The disconnect that exists between consumer payment preferences and what small businesses the offer is both surprising and consequential. According to the latest data by Xero, nearly 90% of US consumers prefer to pay by credit card, yet 30% of small businesses still don't accept card payments.

As the competition increases and customer loyalty becomes increasingly elusive, it is more important than ever that small businesses make decisions that align with the wants and needs of their customers. Adapting to customer preferences not only drives loyalty, but also drives future growth. To do this effectively, small businesses must embrace the shift to modern payment solutions to meet consumer expectations.

How to develop a better understanding of changing consumer preferences

Over the last decade, we have seen a significant change in consumer behaviordriven mainly by technological advances and changing lifestyles. This has led to consumers having a variety of different preferences for payment options; as such, businesses that offer multiple methods – such as debit and credit cards, mobile payments and Buy Now, Pay Later (BNPL) options – reach a wider range of customers and improve loyalty and satisfaction.

When consumers encounter obstacles while shopping, such as the unavailability of their preferred payment methods, they are more likely to become frustrated and consider switching to a competitor. With so many other options available, it's even more imperative that businesses offer a variety of payment options to meet a wider range of customer needs – especially knowing how valuable customer retention is in today's landscape.

For example, mobile payments have grown in popularity, especially with younger generations: approx 43% of Gen Z customers AND 42% of millennials regularly use digital wallets such as Apple Pay or Google Pay, reflecting a preference for convenience and ease of transactions. This trend underscores the need for businesses to adapt and embrace digital solutions in order to connect and engage with new generations of consumers.

Research shows that 21% of consumers would consider shopping at another business that accepts more payment options if their preferred payment method wasn't available, highlighting a potential — and avoidable — loss for small business owners. As we've seen a growing trend towards digital and contactless payments, businesses that fail to adapt risk losing out to competitors who offer a more convenient checkout experience.

From a business perspective, digital payment systems also play a major role in acceleration cash flow for small businesses. The latest data from Xero reveals that, on average, small businesses were paid 9.5 days late in the June quarter (2024). By incorporating “pay now” features into invoices and sending timely reminders to customers, digital payment systems can significantly reduce these delays and ensure businesses receive their payments faster.

Including different payment options can also create a more inclusive shopping experience, allowing customers with different financial situations to shop at your business. For example, BNPL options can attract younger customers who may not have the funds immediately but want to make a larger purchase. It's also vital to tailor payment options based on different customer touchpoints and interaction types. While customers interacting online often prefer digital payment methods, in-store shoppers may have different expectations and preferences. In fact, research shows that 74% of buyers still use cash to make payments, highlighting the need for businesses to cater to this subset of customers as well.

By offering traditional and digital payment options, businesses can accommodate those who prefer cash and those who seek the speed and convenience of mobile wallets or contactless payments. This approach makes the shopping experience smoother for every type of customer, whether they're tech-savvy or prefer more old-school methods.

What strategies can small businesses use to implement these changes?

As a small business owner, optimizing your payment system can seem like a daunting task, when in reality, it has the potential to be an exciting opportunity to grow your business. By taking a strategic approach, you can ensure that your payment methods are well aligned with your operational needs and customer preferences. Here are some practical steps to get you started:

Evaluate current payment options

The first step is to assess which payment methods are currently in effect. Ask yourself: What payment options are currently available to customers? Are customers satisfied with these, or are they looking for alternative methods like contactless payments or BNPL services? Are there any common problems or complaints about our current payment processes?

When evaluating these aspects, consider whether your existing options meet the unique requirements of your business – such as payment speed, ease of integration, and overall customer experience improvements. By thoroughly evaluating these areas, you will be able to uncover any gaps in service or opportunities for expansion. If you're hesitant to adopt new payment technologies, keep in mind that these solutions are designed with small businesses in mind and are built to integrate seamlessly with your existing systems.

Search and choose suitable payment methods

Once you've evaluated your current options, the next step is to explore different payment technologies that would suit your business operations. While traditional methods like debit and credit cards are widely accepted, it's time to think beyond conventional offerings. Consider newer options like mobile payments (e.g. Google Pay and Apple Pay) and BNPL services (e.g. Klarna and Afterpay), which have gained popularity in recent years due to their convenience and flexibility .

When researching areas for expansion, consider which would best match yours business goals. Do you prioritize fast payments or minimal transaction fees? Take the time to explore your company's data and analyze your target market's preferences – understanding your customers' spending habits can provide key insights. Keeping your customers' needs at the forefront of your decision-making process, while also considering what's feasible and best for your operations, will ensure a smoother transition and better results.

Balancing the costs and benefits of modern payment technologies

While adopting new payment technologies has many benefits, such as increased customer satisfaction and increased cash flow, it is equally important to consider the associated costs. Transaction fees, surcharges and implementation costs should factor into your decision-making process, but don't let these costs deter you; instead, weigh them against the clear benefits.

Instead of viewing improvements as mere costs, consider how each new transaction through an improved payment option can actually drive your revenue. Each new transaction should not be viewed as just a sale, as it is opening the door for growth and growth customer loyalty. If you lose transactions because your payment methods don't meet your customer's needs, it can affect your bottom line over time. Look at investing in new payment technologies not just as an expense, but as an opportunity to capture more sales and grow your business.

An interesting example of a retailer is Walmart, which, despite not accepting Apple Pay, strategically promotes its own payment solution, Walmart Payto maintain control over data and improve customer engagement. However, it would be interesting to see if this strategy is worth the potential loss of customers who may not be willing to take the extra step to download and use Walmart Pay.

Investing in modern payment technology does more than just simplify transactions, it can increase security, speed up payments and improve the overall customer experience. By simplifying payment processes, you free up valuable time and resources, allowing you to focus on other strategic areas of your business. A secure payment system can not only protect your business from fraud, but also build more trust with your customers.

Adapting to changing consumer preferences is vital for small businesses looking to improve the customer experience through improved payment options. Customers don't just want – they expect – seamless, flexible and secure payment options, and meeting these expectations is a key way to build trust and loyalty and differentiate your business from competitors.