11 The future of payments for SMBs, why cash and cards continue to be integral to the payment ecosystem. ©Shutterstock

A shared outlook for the future of payments?

Are merchants and consumers heading in the same direction when it comes to their vision for the payments of tomorrow?

Earlier this year, we published our consumer research paper Lost in Transaction: Payment Trends 2018, which studied the way people are making payments today both online and in-store. We surveyed consumers from the UK, US, Canada, Germany, and Austria to discover more about which newer payment methods are becoming ­habitual to shoppers, which are yet to gain a solid footing, and what customers' attitudes are to the newest forms of payments technology to hit the market, such as seamless in-app purchases and voice-activated payments.Following on from that report, we have now turned our attention to merchants, and specifically small and medium-sized businesses(SMBs). In the fourth instalment in the series, titled Lost in Transaction: The future of payments for SMBs, we took a look at the evolving payments landscape from the traders' perspective, and specifically how they plan to future-proof their businesses in the face of chang­ing consumer expectations and demands. We surveyed online merchants in the UK, US, Canada, Germany, and Austria, and bricks-and-mortar businesses in the North America countries, to complete this research.Unsurprisingly, we found significant crossover between the growing requirements of consumers and the ­desires of merchants to upgrade their payments technology suite. But we also found similarities in consumers' and merchants' causes for concern, particularly where businesses and their customers are struggling to weigh up competing priorities. Here are our biggest takeaways from the report.

Perhaps the most unsurprising headline of the report is that cash and cards continue to be integral to the payments ecosystem. Cash is accepted by 95% of the in-storebusinesses we surveyed in the US and Canada, and ­globally 87% of consumers surveyed had made a payment in cash in the past month. A majority of consumers had also used debit (66%) and credit (51%) cards in the past month, and these were the most commonly accepted payment method online and in-store with the exception of cash. However, although cash and cards con­tinue to be ­relatively ubiquitous amongst consumers, by no means is that the end of the story. Our survey results showed that alternative payment methods have captured consumers' attention and are becoming a habitual or even preferential method of payment for a lot of buyers. Furthermore, these preferential methods varied in different markets,further fragmenting the payments landscape. For example, in the UK, it is contactless cards that isgaining significant adoption, with over 50% of consumers making a payment in the month prior to our survey. But in Germany (29%) and Austria (38%) the percentage of consumers that had made an online purchase by ­invoice was significantly higher than in the other regions surveyed, and usage was higher than debit cards and credit cards (in Germany only) online.It is clear that buyers are demanding more flexibility and choice when it comes to how they make payments, so there is an onus on businesses to provide this. And as we discovered when we surveyed merchants, this is new ­business imperative is one they are taking on board. 75% of the online merchants we spoke to believe that ­offering buyers more ways to pay is essential to the future success of their business, and consequently 83% are planning to add more methods to their checkout in the next two years. 45% say they will offer online cash replacements in response to consumer demand, and to service the unbanked, in the next two years. The average number of ways customers will be able to pay is predicted to jump from four to six in that same time frame.

In addition to the introduction of new payment methods into the ecosystem, there is also a clear desire from consumers for less friction in the payment process both online and in-store. In the UK, this is mostly clearly demonstrated by the fact that adoption of contactless cards has now exceeded 50%, with 54% of consumers having made a payment by contactless card in the past month. Adoption of contactless cards across all of the surveyed regions has grown to 23%, and 57% of consumers revealed that they prefer stores that offer contactless as a payments ­option, with Germany (62%) leading this category. Despite the US lagging behind other countries when it comes to adoption of contactless payments, merchants in North America have recognized the potential contact­less acceptance carries for their businesses, and the threatit poses if they don't join the bandwagon. In our Lost in Transaction: The future of payments for SMBs report, 23% of US and Canadian merchants told us that they planned to introduce contactless card acceptancein the next two years, a 62% increase on the 37% of merchants that currently offer this method. And in the same vein, 33% of SMBs plan to introduce acceptance of mobile wallets at their checkout, a 114% increase on the 29% of merchants that offer this currently.But the drive for greater convenience in-store doesn't end with the acceptance of contactless technology. 40% of merchants surveyed believe that they will be in the position to offer an invisible, checkout-free free payment model such as that being trialled by Amazon Go. For consumers, however, this may be a step too far at this stage. Only 11% of consumers said they would immediately shop at a store offering invisible payments if it was available to them. 30% of consumers would need to know a lot more about it to feel comfortable using it, 26% said it sounded too risky to use, and 15% said they could see the benefits but had concerns about security.Consumers were equally wary of the security implications of other forms of more seamless payments, such as smart re-ordering fridges that automatically order groceries as they run out, or biometrics and voice-­activated ­systems. In addition, 63% of consumers agreed that they felt more comfortable using prepaid vouchers where their financial data isn't shared; this sentiment was echoed by the 56% of merchants that agreed that a significant number of customers are looking to pay with online cash.

For online merchants in particular, the perceived competing priorities of reduced friction and protecting against the threat of fraud is a battle they see no winning for ­solution for. Over half of all online merchants view the ­reduction of friction in their payment system as increas­ing the risk of fraud, and 70% admit that they are finding it difficult to find the balance between improving security processes and making the customer journey as quick and easy as possible. With 74% of merchants stating that they believe they are being targeted more by fraudsters than a year ago, and 81% placing the responsibility for protection from this fraud at the door of their payment service provider, it is clear that security (agreed by 59% of merchants) has overtaken all other criteria including cost as a critical factor when selecting a payment service ­provider.

Lost in Transaction: Payment Trends 2018 and Lost in Trans­­action: The future of payments for SMBs are avail­able to download. Visit paysafe.com/lostintransaction2018 for more information.