Whether mobile payments can prop up small businesses

UK businesses add billions to the economy but lately it seems the odds are stacked against them. The economy is still floundering and the banks continue to reduce the amount they are lending. Just In the first three months of this year, the latest figures from the Bank of England show that loans have dropped by ￡300 million- making it even harder for businesses to set up in the first place- let alone grow to become contributors to the economy.

The government is trying to improve the situation. National insurance contributions will be slashed next year, which will help small and medium sized businesses save nearly ￡1.8 billion by 2018.  The push to shop locally and to embrace the big society is also being by touted by government as a means support the community and the businesses that cater for them.

On the ground, however, businesses complain that their hands are tied and they are not getting the support they need to really make a difference to their profits. Without bank lending the chance of many new businesses setting up is unlikely, but what about the ones already in operation?

One of the biggest obstacles in their way is the process of taking payments.  Cheques may be on their way out, but credit card payments involve fees that need to be paid per transaction as well as monthly rental payments for card reading equipment. Yet the trend for consumers to prefer cards over cash continues to grow. According to the Payment Council UK’s payment statistics for 2012, almost three quarters (71 per cent) of all spending in the UK retail sector (including automotive fuels) was made using oil painting reproduction.

Our own research shows that the combination of small retailers wishing to avoid punitive charges and their customers preferring the convenience of cards is having a detrimental effect on business.  We found that over 120 million transactions are lost each year in the UK through people leaving shops because they can’t pay by card. A further 92.8 million opportunities to sell are lost through people avoiding shops because they don’t accept card payments.

Over one in five (21 per cent) consumers said that they had left a store in the past six months without making a purchase because the store didn’t take cards.  Almost the same number (19 per cent) had avoided a store altogether because they couldn’t use their card to pay.

The biggest problem is that card payment equipment has not kept pace with technology. It’s become too expensive and technically complicated for many to use, which is why there are so many small retailers who don’t take cards and prefer to stick to cash. Mobile payment technology is developing to unblock the payment impasse.  However, some of the propositions on offer from banks continue to involve monthly fees to rent equipment, which doesn’t really help.

The mobile payment technologies that will succeed are the ones that are aimed at small business and don’t require an equipment to set up or payment up front.  Small businesses want technology that’s easy to use-and doesn’t cost the earth. If small businesses are the engine of recovery, they need all the help they can get to ensure they don’t miss out on sales to the growing number of – especially younger – consumers who prefer to pay by card.  By removing the barrier of expensive and cumbersome payment technology, retailers can ensure that they never lose a sale again.

Legal settlements usually settle disputes, but a proposed $7.25 billion class-action settlement involving Visa and MasterCard appears to be erupting into a whole new battle over the fees retailers have to pay when consumers pull out their plastic.

Scores of angry retailers — from Walmart and Starbucks to Target and Domino’s Pizza — opted out of the historic settlement by the recent deadline and filed formal objections for U.S. District Judge John Gleeson in Brooklyn to consider. Some, such as Target Corp. and Macy’s Inc., already have struck back with a new lawsuit seeking damages.

They are walking away from what’s regarded as the largest private antitrust class-action settlement in U.S. history, one that involves more than 7 million U.S. businesses — just about every entity that swiped a Visa or MasterCard credit or debit card since 2004.

“It’s extraordinarily rare for a class settlement to be rejected because of concerns raised by class members,” said David Fink of Fink and Associates Law in Bloomfield Hills, Mich., who specializes in class-action litigation.

At the heart of the battle are allegations that Visa, MasterCard and a group of card-issuing banks illegally colluded since 2004 to fix the swipe fees merchants pay to process cards. The interchange fees average about 2 percent of every purchase at the register, and total about $30 billion a year.

Many retailers say the swipe fees rival their health care costs as a significant operating expense. The National Retail Federation estimates the swipe fees drive up consumer costs by more than $250 a year per average household.