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Cash Only? Not Anymore! Mobile Payment Options for Small Businesses

Laurel ShaneSep 18, 2012

Should you use a mobile device as a cash register?
Not long ago, most small businesses were faced with a tough choice: How do I accept payments? If you only took cash, your customers would be limited by the amount of cash they happened to have in their wallets (plus, having a lot of cash around could be dangerous for you). If you took checks, you would have to deal with delayed deposits and bounced payments. And if you accepted credit card payments, you’d have to purchase an expensive credit card reader, which comes with a monthly fixed fee plus per transaction fees. These choices all had significant downsides.

Nowadays, though, many small businesses are turning to smartphones for an easy solution. Several companies have come up with simple ways to accept electronic payments without having to buy a credit card machine, which can range from around $150 to $450. The new companies take a smaller percentage of sales and offer extra features like analytics and customer incentives.

What are your choices?
Several companies have developed apps that allow merchants to use their smartphone or iPad like a cash register. For example, Square, which was created by a Twitter founder, sends users a small reader that can be plugged in to the headphone jack. Customers simply swipe their credit card and sign the screen with their finger. Merchants pay a flat percentage on these transactions. Square is the most well known company offering this service, but the idea is catching on; several competitors already exist, and online payment giant PayPal is currently in beta testing on PayPal Here, a similar service.

The payment device doesn’t have to be your phone or iPad—it could be an app on your customers’ smartphone. Users of LevelUp, for example, link their credit card to the app, and then get an individualized QR code that can be scanned by participating merchants (using either the merchant’s smartphone or an optional standalone scanner). Google Wallet allows customers to scan their phone with a contactless reader (for which merchants pay a monthly fee and a percentage of sales).

What are the advantages?
These new payment services are great for customers, who no longer have to worry about having enough cash or carrying a bunch of credit cards around. The services are also great for merchants, who can offer electronic payment options without paying huge fees.

Another advantage for merchants is that mobile payment apps come equipped with user-friendly analytics, so business owners can easily slice and dice the numbers. Want to know which cashier makes the most sales? Easy. Want to see what time of day you’re busiest? No problem. Want to compare business volume by day? By week? By month? Now you can. You won’t get any of that from a credit card reader.

What are the disadvantages?
The downside of mobile payment options is that merchants still have to pay a fee, although usually a lower one than they would with a regular credit card reader. For companies that do a high volume of business, such as grocery stores, mobile payment is probably too slow, since it takes longer than a regular cash register. For companies that sell expensive items, such as furniture stores, the flat fee may end up costing more than a regular credit card reader would, because readers usually take a lower percentage on high-cost transactions.

Should you try it?
But accepting mobile payments may be a savvy move for small businesses such as cafes, food trucks, farmers’ market stands, flea market vendors, boutiques, art galleries, house painters, movers, massage therapists, hair stylists, and many others. If you’re a cash-only business—or if you’re drowning in credit card fees—mobile payment services are worth checking out.

Are you thinking about using a mobile payment service? Are you using one now? Do you recommend it to other small businesses? Please share your thoughts with us.