Although it is well known that customer expectations for payment journeys continue to increase, a significant disconnect remains between small businesses and consumers in the UK about this subject, according to new research by global small business platform Xero.
In the UK, 87 per cent of consumers use credit or debit cards to make a payment and 75 per cent still use cash, Xero has revealed. However, the most common payment method offered by small businesses is bank transfers (73 per cent), followed by cash (60 per cent), while only 55 per cent offer the most preferred method of credit or debit card.
In its latest report, ‘I want to pay that way‘, Xero unsurprisingly finds that younger generations are embracing new digital payment methods, with 55 per cent of Gen Z consumers and 49 per cent of millennials using mobile payments such as Apple Pay or Google Pay. Meanwhile, 47 per cent of Gen Z consumers only take their mobile phone to pay when they go to the shop. Despite this growing demand, only 33 per cent of small businesses offer Apple Pay or Google Pay.
Kate Hayward, UK country manager at Xero
Kate Hayward, UK country manager at Xero, said: “As the UK continues to lead in open banking, it’s crucial that small businesses recognise and adapt to the evolving payment landscape.
“Embracing a wider range of payment options, particularly digital methods, isn’t just about keeping up with trends — it’s about meeting customer expectations and staying competitive in today’s market. The growth of digital payments is transforming the way we transact, making it an important requirement for small businesses to bridge this gap and offer the diverse payment options their customers increasingly prefer.”
Critically, Xero’s findings also show that not meeting payment preferences can have a direct impact on customer retention and revenue. A quarter (25 per cent) of consumers would visit another business that accepts more payment options if a business didn’t offer at least one of their preferred ways to pay.
Barriers to evolution
So while customer wants are clear, and the drawback of not meeting these expectations could be hugely damaging for businesses, why aren’t more UK small businesses adopting new payment methods?
According to Xero, the top barriers holding these companies back are:
Not relevant for their business – 33 per cent (rising to 42 per cent amongst sole traders)
No clear value/advantage (32 per cent)
No demand from customers (31 per cent)
Of the small businesses that adopted new payment methods in the last six to 12 months, a quarter have seen reduced times to be paid (25 per cent), as well as increased sales (24 per cent), and spent less time chasing late payments (22 per cent). These advantages may explain why small businesses are receptive to emerging and future payment trends.
Thirty-three per cent of small businesses in the UK are optimistic about the introduction of biometric authentication as a payment method.
A ‘critical’ step to success
Bharathi Ramavarjula, SVP of payments at Xero
Bharathi Ramavarjula, SVP of payments at Xero, said: “Understanding how different consumers prefer to pay and giving them the flexibility to pay the way they want, will help small businesses get paid faster and grow their revenue. To make it easier to collect payments, Xero is providing small businesses with more ways to get paid.
“Managing payments and bills is really critical to help small businesses to be in a stronger position to grow their business and keep pace in what is shaping up to be a transformative decade in payments. That’s why we’re offering an embedded bill payment solution to help UK business owners and their advisors manage, approve and pay their bills seamlessly without having to leave Xero.”
When it comes to paying their supplier bills, over a third of small businesses report that their top challenges are making sure there are enough funds to pay bills (36 per cent) and keeping track of due dates so that bills are paid on time (35 per cent). It’s not surprising then that 45 per cent of small businesses spend at least four hours each month managing their accounts payable.
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