This week’s payment news roundup covers the latest in credit card usage, the continuing growth of buy now pay later, how retailers can reduce false declines while still preventing fraud, and trends in SMB payments.
US credit card use returning to pre-pandemic patterns, NY Fed report finds
The payment industry knows that credit card use usually reflects a seasonal pattern. Balances tend to show “modest” increases in Q2 and Q3, and then a more substantial increase in Q4. Q1 of the next year is when consumers generally reduce those balances by paying off their holiday spending.
Reuters shared findings from a Federal Reserve Bank of New York report that showed US credit card use is returning to pre-pandemic patterns. After scaling back spending during the pandemic, consumers are beginning to ramp up their credit card balances again. However, balances were still $123 billion lower than at the end of 2019.
Deep dive: how buy now pay later is revitalizing retail and the economy
This month, PYMNTS.com took a deeper look at the effects of the current buy now pay later (BNPL) trend. While BNPL may strike some consumers as being similar to “layaway,” the difference is that consumers using BNPL can take their purchase home with them immediately, rather than having the store put them aside until they are fully paid for.
PYMNTS.com noted that, since the start of 2020, consumer spending using BNPL options has increased by 230%, and culminated in “shopping basket sizes up to 17% higher in value.”
The report suggested that adapting to consumers’ new payment preferences, such as BNPL, is crucial for business post-pandemic recovery and survival. A survey found that 63% of SMBs in the retail trade sector cited BNPL programs as having been vital to their pandemic recovery. On the other hand, only 2% of SMBs who did not offer BNPL programs reported recovering fully.
Learn more about the rise of buy now pay later with our recent infographic.
Preventing fraud and minimizing false declines is possible for retailers...here’s how
As payment technology has improved over recent years, so have the techniques used by fraudsters. The Federal Trade Commission (FTC) received 2.2 million fraud reports from consumers just in 2020. However, some of the security features retailers put in place to prevent fraud can also end up leading to “false declines” - where a legitimate customer is incorrectly labeled a fraudster and their transaction is denied.
PaymentsJournal took a look at how retailers can prevent fraud and also minimize the number of false declines. It’s estimated that, depending on the industry, anywhere from 30% to 65% of all declined transactions are actually legitimate. Worldwide, this represents over $640 billion in lost revenue for retailers - shoppers are likely to take their business elsewhere permanently after one false decline.
False declines often happen on high-ticket purchases or to new online shoppers. PaymentsJournal suggests that businesses should use “a fraud prevention tool that provides access to knowledge and insights gained from a wider set of data across enterprises, banks, payment providers, geographical locations, and industries to gain a more accurate view of legitimate consumer behaviors and interactions from the very first time a new customer has an interaction with a retailer.”
How to fix the $360 billion small business late payments problem
PYMNTS.com released a report on Fixing Small Business Payments. For small-to-medium businesses (SMBs) in the US, on average, 38% of their total revenue comes from ad-hoc payments, which are defined as “a non-recurring payment received from a buyer with which a company has had no ongoing business relationship.”
However, 30% of ad hoc vendor payments are received late, causing cash flow issues for SMBs. To encourage buyers to pay on time, SMBs even spend a collective $28 billion offering discounts of up to 4.8% - but many of their ad hoc vendor payments continue to arrive late despite these discounts.
The report also noted that “only 9% of all ad hoc payments SMBs receive are paid instantly, even though 75% of SMBs want to do business with buyers that offer free instant payment capabilities.”
Our guide to digital B2B payments provides more info on vendor/supplier payment options.
One-third of small businesses plan to automate accounts receivables by 2025
Pymnts.com and American Express released their Optimizing SMB Payments Report. They noted that 34% of SMBs are prioritizing investment in automated accounts receivables (AR) over the next three years. One reason for this focus is that B2B customers increasingly expect to be able to use the same digital payment methods they prefer in the B2C realm.
The report also found that businesses with highly automated AR processes take far less time to follow up on late payments, and that automation helps businesses get a better handle on their cash flow.
Whether you’re interested in the latest in payment technology, or just want to stay up to date on the latest payment trends, we can help. For the latest payments industry news, make sure to subscribe to our blog.