Research: Changing consumer preferences are driving evolving SMB payment offerings

Small businesses have it tough. As the biggest companies in the world get bigger, they continue to raise the bar for customer expectations. But without the technology and human resources of larger firms, SMBs need to continuously keep up with advances in ecommerce and payments — their customers demand it.

And to some extent, SMBs are doing a good job with it. They’re learning the tricks of the trade, like digital wallets, online reviews, and other third-party payment services.

With the intention to learn more about SMBs and their customers, Bank of America Merchant Services recently commissioned Forrester Consulting to conduct two online surveys of 522 U.S.-based small businesses and 509 U.S.-based consumers who purchase goods and services from small businesses. The results show an interesting view into the changing world of SMB commerce and payments.

How consumers choose to pay at small businesses

Whether they’re shopping at Amazon or at a corner bodega, consumers are looking for convenience when it comes to payments. Among top payment methods, debit is the only one that saw a decline in use. Despite that, debit remains a primary payment choice for many consumers.

Digital wallets and third party payment services both doubled in usage over the past two years. Increased security and convenience is helping to move usage beyond early adopters. For contactless, expect major rollouts at public transportation systems around the US to accelerate adoption.

Emerging payment preferences

The usual suspects — cash, credit, debit — are still the most popular payment methods for US consumers. But there are some new payment choices that SMBs and their customers are turning to.

A rising number of consumers (36 percent) are open to purchasing gift cards from small businesses like restaurants and retail stores. For a business, gift cards offer a way to attract new customers, increase holiday sales, and improve customer loyalty.

Digital wallets are most popular among consumers 44 and younger, with almost 20 percent using it in-person. SMBs that accept digital wallets have found that it makes the checkout experience quicker and more convenient by letting consumers use their mobile devices. SMBs say that it also imbues a sense of security around the transaction.

SMBs, consumers and ecommerce

Platforms like Shopify and Square make it easier for a small businesses to not only offer products for sale online, but to manage the operational complexity of operating multiple channels. Consumers want that, but 42 percent of them think that shipping costs are too high and takes too long to purchase from SMBs.

For businesses that do offer online purchase (51 percent), they’re seeing 44 percent of consumers make at least one purchase in the past month. In terms of product research and business information, more businesses offer this (nearly 50 percent) than consumers that take them up on it (less than 30 percent).

SMB loyalty programs

Loyalty programs cut both ways. They’re useful to get repeat buying behavior but they also put downward pressure on pricing as members expect to pay less. 64 percent of SMBs with loyalty programs see improved customer loyalty, and 49 percent of loyalty members expect instant discounts when they shop.

When asked how they prefer to participate in loyalty programs, consumers responded that they like physical loyalty cards (26 percent) and phone service (25 percent). A smaller percentage of people are open to credit/debit cards (14 percent) and apps (10 percent) for SMBs to manage their loyalty program.