Digital Payments Deliver Competition-Critical Data for SMBs in Connected Economy

The future of digital payments is, in many ways, already here.

What is left is the need for businesses to adapt to this rapidly shifting consumer landscape by leveraging the increasing popularity of digital payments, particularly among younger consumers.

“There’s a huge opportunity for small businesses and mid-size businesses, and even large businesses, to continue to embrace moving away from checks and adopting other payment methods,” Jill Capicchioni , product director, payments at NCR Voyix , tells PYMNTS.

While, according to research from NCR Voyix and PYMNTS Intelligence, 27% of small businesses still rely on traditional payment methods, Capicchioni believes that education and awareness are key to encouraging the adoption of digital payments.

Many businesses continue to use checks due to familiar cash flow practices and the perceived financial incentives associated with delayed payments. Financial institutions, as trusted advisors to businesses, can play a vital role in educating them about the benefits and risks of different payment methods, she said.

But isn’t just the form and function of payments that is being reshaped by new innovations.

The underlying concept of transacting itself is being redrawn by the hands of advanced payments technologies.

“I’m surprised by how many small businesses now will take a card payment,” Capicchioni said. “When I have a contractor in my house and I ask them how they want to be paid and they tell me I can pay with my credit card, I get pretty excited.”

“Businesses are starting to recognize that the opportunity cost to get that payment immediately on a card outweighs the fees that they might pay,” she added.

A Rapid Adoption of New Technologies

With eight in 10 Generation Z and millennial consumers opting for digital wallets and contactless alternatives to traditional payment methods, it is clear that digital payments are experiencing a surge in popularity.

That’s because future of digital payments holds immense potential for enhancing convenience, security and financial decision-making for consumers and businesses alike. But it also needs buy-in from both sides of the transaction.

Capicchioni emphasized the importance of financial institutions in adapting quickly to embrace digital payments. She believes they can support businesses by educating them about the various payment methods available and helping them bridge the gap between traditional and digital payments.

“We forget that the old-school check is fraught with fraud opportunities,” she said.

But aside from the security, convenience and ability to meet consumer expectations that digital payments offer, they separately create valuable, data-rich payment environments that can be mined for greater insights that support better products and payment experiences.

Data is the Future of Payments

There is an immense and untapped potential for data analytics and emerging innovations like artificial intelligence (AI) to be applied to tailoring digital payment solutions to meet evolving consumer needs and preferences.

“The opportunity with data and AI is huge … And as it relates to money movement in general, there’s a huge opportunity where that data and predictive analytics can be used to educate the business customer or consumer on potential future cash flow problems,” Capicchioni said, adding that data analysis can support and monitor spending habits, and offer personalized recommendations on bill payments.

Financial institutions themselves can leverage data to enhance customer experiences and provide valuable insights to help consumers make informed financial decisions, she said.

“There’s a huge opportunity around the data that is already there, and just being able to analyze it and provide that user-friendly feedback on how it can be used,” Capicchioni said.

Leveraging data analytics and AI technologies can also empower financial institutions to play a crucial role in mitigating fraud risks associated with new payment rails.

Looking ahead to 2024, Capicchioni predicts a continued evolution of innovations like real-time payment networks, albeit at a relatively slow pace.

“I am cautiously optimistic about our new real-time payment rails,” she said, noting that the irrevocable nature of instant payments makes it a “prime target” for fraud.

The adoption of external account transfers and the potential for small business adoption of real-time payment rails are other areas of interest highlighted by Capicchioni, particularly around the practical opportunities they offer for improving the overall payment experience.