Payment technologies like digital wallets and Tap to Pay are also gaining traction across the globe. In particular, the behaviour of younger generations, who are moving towards mobile payments – according to Xero’s ‘I want to pay that way’ report – shows that digital payments are here to stay.

Despite the ongoing shift, cash remains an important means of payment for some consumers, particularly those who are older, digitally excluded or living in rural areas. The UK government has introduced legislation under the Financial Services and Markets Act 2023 to protect access to cash, ensuring that people and businesses can continue to withdraw and deposit cash locally. However, unlike countries such as Spain and Norway, and several US states, there is currently no UK law requiring businesses to accept cash as a method of payment.

Ultimately, the future of payments lies in meeting customers’ preferences, offering a variety of convenient and secure options for them to pay. For small businesses, now is the time to think strategically about how to embrace new payment methods, while catering to all customers’ needs – tradition or digital.

Know your customers, industry, and product

When making decisions about payment options, it's important to understand your target audience, industry and the product or service you are offering. Our report shows that consumers continue to change the way they make payments and their preferences vary across purpose, demographic and on the payment location.

Every business is different, so how consumers prefer to pay those businesses is different. For smaller everyday purchases like groceries or coffee, debit or credit cards are the preferred payment option as they offer speed and ease of use at point of sale. For larger transactions like rent, mortgages or larger household bills, consumers prefer direct debit or bank transfers, reducing the risk of late fees and ensuring timely payments. For businesses who use invoicing but want fast, easy in-person payments, they can offer things like Tap to Pay, which lets them accept contactless payments on their phone.

For small businesses using online accounting software, it’s easy to connect multiple different payment methods. For example Xero customers using Stripe can offer payment via credit cards, debit cards, Apple Pay, Google Pay, and now Tap to Pay.

A flexible approach is vital. For example, while three in four UK consumers (75%) still use cash to some extent, almost half of Gen Z (47%) report only taking their mobile phone to pay when physically going to the shops.

Not knowing your customer and how they like to pay for your products or services can lead to a disconnect between the payment methods small businesses offer and those consumers prefer. This is reflected in our report, where over one in three (37%) UK consumers say that not having their preferred payment option available is a top frustration when it comes to making or managing payments. It can also ultimately lead to delays in getting paid, which hinders cash flow.

Keep payment options open

Customers value having different payment options – and when they don’t, it can have negative repercussions for small businesses. In fact, our report revealed that one in four consumers would abandon a purchase and look for another business that offers more payment options if one of their preferred ways to pay wasn’t available.

A major reason for cart abandonment is limited payment options. If a customer’s preferred method isn’t available, they are more likely to shop elsewhere. Offering a variety of payment options ensures that you are creating a more enjoyable shopping experience, increasing the likelihood of purchase completion.

Some payment methods, such as online transfers or direct debit can help to ensure timely payments and quicker access to funds. By providing these options alongside other tools like automatic payment reminders and one-touch payments from an online invoice, you can reduce the risk of late payments and improve cash flow. This impact is reflected in our report findings where ‘reduced time to be paid’ was reported as the top benefit by small business leaders in the UK who have adopted new payment methods in the last 6-12 months.

Be prepared for digital payments

While digital payment methods bring a variety of benefits, concerns around security may be holding some small businesses back from adopting them. Our report reveals that almost one in three small businesses globally cite security as a top barrier to preventing them from offering new payment methods to their customers.

Governments are actively working with industry to improve reliability and security. In the UK, the government is actively working with industry to improve payment security. Initiatives like open banking, supported by the Financial Conduct Authority and the Competition and Markets Authority, are strengthening protections for businesses and consumers, while fostering financial innovation.

Staying ahead of the curve in digital payments requires a proactive approach to security. To alleviate concerns, prioritise strong security measures before adopting digital payments. Implement robust practices like two-factor authentication for added protection, verify customer identities during transactions to minimise fraud and use tokenisation services to reduce your exposure in case of a data breach.

Offering lots of ways to pay 

As we look ahead to the future, small businesses must remain agile and responsive to changing consumer behaviours. Understanding your customers' preferences offering secure and convenient payment options can make the difference between winning and losing a sale.

While cash is still relevant for some consumers and businesses, embracing a wider array of payment methods, including digital options, will pay off in the long run by making your business more competitive and allow you to better serve more customers.

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