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The 4 revolutionary selling tools finally available to SMBs

Key Facts

  • Local retailers face an uphill battle when competing against national brands, but in the last couple of years, many companies have started developing technology for small retailers that was once only available to large chains.
  • A new offering from PayPal lets online sellers advertise on their web and mobile sites the availability of 6 month financing on purchases of $99 or more.1 PayPal Credit® is already available to customers who pay with PayPal, but the banner advertising is new and allows small businesses to access something previously only available to larger retailers.
  • For small businesses, credit card acceptance has never been easier or more accessible. Several companies like Square, PayPal and Intuit are now offering mobile card readers and apps that allow businesses to accept payments through their mobile phones and tablets without having to acquire a merchant account or buy point-of-sale hardware.
  • Loyalty programs, tools to drive customer engagement and gain customer information, have been used for years by the big guys and are finally accessible to small businesses through a variety of companies like LevelUp and Perkville.
  • Big ecommerce companies spend lots of money on combating fraud, but small businesses can get similar protection without the investment through providers like CyberSource and PayPal, which offer fraud detection software and services.

Local retailers face an uphill battle when competing against national brands. They simply don’t have the money that the big guys do to spend on best-in-class marketing and business technology. But in the last couple of years, many companies have started developing technology for small retailers that was once only available to large chains. Innovation in consumer financing technologies, payment card acceptance, e-commerce fraud prevention, and loyalty marketing services, is helping small businesses take on their larger competitors.

Offering Consumers Financing Can Increase Sales

Consumer financing is an often underutilized tool for generating sales. But new products are making it an option for more retailers. Consumers buy more when they can pay later. Large retailers, especially the ones selling “big ticket” items like refrigerators, washing machines, and home theater systems, use this element of consumer behavior to their advantage. They can often afford to offer interest-free financing promotions, or they can partner with banks to issue their own store-branded credit cards. Since the financial crisis, consumers have become more aware of the interest rates they are paying on their credit cards, which makes interest-free financing even more important than before. Small businesses — from retailers to service-based businesses — are usually unable to offer consumer financing because they don’t have enough cash to make loans to their customers, and credit card programs are too expensive and demanding to manage. Also, their small size makes them generally unattractive to the banks that issue store-branded credit cards.

PayPal Credit®, a PayPal service, is an example of a service that helps online sellers offer a financing option to their customers. Shoppers who pay with PayPal Credit® at checkout can qualify for 6 months financing on all purchases of $99 or more.1 Merchants can advertise PayPal Credit financing with banner ads on home, product, and shopping cart pages. These ads are provided by PayPal, deployed with a simple copy and paste function, and shouldn’t require any developer experience. Though PayPal Credit itself has been around for years, the promotional messaging capability is just now being offered to smaller online sellers.

When businesses advertise PayPal Credit to let customers know they have financing options early on in the shopping process, you can encourage larger purchases – and more of them. In fact, a recent study has shown that implementing these banner ads can drive an 18% increase in online sales, as well as an increase in average order size of 15% or more.2 And, according to a recent consumer survey, 30% of PayPal Credit buyers would not have been likely to make the purchase if it wasn’t for the 6-month financing offer.3 That’s not just a boost to their PayPal sales, but a bump in their total online sales because with more time to pay, their customers are spending more.

Mobile Point-of-Sale Devices Open Small Merchants to Card Sales

Credit and debit card acceptance is the most well-known example. Until recently, the ability to accept credit and debit cards was not available to all merchants. Some small businesses don’t have enough sales or a long enough history to qualify for a merchant account. In addition, many small businesses have struggled to justify the cost of card acceptance, even when it is an option. The cost to purchase a point-of sale-terminal and the recurring monthly account fees can easily get into the thousands of dollars.

Just within the last year or so, dozens of companies like Square, PayPal, and Intuit have developed mobile card readers and apps that make accepting payments affordable for small businesses. These are devices that business owners and store employees can plug into their smartphones and tablets to swipe customers’ cards. They are simpler and much less expensive than large point-of-sale (POS) terminals (sometimes even free), and even support accepting checks and cash like their POS brethren. Plus, the companies that provide them often charge more predictable fees than some merchant services providers. Moving beyond simple card acceptance, these providers are working to popularize consumer payment apps that work with their mobile card readers. For example, with the PayPal mobile app, a consumer can walk into any business that accepts PayPal and pay by “checking-in,” without having to pull out and swipe a credit card.

The development of these technologies is a great benefit to retailers because it enables them to offer customers the much appreciated, and often expected, convenience of broader and faster payment acceptance.

