The Last Click: State of Payments Report

Ecommerce has boomed as a result of contactless shopping during the pandemic. Last-mile delivery has become all the more crucial, yet tricky for retailers. Even more important is how businesses process transactions, regardless of whether it operates online, in-person, or both. The “last click” is the last step a customer takes to submit their purchase, and it can make or break a sale.

In 2020, payment processing technology adoption rates, customer expectations, and shopper preferences have accelerated dramatically. Adoption rates of payment technologies that were available before, but not widely used, jumped significantly. Even though the pandemic has accelerated a lot of these changes, they are here to stay: 60% of shoppers report the pandemic has forever changed their shopping habits.

In order to compete, businesses need to offer flexible and fast buying options that meet the needs of every kind of shopper. After analyzing data provided to Fit Small Business from top payment process sources, we identify payment trends that small businesses will want to follow in 2021 to stay in the game.

1. Retailers Jump to Online Payments

Due to consumer demand for contactless payments, retailers pivoted to online payments in 2020. This jump to offering online payments by sellers was a huge win for large and dominant payment processors like Square. Square retail businesses that accepted payments online jumped from 38% in February 2020, to 51% in July 2020.

• US GPV Increase
  By the second quarter of 2020, online gross payment volume (GPV) had jumped year over year more than 50% and was 25% of Square seller GPV.
• International GPV Increase
  In Q3, outside the US, Square saw a jump in online GPV by 46% year over year, making it an 11% of total Seller GPV.

Contactless Payments
Analysis by Square of US sellers that normally take 95% or more in card payments saw this category move from 8% to 31% between March to April 2020. This number was analyzed from 70,000 Square sellers nationwide.

Shopify reports that the number of merchants accepting contactless payments through their software increased by 122% during the pandemic.

Cashless Increase
At the beginning of March, only 8% of sellers using Square were deemed a cashless business. By April, this cashless business number jumped to 31% with 85% of small businesses saying they will still accept cash from customers if necessary.

Contactless Fitting Rooms
Virtual samplings and try-ons have increased 32% since the start of the pandemic. The Washington Post reports virtual fittings and try-ons make shoppers three times more likely to purchase, spend 10% more, and reduce returns (ecommerce normally has higher return rates than in-person shopping).

Processing Non-Digital vs Digital: Time Is Money
Many retailers are enjoying the time saving benefits of online payments. Small businesses surveyed by Square stated it took them 542 hours to process 100,000 in non-digital payments. This is compared to only 189 hours it took for them to process digital payments.

Also, cash drawers can cost businesses money as well. In the US, businesses spent $38.5 billion closing cash drawers in 2018.

Key Takeaway: Cashless businesses are here to stay and consumer demand for online and contactless payments has forced sellers to adapt and serve their customers despite the fees that come with processing payments.

On the flip side, it takes sellers less time to process these kinds of payments, saving them time and money. Consumers want to pay online and pickup, they don’t want to have to wait in lines, be in crowded areas, or handle cash. It will be difficult for businesses without a merchant account with online and contactless options.

2. One Click Checkouts

Since Amazon’s patent on One-click checkout expired several years ago, ecommerce businesses have been racing to develop, implement, and perfect the technology because consumers demand it and it generates more revenue.

Expect to see more of the one-click ecommerce payments like Fast.co (just launched in September), Bolt (launched in 2018 and raised $50 million series C funding in July), Shop Pay, Apple Pay, Google Pay, and PayPal One-touch.

Battle of the Branded One-Click Checkouts
Many of the established, widely adopted online store platforms (Shopify, Square, ToastTab for restaurants) are developing their own payment processing solutions—after all, that’s where the money is.

For example, in Q3 of 2020, Square gross revenue from transactions was $925 million, compared to gross revenue from subscriptions and services which was $448 million. The same is true for Shopify, which earned $522.1 million from merchant solutions in Q3 2020, compared to $245.3 million from subscription services.

It will be an uphill battle for newcomers and third-parties like Fast to get widespread adoption, because for ecommerce giants like Shopify, that would mean giving up market share and revenue generated from Shop Pay. It would take enormous consumer/merchant pressure for this to happen—see PayPal for example.

