The expanding benefits of digital payments

A growing population of tech-savvy consumers, combined with an increased focus on digital security and convenience by buyers and sellers, is broadening demand for digital payments, both in business-to-consumer (B2C) and business-to-business (B2B) environments.

Younger consumers were the early adopters of technology solutions such as mobile digital wallets and contactless card payments, but these tools have now been widely adopted by all generations. While social distancing and online shopping trends in recent years initially served as a catalyst to get small businesses on board, the ample benefits to both the business and consumer have led to even wider adoption.

Most shoppers now consider contactless payments a luxury too good to give up. Not only have they realized how much easier it is to tap a contactless card on a point of sale terminal than to dip or swipe it, but many are also now forgoing their cards altogether, preferring instead to use digital wallets on their smartphones.

Consumers and buyers have also demonstrated a desire to blend their in-person shopping experience in brick-and-mortar stores with finding bargains and convenience through apps, social media and online outlets. In every one of those shopping opportunities, they expect a seamless checkout process. “Clients and consumers want convenience, security and ease, and if some merchants are not offering it to them, it could really hamper their business,” says Jonathan Sepulveda, small business product executive with Merchant Services at Bank of America.

Businesses managing payments to and from other businesses also have an opportunity to streamline their payment process with new ways to implement electronic invoicing and remittances.

Here’s what you need to know about four key payment trends that are reshaping your business operations and interactions with customers.

Cashless is here to stay

Most consumers and clients routinely use mobile devices today. Because of the familiarity and ease of their use for making payments, many people have given up using cash, even for small transactions. In fact, government data shows that the percentage of U.S. consumers who prefer cash for in-person payments declined from 27% in 2016 to 19% in 2022.

The shift to mobile payments is accelerating at an eye-popping pace. In 2022, there were more mobile subscriptions (8.58 billion) than people in the world (7.95 billion). This data reflects the steady march toward digital payments worldwide, according to Abbe Conrad, small business segment enablement executive with Merchant Services at Bank of America. By some estimates, 4.4 billion consumers globally will use digital wallets by 2025, compared to just 2.6 billion in 2020.

In addition, these payment methods are becoming even more secure, which translates to more benefits on the merchant side. Contactless systems, for instance, use tokenization to encrypt the card data and send it to the payment processor, which has the key to decrypt the transaction. With card fraud expected to total nearly $400 billion over the next decade, reducing fraudulent transactions with contactless payments can save substantial amounts of money, helping to protect your bottom line.

Anytime and anyplace transactions

Digital payments are also driving an increase in customers choosing to shop online and then pick up their purchases in store. The same order can be returned or exchanged at a retail store or a drop-off point, or through a prepaid courier service. Customers have changed their expectations and assumptions around their shopping experience, and that’s been a huge use case for integrated solutions. Merchants, too, want to remove the lines between an online transaction and a point of sale transaction and make everything equally easy to use.

The data gleaned from integrating on- and offline sales allows for greater insight into your customers’ buying patterns, notes Sepulveda. If you have a loyalty program, for example, you can track data about a single shopper in multiple on- and offline locations and use that information in future marketing efforts. Bank of America research shows that effective use of data from loyalty programs can also boost your bottom line.

The rise of frictionless business payments

B2C payments aren’t the only ones shifting toward digital. In 2022, 33% of B2B payments were still made by paper check, according to the Association for Financial Professionals. But checks are mailed to offices and require someone to endorse and deposit them, adding to administrative resources as well as an increased security risk.

“We are seeing businesses using more online invoicing and online bill pay because they don’t want to deal with the risks of dealing with mail,” says Rich Clow, senior vice president for emerging payments and strategy at Bank of America. Ultimately, they find the online tools are efficient and user-friendly. And the data bears this out: A recent study finds that 73% of businesses surveyed are transitioning their B2B payments from paper to digital payments.

Implementing electronic invoicing can also streamline efficiencies and reduce costs. The Federal Reserve estimates a savings potential of $4 to $8 per invoice when replacing paper with digital. That amounts to $75 billion to $150 billion in annual savings in the U.S. alone.

Supply chain solutions

Persistent supply chain issues surrounding labor and parts shortages have been exacerbated by long-standing practices that delayed processing time. For example, a single payment for multiple invoices would in the past have necessitated being coded and reconciled separately. To avoid these issues, businesses may want to consider implementing a real-time payment solution that allows for same-day payments instead of waiting two days for a transfer.

With automated payments, the whole process from financial approvals to reconciliation of accounts can become much more efficient. Sepulveda notes that by installing the technology to accept digital payments instead of cash or checks, your business can simplify bookkeeping, reduce friction at the point of sale, lower the risk of fraud and may even attract new customers.

To truly maximize financial and time resources, businesses should prepare for a shift toward both electronic invoices and remittances in the years ahead.

Change is constant, and the world of payments is no exception. Understanding the drivers of change when it comes to consumer payment preferences can help you choose the payment system technology that best delivers a secure, seamless and convenient transaction to your customers.