Decline of cash: Small firms lag in adoption of digital payment methods

Contactless payment has become a popular and convenient way for consumers to make transactions. Photo / 123RF

Cash may no longer be king with consumers, but many Kiwi small businesses are still hanging on, according to new research.

Xero’s I want to pay that way report found small businesses are lagging in the adoption of digital payment methods.

This “mismatch” could see some small businesses left behind, warns Bridget Snelling, New Zealand country manager at Xero.

Xero commissioned Lonergan Research, who surveyed 1005 New Zealand consumers and 508 small business leaders, for the report.

It found that small business owners still have a reliance on cash, with 72% believing if notes and coins disappeared tomorrow, it would have an impact on their business.

However, just 8% of Kiwis reported carrying cash to pay in-store, making it one of the least preferred payment options.

Instead, three-quarters (75%) of New Zealanders typically use their physical bank card, while 14% take only their mobile phone to pay in-store.

Gen Z (48%) leads the way when it comes to using Apple Pay or Google Pay, followed by Millennials (28%), Gen X (17%) and Boomers (11%).

Only 17% of Kiwi small businesses reported offering Apple Pay or Google Pay facilities to their customers.

Snelling said it’s essential for small businesses to consider their digital options for payments.

“As technology continues to evolve and convenience remains king, it’s important we continue to progress in this direction,” Snelling said.

“It’s clear there is a strong preference for using digital payments by Kiwi consumers. Despite this, small businesses across the country are keen to hang on to cash payments, creating a mismatch between consumer desire and small business payment capabilities.

“Unfortunately, this can mean small businesses who fail to adapt could be left behind, missing out on sales, or being plagued by late payments due to not offering customer preferred payment options.”

Xero New Zealand country manager Bridget Snelling.

But 87% of small business owners said there is a barrier preventing them from offering new or different payment methods.

Expensive fees were cited by 32%, while a quarter either see no clear advantages (28%), or believe it’s too complex/time-consuming to set up (26%).

Convenience can come at a cost too.

Contactless payment fees can incur surcharges of between 2-5% or a flat fee of 50c or up to $5.

The Commerce Commission said New Zealanders were paying about $1 billion a year on PayWave and online credit card payment fees.

Contactless payments, including contactless debit cards, Apple Pay, Google Pay and others, are processed by card schemes, such as Visa, and incur a merchant service fee per transaction.

Those fees are generally always passed on to customers.

While the Retail Payment System Act, which passed into law in November 2022, was expected to save businesses $105 million a year and flow through to customers, not everyone is so convinced.

Consumer NZ recently said contactless payment fees are still a “surcharging swindle”.

Xero’s report also revealed that one-third (39%) of Kiwi small businesses have adopted a new payment method in the last six to 12 months.

For those who had, the most popular reported benefit was reduced time to be paid (19%), followed by increased sales (16%) and reduced time chasing payments (14%).

“Digitalisation is key to ensure their small business continues to meet consumers at the till, giving them the option to pay their way,” Snelling said.

“Our work with the New Zealand Institute of Economic Research shows a 20% increase in the number of businesses adopting cloud-based business tools in the future could add up to $7.8b to Aotearoa’s annual GDP through improved productivity.”

Cameron Smith is an Auckland-based journalist with the Herald business team. He joined the Herald in 2015 and has covered business and sports. He reports on topics including retail, small business, the workplace and macroeconomics.