Loyalty Programs Drive New Business and Strengthen Your Customer Relationships

Some of the companies that provide the most economical credit card acceptance services combine them with automated loyalty programs. Providers include LevelUp, CardFree, and Swipely. LevelUp, for instance, has developed a tablet-based card acceptance solution that also tracks and applies the retailer’s discounts when consumers make a purchase.

Other companies like Perkville, Belly, Perka, and RewardLoop focus entirely on providing loyalty services to small businesses. In general, these solutions are pretty versatile. Retailers can use them to attract new customers, turn occasional customers into loyal customers, and keep their loyal customers satisfied. RewardLoop has developed a digital version of loyalty “punch cards”; but they, and other providers, also have programs with more opportunity for retailers to craft detailed promotions. RewardLoop merchants use a point-of-sale adapter to print QR codes onto their receipts. Customers scan them with a mobile phone to redeem loyalty points on the company’s mobile application. The power of each of these solutions comes from their ability to track offer redemption to unique customers. This helps retailers get to know their customers better, and allows them to evaluate the effectiveness of their promotions. All retailers want to reward their most loyal customers, and now small merchants have access to technology that can help them manage customer data on an individual basis.

Combating Fraud to Limit E-commerce Risks

Fraud is another concern for retailers, especially those selling products online. The Internet connects small businesses to customers around the world, but the anonymity creates opportunity for abuse. National retailers spend hundreds of thousands if not millions of dollars every year on technology that helps them detect when a potential customer is using a stolen credit card or is part of an organized crime ring. The risk is perhaps even greater for small businesses. Accepting even one fraudulent order can put you out of business if it’s large enough. Local retailers shouldn’t experiment with e-commerce without first looking into the number of applications that can help them manage the risk.

As consumers have embraced online shopping, more businesses are venturing into cyberspace. Fortunately, many e-commerce companies that service small- and medium-sized businesses either sell fraud detection software or provide fraud services as a component of their offering. For instance, CyberSource and PayPal, two merchant services providers, both offer solutions that filter transactions through a variety of screening criteria to help prevent fraud. Both companies give users the flexibility to customize the filters to target specific threats to the business. Also included is the ability to check for things like discrepancies between the customers IP address and shipping address, the Card Code Verification (CVV) number (the three or four digit security code on a credit card), and when several orders are submitted in rapid succession. Online retailers that use these tools stand a much better chance against fraudster’s attacks than those that go it alone.

Conclusion

The battle between local and national retailers might never be a fair fight, but there are several ways that smaller shops can use technology to become more competitive. Consumer financing, card acceptance, loyalty services, and fraud detection technology are becoming accessible to retailers of all sizes for the first time. Not every new technology makes sense for every business, but these innovations are so central to retail operations that business owners should consider them carefully. New card acceptance and fraud prevention technologies both help businesses contain costs, while loyalty and consumer financing services drive revenue. Smaller retailers that take advantage of both kinds of technology greatly improve their chances of successfully taking on their national competitors.

About Mercator Advisory Group

Mercator Advisory Group is the leading, independent research and advisory services firm exclusively focused on the payments and banking industries. We deliver pragmatic and timely research and advice designed to help our clients uncover the most lucrative opportunities to maximize revenue growth and contain costs. Our clients range from the world's largest payment issuers, acquirers, processors, merchants and associations to leading technology providers and investors. Mercator Advisory Group is also the publisher of the online payments and banking news and information portal PaymentsJournal.com.

About PayPal

PayPal is the faster, safer way to pay and get paid online, via connected devices and in store. The service allows people to send money without sharing financial information, with the flexibility to pay using their account balances, bank accounts, credit cards or promotional financing. With more than million active accounts in 202 countries and 25 currencies around the world, PayPal enables global commerce. PayPal is an eBay (NASDAQ:EBAY) company. PayPal is headquartered in San Jose, Calif. and its international headquarters is located in Singapore. More information about the company can be found at www.paypal.com.

1 Applicable for qualifying purchases of $99 or more if paid in full within 6 months. Customers check out with PayPal and use PayPal Credit. PayPal Credit is subject to consumer credit approval, as determined by the lender, Comenity Capital Bank.

2 August 2013 commissioned study conducted by Forrester Consulting on behalf of PayPal entitled "The Total Economic Impact of PayPal's PayPal Credit Financing Banners." Data reflects a composite organization's online incremental sales and a 3-year, risk-adjusted return on investment, based on the organizations interviewed for the study.

3 September 2013 comScore online survey of 2,023 PayPal/PayPal Credit buyers.