Alongside measures designed to support growing businesses and workers, the Chancellor’s 2023 Autumn Statement saw the publication of the ‘Future of Payments Review’.
Chaired by former HSBC Chief Executive, Joe Garner, the review comes as many retailers are struggling with the shift to digital and card payment exclusively.
The past few years have seen many larger retailers prefer card payments or refuse cash payments outright.
As a result, consumers are moving towards cashless spending – both through the expectation of needing to use a card, and the convenience of card payments.
A cashless solution?
According to a UK Finance study in 2023, only 1.5 per cent of the UK population use cash as their main form of payment. In contrast, almost one-third of people use cash once per month or less.
What these figures reveal is a general trend towards cashless spending. But is this right for small businesses?
Many independent business owners struggle to operate a card-only payment system because many providers charge a small percentage of the total payment as a transaction fee.
For most card providers, this is between one and four per cent, which can have a huge impact on profitability for a business with low-profit margins. Very small businesses may operate without a ‘buffer fund’ to cover these additional costs.
Alternatively, operators must pass this cost onto the customer. Many are not willing to do this as the cost of living remains high and consumers seek good value.
An alternative vision
The Future of Payments Review has made 10 recommendations to the Government to improve the payment landscape for consumers and business operators. It seeks to provide retailers with a wider range of options for accepting customer payments.
Primarily, it recommends the creation of a ‘National Payments Vision and Strategy’, which prioritises customer experience, retailers and security.
Open banking, which enables consumers to share certain financial details with retailers in order to make a direct bank-to-bank payment, has been central to the review.
The benefit to consumers is clear, with a straightforward payment option that rivals card payments in convenience. Retailers, too, may be able to reduce card payment costs and streamline their finances.
However, the current climate has made the adoption of open banking challenging.
Traditional banks currently have a virtual monopoly on card payments and not enough is being done to incentivise open banking alternatives.
This monopoly makes it hard for retailers to actively choose which payment methods to accept based on their associated costs because consumers are most comfortable with card payments.
The idea is to create a ‘customer journey’ for open banking, making it as familiar and viable as a credit or debit card.
This will give retailers a larger choice of payment methods to accept, meaning they can take payments without additional costs or losing business from consumers who do not use particular payment methods.
Safeguarding your operation
You might want to review which payment options provide the most benefit to your customers and the least cost to your business as more payment options become available.
As Government policy evolves, it is likely that retailers will face uncertainty as well as reaping the benefits of innovation.
