via their mobile devices by connecting the small device directly into a cellphone's audio jack.

"Back in the old days it was cash, cheque and then you had credit cards. Now people realize there are other ways people want to pay with, and it's created this massive and complicated thing," says Mr. Bishop's co-founder, and brother, Todd. "None of them really integrate with what you need."

A recent study done by PayPal Canada revealed that while four out of five Canadians shop online, fewer than one in five Canadian small and medium-sized businesses are using online payment tools. PayPal said 83 per cent of Canadian small businesses don't accept any form of online or mobile payments.

"Security is absolutely at the forefront" for merchants, cardholders and issuers, according to Rick Rennie, vice-president of consumer fraud management at MasterCard Canada, because credit cards were an area that "drew fraud for obvious reasons." But the new methods of payment are actually more secure for both merchants and consumers, he says.

He says the old way of extra authentication, where the cardholder enters a password prior to making an online transaction (MasterCard's system was called Secure Code), was actually a hindrance to merchants.

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"Secure Code didn't get a lot of take-up with merchants in North America," says Mr. Rennie. "People have a lot of passwords, and you might have higher [sales] abandonment rates, right at the time of payment. Everyone was more about optimizing authorization rates, and not doing things to lose sales or transactions."

But as consumers move to a more digital and mobile-first world, small businesses don't want to play catchup to where their customers already are.

According to market researcher Catalyst Canada, 33 per cent of respondents to a recent study expected to make a payment via a mobile device in the coming year.

Catalyst Canada chief executive officer Jeff Lancaster says mobile payments solutions, like the one used at Starbucks, have been very successful. More than 16 per cent of all transactions at the coffee shop are now done via its mobile app.

"I think more sophisticated retailers that are part of multinationals will probably be the ones to roll it [mobile payment acceptance] out more. Starbucks obviously … [and] we know Tim Hortons is trying it, and other quick-serve restaurants make a lot of sense. But the smaller guys, it's a great question," says Mr. Lancaster.

"Is the merchant ready for it? Are they willing to invest in the infrastructure to facilitate those types of payments? Are consumers looking to use their mobile phone to consolidate their payments or are they happy to flash a card? There are a lot of aspects to it."

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Jason Davies, vice-president of digital payments for MasterCard Canada, says he is seeing merchants struggle with how they can transform their digital payment presence to present the best experience to their customers.

"We have a very good track record in small businesses adopting technology. Are they always first? Sometimes, but in most cases, once something becomes fairly commonplace, [small-business owners] are very quick to jump on that bandwagon," says Mr. Davies. "Small-business owners are very focused on their customer and the way they want to be serviced."

And it's not just tap-and-go payments that have been introduced to small businesses.

For example, MasterCard introduced Identity Check Mobile in 2016, but it's more commonly known as Selfie Pay. Users are able to make online purchases by confirming their identity through fingerprint scans or by taking a photo of themselves with their phone.

At the time it was available only for Bank of Montreal customers who had a MasterCard, but it is rolling out to a wider audience through 2017.

This has shaken up the way small businesses are accepting payment. The current value of "contactless payments" (tapping a card, mobile payment, digital payment methods and so on) has increased to $30-billion a year. And for small businesses, it's hard to leave a part of that revenue pie on the table.

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However, although Technology Strategies International says tap-and-go payments are becoming common, mobile payments are not likely to become a major factor until 2020, when more Canadians have smartphones with near-field communication (NFC) enabled – the technology needed for payment-by-phone.

Until then, Mr. Davies says, companies like MasterCard are seeing merchants starting to look for the next technology that will make their transactions more secure, lower costs and generate more completed transactions.

"We're seeing more of these digital technologies coming to market like Apple Pay, Samsung Pay. … I think as these become more frequent occurrences in the small-business environment, those small-business operations will become more aware of them," he says. "We're not early in the adoption curve, we're sort of midway up."

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