The Costs and Benefits of ePayments
ePayments (which are cash and check alternatives, such as credit/debit cards and electronic mobile wallets) solutions have a bright future.
- Cash payments are expected to drop by 10% between 2012 and 2019, even as payments climb by 11% during this period.
- Check use has been cut in half since 2000.
- Some countries, such as Denmark, have made it legal for merchants to refuse cash transactions.
- Uber, the ride service, doesn’t accept cash payments.
For ePayments to become the preferred payment method, they must offer benefits for both consumers and merchants. In this article, we’ll examine the ePayment tradeoffs as they pertain to small field-service businesses, such as ones performing residential/commercial cleaning, pool maintenance, landscaping/lawn care, HVAC services, snow removal, general contracting work, and a host of other on-location services. This kind of company has these characteristic features:
- Workers perform tasks at customer locations – there is frequently no storefront.
- Customers may be expected to pay for services in person at the time those services are delivered – say after a carpet is cleaned or a fence is installed.
- The business may engage in card-not-present (CNP) credit/debit card transactions, such as on a website or over the phone.
- The company may also sell certain products that the customer may need in conjunction with a service, such as chemicals to keep a pool clean between visits from a pool maintenance business.
ePayments consist of two principal types:
- Plastic cards – debit, credit, and prepaid – with either magnetic stripes or embedded chips (EMV cards). A card reader is required, which can be a stationary point-of-sale terminal or a small device that attaches to a mobile phone or tablet.
- Mobile wallets, such as Apple Pay and Google Wallet, that provide for cardless, in-person transactions in which the customer uses a mobile device app that electronically connects to a suitable terminal or another mobile device. Customers may fund a mobile wallet by depositing cash in an ePayment account or link the mobile wallet to a bank account or credit card.
Benefits of ePayments
- Convenience: Consumers don’t have to fumble around with checks or carry a lot of cash in order to make purchases.
- Higher sales: Consumers can spend more using a credit card than they can with cash since credit card balances can be repaid over time, whereas cash is immediate.
- Rewards: Many credit cards, and an increasing number of mobile wallets, offer rewards to consumers, such as cashback and frequent-flyer miles. This is a motivation for consumers to deal with businesses that accept ePayments.
- Security: Checks can bounce and cash can be counterfeited, but merchants who accept the new EMV cards are protected from the costs of card fraud. EMV cards and mobile wallets use sophisticated techniques that make in-person transaction fraud very difficult, although no system is foolproof.
- Integration: ePayments naturally integrate and synchronize with other systems, such as invoicing, accounting, and customer relationship management.
- Theft: You may not want your workers in the field collecting cash and checks that are vulnerable to loss or theft.
- Recurring payments: ePayment systems support recurring payments for customers who receive repeating services, such as lawn care or window cleaning.
Costs of ePayments
- Fees: You’ll have to pay certain hardware, software and/or transactional costs associated with ePayments. Normally, you set up a merchant account to process credit cards, and these accounts can have fees ranging up to 5% per transaction. However, a little research should uncover much cheaper merchant accounts, though they might be less convenient or feature-laden. Stationary POS terminals can cost several hundred dollars each, but a simple add-on mobile-device card reader is relatively inexpensive, and sometimes free. Mobile wallet apps are usually free, but processing charges still apply.
- Security: The new EMV cards are more secure than the old, magnetic stripe variety. However, CNP transactions are still vulnerable to fraud, since there is no mechanism to take advantage of the embedded chip. When a customer types a credit card number into your website or dictates the number over the phone, you always face the possibility that the card or its information was stolen. You can simply refuse CNP transactions, but that could cost you business.
Clearly, while ePayments have some associated costs and risks, their benefits greatly outweigh their disadvantages. Over time, consumers and businesses will continue to adopt alternatives to cash and check payments, and advances in encryption and other technologies should help increase ePayment security while bringing down costs.