However, in November 2020, Bolt checkout partnered with Authentic Brands Group to offer one-click checkouts to their more than 50 consumer product companies.

According to Shopify, conversion rates increase by more than 50% when using Shop Pay and win 45% more chargeback disputes.

PayPal checkout has a conversion rate of 88.7% and this number is 82% higher than retailers that don’t offer it as an option.

Key Takeaway: One click payments are here to stay not only because they are great for the customer experience and convenient, but because they create higher conversion rates for sellers. Branded checkouts specifically can increase consumer confidence due to name recognition. Customers want convenience and quick purchasing abilities. They don’t want to join an email list or go through several pages of check out registration to purchase. Retailers that offer one click will win more sales than retailers that don’t.

Over the next few years, competition for one-click checkout market share will heat up between companies like Fast and Bolt, while SaaS providers like Square and Shopify will take hold across the small business sector.

3. Convenient Shopping Experiences & Payment Choices

This year’s research showed that 51% of payment choice drivers were about human-centered needs, from control and convenience to simplicity and personalization. Consumers want payment options and the user experience matters.

User Experience Matters
The Internet of Things is growing as people understand how technological advances can improve their lives. There is significant unmet demand for connected car, smart home, and new retail models.

Fast Delivery
Consumers want fast purchase payment power through apps that provide localized delivery that quickly shows up at your door.

66% of consumers are willing to pay for this kind of service through services like Instacart, Shipt, and Prime.

Rapid and Easy In-Store Shopping
40% of shoppers say convenience overall is important to them throughout the shopping experience in the store. Broken down even further, 16% say convenience is important while researching, 25% before purchase, and 18% post purchase.

Additionally, Shopify reports that 50% of consumers would prefer to schedule an appointment for in-store shopping.

Key Takeaway: Providing a convenient, fast shopping experience with different payment choices is key to pleasing shoppers. Providing delivery options is pivotal to both online retailers and brick-and-mortar during these uncertain times and this level of convenience that shoppers have adapted to and will now expect from retailers.

4. Curbside Pickup

Typically, curbside and in-store pickups (also known as buy online, pickup in-store, or “BOPIS”), would spike during frenzied holiday shopping seasons, and die down throughout the rest of the year. Now, we are at pickup levels well beyond any previous holiday highs. Consumers love this type of shopping experience and plan to continue using it even post-pandemic because of its convenience. So, curbside pickup is here to stay.

Instant Shopper Demand for BOPIS
76% of shoppers started using online ordering at the beginning of the COVID-19 crisis and 68.3% say they will continue to use the service post-pandemic.

Grocery, restaurant, and retail pick up orders grew 201% in April 2020 over February alone—and grew 119% compared to the 2019 holiday peak of pick up orders.

Buying online and picking up in the store has improved the overall customer experience according to 70% of shoppers.

BOPIS is Good for Retail’s Bottom Line
Shopify reports:

• Shoppers that chose local pickup or delivery spend 23% more and had a 25% higher cart size than online shoppers that chose to ship their orders.
• Pickup orders also have a 13% higher conversion rate than online orders for shipping.

Small Businesses are Missing Out
According to a survey by The Morning Brew, only 22% of small businesses offered curbside pickup over Black Friday Cyber Monday (BFCM) weekend.

Click and collect orders have far outpaced previous holiday season peaks.

Key takeaway: BOPIS and curbside pickup is a customer favorite because it offers the convenience of online shopping and the gratification of bringing an in-store purchase home same-day. For many retailers, offering BOPIS is also good for the bottom line because businesses save on shipping-related costs.

5. Buy Now, Pay Later … Responsibly

Buy Now, Pay Later (BNPL) was on the rise before the jump to buying online. Across the world, you can utilize BNPL options with QR codes and even to buy apartments. However, once the pandemic hit, US adoption rates of BNPL technology, both by retailers and shoppers, skyrocketed.

• Klarna, an international payment solution, raised $650 million at a $10.65 Billion valuation in September. With over 12 million active monthly users and 55,000 daily downloads, Klarna signals to the retail industry that BNPL is here to stay.
• However, Klarna is just one of the many BNPL financial providers. Afterpay reported 1.9 million active US customers in June 2019. That number jumped 219% to 5.6 million active customers in June 2020.
• In October 2020 Afterpay announced adding US retail stores to their list of offerings including big names such as: Forever 21, Finish Line, JD Sports, Levi’s, Skechers, Fresh, APL and Solstice Sunglasses, and some DSW locations.
• In 2020, PayPal released a new Buy Now, Pay Later program as an installment solution.
• The number of Shopify merchants offering BNPL has increased by 60% since the start of the pandemic.

