By Michael Ault, Founder and CEO, UTP Group
While we applaud efforts to promote financial inclusion, and encourage uptake of non-cash payments in the wake of the Covid-19 pandemic, the financial industry and government bodies need to remember a crucial sector of society that’s in danger of being left behind – the small businesses that are the backbone of any nation’s economy.
There are currently six million SMEs in the UK, and the vast majority have access to a wide range of digital and mobile payment acceptance solutions. But even in the small business bracket, one group is excluded from accessing the benefits of digital payments. There are 4.6 million sole traders in the UK, and around 76% overwhelmingly rely on cash for payments. In the drive for financial inclusion, it’s these businesses which are now facing even more pressure to make ends meet, and not just because of Covid-19.
It’s a no-brainer that if you want consumers to use less cash, you start with the cash-heavy sole traders and micro-businesses that consumers interact with on a daily basis. Window cleaners, hairdressers, dog walkers, buskers, car boot sellers, hobbyists who sell merchandise, and so many others are still largely using cash as their primary means of payment. With the pandemic driving cashless payments at the behest of governments, banks and payment industry players, the acceptance gap is growing for the sole trader who may have previously relied on cash or legacy payment methods.
The pandemic not only shut down several economic sectors overnight, but forced a drastic rethink of payment acceptance. It created a double-blow of cash usage being forbidden by many businesses, and the closure of hospitality, in-store retail and leisure businesses. For people working in those sectors and unable to be furloughed, they were forced to take on extra jobs and cultivate cash-based sidelines to survive financially.
Even for those hospitality businesses that could open up as restrictions eased, for example outside-only dining venues, employees who previously relied on cash tips to bolster their wages suddenly faced no option to receive cash. While the government and industry leaders rallied round larger businesses in the form of loans and furlough schemes, little thought was given to the sole trader who previously depended on cash and had their lifeline ripped away. What a difference it would have made if some kind of scheme to implement digital payment acceptance had been undertaken to help cash-dependent sole traders through these unforeseen circumstances.
A lot is talked about financial inclusion for individuals, but never about how small, individual merchants can sometimes be excluded, to the detriment of themselves and their customers. In a post-pandemic world, it needs to be easier for merchants to be ’financially included’.
Why merchant services need a re-think
Sole traders clearly deserve more help and clarity as they represent a large proportion of the UK economy. Digital payments can help sole traders, no matter what line of business they’re in, to manage their business and grow their revenues. Sole traders need digital payments that are able to help boost sales, are easy to use and reliable as well as affordable with lower transaction fees.
But there are several hurdles to overcome if sole traders can fully benefit from easy access to digital payments. Many payment solutions can be difficult to find and apply for, and be expensive. If an individual wants to accept card payments, will they use that term to search online to find the best provider? Will they really understand what merchant services mean? Would they even consider themselves a merchant in the traditional sense? The title ‘merchant account’ needs to be rethought. Given the ubiquity of mobile phone-based payment services, the term ‘mobile payments account’ would be more familiar.
Regulations, while necessary, can make it difficult for merchants to apply for certain financial services or products. Confusion over costs and compliance can cause administrative nightmares, which deter merchants from taking advantage of digital payments. Similarly, if merchants don’t have all the relevant KYC and anti-money laundering documentation they need, which can sometimes be difficult to obtain, it can be difficult for them to apply for payment services that will help make them future-proof. And if an individual doesn’t have a credit rating or is not on the electoral role, the hurdles to enabling card acceptance become even higher.
It doesn’t have to be this way. Many forward-thinking and truly inclusive payment solution companies are brainstorming and innovating their approach to delivering financial inclusion to merchants who are new to card acceptance. With the ubiquity and seamless convenience of mobile payments, anyone with a phone should be able to download an app to receive payments. This is an area that UTP is investing in to help bridge the gap between cash traders and digital payments.
There should be recognition of the need for a more inclusive approach to promoting card acceptance for individuals. There is the need for a service to allow someone to accept relatively small transaction numbers, which can scale up as the business grows.
It may seem counter-intuitive for a profit-seeking payment solution provider to even consider lowering fees and costs, but doing so will tap into a stronger profit base long-term. Small, independent merchants will be much more likely to come on board and start accepting payments straight away if they’re enticed by lower entry barriers, offered in conjunction with reassurance over the safety of their customers’ transactions with PSD2 and SCA protocols, and specialist guidance over how they can accept more transactions and grow their business.
By taking care of compliance, regulatory requirements and payment processing, the forward-thinking payment solution provider will deliver true financial inclusion to small merchants in an immediate and meaningful way.