Personal finance experts have long claimed that paying electronically leads us to spend more money. The ease, convenience, and intangibility, they say, all make us more likely to overspend, which for a business owner looking to increase the revenue generated by each customer is a very good thing. In the last few years, studies have confirmed this belief and highlighted the benefits for merchants that take advantage.
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The Impact of Accepting Credit Cards and Mobile Payments
As difficult as it might be to believe, more than half of all businesses in the U.S. only accept cash payments. These businesses can be losing a significant amount of sales, both in terms of customers who do their buying elsewhere and in lower sales tickets among existing customers.
One of the first instructions that a debt counselor tells clients is to stop using their credit cards. Experts in personal spending have known for many years that people who use their credit cards to pay for purchases tend to spend more than those who pay cash. It is typically faster and more convenient, but it is less tangible than counting out the cash. For merchants, the psychology of spending via credit cards is beneficial. Shoppers typically spend between 12 and 18 percent more when paying with a credit card than they spend when paying cash.
For many years, McDonald's operated as a cash-only business. Once the chain began accepting credit cards, the average order increased to $7 from an average of $4.50 when only cash was accepted, according to a report from the Journal of Experimental Psychology. Some merchants adding credit cards as a payment method realize an increased order size of as much as 40 percent.
Just as consumer preferences drove the increase in the number of businesses accepting credit and debit cards, consumer needs are fueling an increase in mobile payments. Advances in technology have made it possible for customers to pay for their purchases using their mobile devices in a manner that is as convenient for them as credit cards. Some consumers feel that mobile payments are even easier.
During the 2012 holiday shopping season, approximately 20 percent of all sales were made from mobile devices. Mobile payments generated $47.2 billion in 2011, and projections estimate that in 2016, mobile payments will account for an estimated $998.5 billion. Businesses that retain a cash-only policy risk losing out on their share of the sales.
To illustrate, suppose a business receives 200 orders each day with an average value of $15. That is equivalent to $3,000 per day in sales or $90,000 per month. If accepting credit cards and mobile payments adds just 20 percent to the average order value - making it $18 -- the same 200 orders will generate $3,600 per day or $108,000 per month. Few businesses would view an increase in revenue of $18,000 per month -- $216,000 per year -- as insignificant.
The days of refusing to accept credit cards are gone. Businesses must adapt to changes in customer demand and take advantage of evolving technology. The next step that many must take is to accept mobile payments. Accepting credit cards and mobile payments is a practical way to boost sales while increasing customer satisfaction at the same time.