OPERATIONS & LOGISTICS | Acceptance makes good small business sense

Large majority of Canadian merchants accepting credit cards say benefits outweigh costs

By Kevin Gonyea

The Canadian economy is built on a foundation of small businesses, and contrary to some suggestions, small business owners and operators who accept credit cards do so because they understand the benefits and costs of digital payment, according to a recent Harris/Decima survey.

In fact, despite some reports that small businesses prefer cash over credit cards, the poll conducted for MasterCard found that more than two-thirds of small businesses that accept credit cards (69 per cent) said the benefits of accepting credit card payment outweigh the costs.

It’s a matter of customer service, and is also of good for business management.

Most respondents said they accept credit cards because that’s the way their customers want to pay. But while it may start with customer service, the merchants surveyed found a lot of other benefits to digital payment. They say card acceptance makes it easier to manage their business, with 59 per cent citing ease of processing as a benefit, and 57 per cent citing certainty of getting paid. Major credit cards guarantee the merchant gets paid, and they protect the consumer from fraud, which means the institution providing the credit card bears any risk in a transaction.  Merchants see the benefit of that, and also the benefits of precise record keeping and effective cash management – both tools that help them run their businesses better.

The small business leaders also pointed to greater sales opportunities. More than half (52 per cent) said their customers are more likely to make a purchase if they can pay with a credit card. Research has shown that when merchants accept credit cards, they attract more customers, and the average purchase per customer goes up.

Credit card acceptance also enables small businesses to punch above their weight, significantly expanding their geographic reach beyond their local neighbourhood. Two-thirds of small business respondents reported making remote sales (telephone, internet) to consumers who paid with a credit card.  And they said those remote sales had a big effect on their business. For those merchants who sold online, 20 per cent said remote sales accounted for between 11-50 per cent of their total sales.  For 14 per cent, remote sales accounted for more than 50 per cent of their sales, none of which would have been possible without credit cards.

Accepting credit cards also enables retailers to make it easier for foreign visitors to purchase, without the need and expense of currency exchange. Among survey respondents, 43 per cent said they have made credit card sales to visitors from outside Canada.

And for those small businesses that benefit from sales to foreign visitors by credit card, the increase in business is not inconsequential. Ten per cent of small businesses surveyed said credit card sales to visitors from outside Canada comprised more than 10 per cent of their business.

The merchants surveyed by Harris/Decima were savvy about their payment options, including their option to offer consumers a discount for paying with cash or debit cards. But it appears most respect the customers’ desire to pay with a credit card.

Besides the convenience and security of credit card payment, Canadian consumers also seem to be motivated by love of loyalty programs that help them stretch their dollars.  Consumer research has shown nine in 10 Canadian adults use loyalty programs to collect points or miles, with each active on average with three different loyalty programs.

When those loyalty programs are part of a premium credit card, 40 per cent of merchants surveyed by Harris Decima said those premium card holders are their best customers.

The Harris/Decima survey is important because despite overwhelming consumer preference for digital (credit, debit) payment, there are still a few penny-wise and pound-foolish merchants who think they are helping their business by accepting only cash. They operate under the mistaken belief cash is free to them. It is not. Far from it.

Cash exposes merchants to the risk of theft (including inside job), robbery, and counterfeit currency, as well as the risk of human error during the exchange. Managing cash to avoid human error or “shrinkage” often means the time-consuming process of counting, recounting and counting again, which makes cash the slowest payment medium. Even then, there are inevitable errors.

With cash on hand, merchants must also pay for security (e.g., surveillance cameras and security guards), secure storage (vaults and cash registers), and for counterfeit-detection equipment and training.

Larger merchants often need armoured car services to carry cash, and ?nancial institutions charge them fees for cash deposits, cash withdrawals, and coin ordering. Smaller merchants have to carry cash themselves, or rely on employees to carry it to deposit boxes

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Merchants also pay insurance premiums in an effort to protect themselves from losses due to theft. Smaller merchants spend less on security, which means they are in effect self-insuring. They must absorb any losses.

Cash transactions also tend to be slower at the register, especially compared to new tap-and-go payment methods. The result is that retailers are able to process fewer customer payments in cash, and consumers using cash average smaller total purchases. Cash customers spend less than credit card customers.

Small businesses operators need all the help they can get. They need to maximize sales opportunities, find the best customer service options, and manage their time, manpower, budgets, accounts, administration, HR and financial strains.

It’s hard work, but don’t underestimate Canada’s small business people. The ones who accept credit cards have done the cost-benefit analysis and understand the full value they get from that, whether it’s attracting the big spenders, providing the customer service and payment options their customers want, cutting the cost of handling cash, or managing risks and adopting more effective businesses processes.

Kevin Gonyea is Vice-President, Head of Acquirer Merchant Relationship Management at MasterCard Canada.

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