Small businesses missing out on sales as Xero data reveals a mismatch in consumer payment preferences

London — 14 August 2024 – New research by global small business platform Xero has uncovered a disconnect in payment expectations between small businesses and consumers in the UK when it comes to the ways consumers want to pay and how small businesses want to be paid.

Launched today, Xero’s latest report, ‘I want to pay that way’, delves into changing payment habits among consumers and how small businesses are adapting. Additionally, it looked at the administrative challenges small businesses face when paying suppliers.

One quarter of consumers ditch small businesses if preferred payment methods not offered

In the UK, almost nine out of ten (87%) consumers use credit or debit cards to make payments and three quarters (75%) still use cash to make payments. However, the most common payment method offered by small businesses is bank transfers (73%), followed by cash (60%), and only 55% offering the most preferred method of credit or debit card.

Younger generations are embracing new digital payment methods, with 55% of Gen Z consumers and 49% of millennials using mobile payments such as Apple Pay or Google Pay. Almost half (47%) of Gen Z consumers only take their mobile phone to pay when they go to the shop. Despite this growing demand, only a third (33%) of small businesses offer Apple Pay or Google Pay.

The findings also showed that not meeting payment preferences can have a direct impact on customer retention and revenue. One in four (25%) consumers say they would visit another business that accepts more payment options if a business didn’t offer at least one of their preferred ways to pay.

Kate Hayward, UK Country Manager at Xero said: “As the UK continues to lead in open banking, it's crucial that small businesses recognise and adapt to the evolving payment landscape. Embracing a wider range of payment options, particularly digital methods, isn't just about keeping up with trends — it's about meeting customer expectations and staying competitive in today's market. The growth of digital payments is transforming the way we transact, making it an important requirement for small businesses to bridge this gap and offer the diverse payment options their customers increasingly prefer.”

Early payment adopters realising benefits, while laggards remain unconvinced

The top barriers holding UK small businesses back from adopting new payment methods are:

• not relevant for their business (33%) - this goes up to 42% amongst sole traders
• no clear value/advantage (32%) and
• no demand from customers (31%)

Of the small businesses who adopted new payment methods in the last 6-12 months, a quarter say they have seen reduced times to be paid (25%), as well as increased sales (24%), and less time chasing late payments (22%). These advantages may explain why small businesses are receptive to emerging and future payment trends.

One third (33%) of small businesses in the UK are optimistic about the introduction of biometric authentication as a payment method.

Seamlessly collecting and making payments crucial for small business

As a commitment to delivering on its strategy, Xero is building payment solutions to make it easier for small businesses to make and collect payments more seamlessly, while helping them to maintain a healthy cash flow.

Bharathi Ramavarjula, SVP of Payments, Xero, said: “Understanding how different consumers prefer to pay and giving them the flexibility to pay the way they want, will help small businesses get paid faster and grow their revenue. To make it easier to collect payments, Xero is providing small businesses with more ways to get paid.”

When it comes to paying their supplier bills, over a third of small businesses report that their top challenges are making sure there are enough funds to pay bills (36%) and keeping track of due dates so that bills are paid on time (35%). It's not surprising then that 45% of small businesses spend at least four hours each month managing their accounts payable.

“Managing payments and bills is really critical to help small businesses to be in a stronger position to grow their business and keep pace in what is shaping up to be a transformative decade in payments. That’s why we’re offering an embedded bill payment solution to help UK business owners and their advisors manage, approve and pay their bills seamlessly without having to leave Xero,” Ramavarjula said.

Check out the full report here.

ENDS

Media Contact

Xero Communications UK | Sophie Whitney | sophie.whitney@xero.com

About Xero

Xero is a global small business platform with 4.2 million subscribers. Xero’s smart tools help small businesses and their advisors to manage core accounting functions like tax and bank reconciliation, and complete other important small business tasks like payroll and payments. Xero’s extensive ecosystem of connected apps and connections to banks and other financial institutions provide a range of solutions from within Xero’s open platform to help small businesses run their business and manage their finances more efficiently.

About the report

The research was commissioned by Xero and was conducted by Lonergan Research in accordance with the ISO 20252 standard. Lonergan Research surveyed 6,021 people aged 18 and over across the United States, United Kingdom, Australia, New Zealand and Singapore as well as 2,547 small business leaders (SBLs) across those countries. In the UK, Lonergan Research surveyed 1,015 UK consumers 18+ and 508 SBLs. Surveys were distributed throughout the UK including both capital city and non-capital city areas. The survey was conducted online amongst members of a permission-based panel, between 15 May and 27 May 2024. After interviewing, data was weighted to the latest population estimates sourced from the ONS, NRS, and NISRA.