However, like any other form of credit, BNPL can have serious consequences for shoppers if used irresponsibly.

• 38% of consumers use BNPL to avoid credit card interest and use it for purchases they can’t afford in their budget. One  in 10 (14%) say when credit is maxed out they turn to BNPL.
• Only 43% of customers take the time to know the payment plan terms and conditions.
• One in 5 (21.68%) incur fees by missing BNPL payments. And the same number think they could miss a payment in the next year.

Key Takeaway: Businesses should be aware that BNPL increases average order value (AOV) and draws consumer loyalty and repeat purchases. But it hasn’t come without its investigations and headaches. In the UK, regulators are looking into advertising practices by Klarna and whether BNPL is causing irresponsible spending, particularly among young consumers.

Furthermore, a 2020 Consumer Credit Card Industry Study from the Federal Reserve reports that the average American Household has $6,489 in credit card debt, this could push consumers toward BNPL even more if they don’t have room on cards for necessary purchases or want to avoid continued credit card interest.

6. QR Code Comeback

Is it 2010? Because suddenly, QR codes are cool again. Restaurants have started using QR codes at tables for menus and payment. In addition to being contactless (digital menus are recommended by the CDC), they are also convenient, more sustainable, and allow businesses to make changes on the fly.

Earlier this year, Venmo rolled out business profiles with scannable codes for sole proprietors. PayPal launched QR codes for businesses. Popular payment processors like Square deployed QR code payment option. Shopify’s Shop code QR code feature has existed since 2017, but to their point-of-sale software that allows customers to shop product pages while browsing in-store.

Peer to Peer Payments Make Brick and Mortar Debuts
While PayPal and Venmo have long been popular options for online checkout, QR code popularity has also made PayPal and Venmo popular payment methods for in-person purchases. CVS is integrating PayPal and Venmo QR codes into store checkouts

Key Takeaway: QRs are back and we’re not surprised. The US has fallen behind the rest of the world in terms of payment processing technology. WeChat codes have been a popular payment method in China for years. We expect this trend to continue and to grow.

7. Self-Checkouts Gain Momentum

Self-checkout, whether through a traditional grocery store checkout aisle, standalone kiosks, or mobile, are gaining popularity due to speed, convenience, and reduced interpersonal contact.

• 79% of customers are using or increasing usage of self-checkout opportunities in stores.
  Millennials and Gen Z continue to be the biggest adopters of self-checkout and contactless options.
• Before the pandemic, Fairway Markets had a 10% adoption rate of their mobile checkout. After the pandemic hit, the adoption rate jumped to 30%, according to CNBC.
• Specialty retailers, such as American Eagle, are taking self-checkout to the next level using geofencing technology, which allows shoppers to complete in-store transactions using their own cellphones.

Key takeaway: Though self-checkouts have been on the rise for years, the pandemic accelerated customer use and retailers pushed to implement new technology at accelerated timelines.

Now & Later: How Shoppers Want to Pay

Though adoption of payment technology by businesses has accelerated rapidly over the past year, there’s still a long way to go before it meets customer expectations. Currently, a majority of shoppers are using chip cards for payment, while messaging, digital wallets, peer-to-peer, and prepaid cards have yet to break a 20% usage rate.

Though currently only 16% of shoppers are using digital or mobile wallets, most (53%) people are interested in using digital wallets as a payment method, indicating businesses have a ways to go in making this technology a user-friendly payment method.

Bottom Line – Convenience Is King

In almost any buying situation, the checkout transaction —or, the last click—can make or break the experience and the sale. The National Retail Federation reports 47% of shoppers want additional convenience through a simplified checkout online, and 56% want it in-store.

If businesses aren’t taking the steps to offer seamless transactions through one-click online payments, order-ahead options, buy now pay later, QR code or peer to peer payments, and self-checkout or self-pay tools, it’s likely you’re missing out on sales.