How Optimizing Payment Strategies Can Fight Inflation

Here’s how small merchants can mitigate the effects of rising prices while boosting efficiency and pleasing customers.

Inflation is a top concern of small businesses today. A Q4 2024 U.S. Chamber of Commerce Small Business Index revealed that over half (55%) of small-business owners consider inflation costs the biggest challenge they face. In fact, for almost three years running, inflation has been the dominant concern of small businesses.

In July, the U.S. inflation rate stood at 2.8%, a slight decrease from the 3.1% in January of last year. While inflation has eased, that doesn’t mean small-business owners will see an immediate increase in consumer spending or lower prices. With inflation lingering, cost pressures continue to squeeze small businesses, resulting in higher operational costs and reduced profit margins.

As the nation’s 34.7 million small businesses continue to grapple with the persistent impact of inflation, they need to adopt new strategies to drive growth. These strategies must reduce costs, enhance consumer experience, and increase efficiencies.

To help achieve this, small businesses can optimize their payment strategies with robust payment-processing technology that:

• Simplifies payment processing and reduces costs;
• Delivers on evolving customer payment preferences;
• Grows with the business; and,
• Focuses on security

Cutting Costs

Starting with the first item on that list, small businesses can combat rising costs, the calling card of inflation, by simplifying payment processing. This cost-cutting measure bolsters the bottom line without weakening customer value.

There are various ways payment-processing technology can help small businesses cut costs, including transparent pricing, multiple payment options, a cash-discount program, and streamlined integration with existing systems.

The complexity of fees involved in payment processing often results in higher-than-expected costs for small businesses. Transparent and clear information about fees eliminates hidden charges, allowing companies to budget for processing expenses accurately.

Processing technology that allows merchants to accept multiple payment options, including credit cards, debit cards, digital wallets, and online payments, can help businesses cater to the preferences of a wider range of consumers. This can boost revenue by increasing the number of returning customers and attracting new customers.

A cash-discount program is another way to optimize payments. This program integrates processing fees directly into a small business’s pricing structure, allowing business owners to offset the costs associated with card transactions, ensuring a more predictable revenue stream. The program treats processing fees like any other cost of goods sold, ensuring that businesses do not lose money every time a customer opts to pay with a credit card.

Lastly, by seamlessly integrating with existing point-of-sale systems, advanced payment technology automatically adjusts prices to include the cost of card-processing fees. This ensures that every transaction is accounted for, allowing for easier transaction management and lower overall processing fees. The technology also provides detailed analytics and reporting, which gives small-business owners a holistic view of their businesses’ health and full insight into how much they are saving on processing fees each month.

More Methods

With respect to the second item on the list, offering multiple payment methods to cater to customer payment preferences offers value and convenience. Customers want options. Small businesses also derive significant value from offering a variety of payment options. This value accrues from increased customer satisfaction and loyalty, which can boost overall profitability even in an inflationary environment when consumers are tightening up on spending.

In the digital-first era, people are flocking to frictionless, secure payment methods such as mobile wallets. The growth of mobile payments is enabling businesses to prioritize fast, convenient transactions in-store, online, and everywhere in between. Digital-payment gateways break down geographical barriers, allowing small businesses to expand their market reach, boost revenue potential, and increase consumer interaction.

A McKinsey “State of Digital Payments 2024” report revealed that digital-wallet usage is experiencing rapid growth, increasing from 19% of respondents in 2019 to 28% in 2024. According to the report, 74% of U.S. consumers surveyed indicated easier and faster checkouts as a primary reason for using digital wallets, and one in five digital-wallet users often leave home without their physical wallets, relying instead on digital methods to pay and transact in physical locations.

Even though consumers increasingly use digital wallets, there are gaps in merchant acceptance of this form of payment. A Banking and Payments Intelligence report by J.D. Power revealed that only 57% of small businesses now accept digital wallets, compared with 94% accepting credit and debit cards.

The bottom line is that consumer payment preferences are rapidly evolving, and small businesses must adapt to remain competitive and drive growth.

Flexible and Scalable

As for payments technology that grows with the business, small businesses need tailor-made payment technology to handle both change and growth. In other words, payment technology that is flexible and scalable.

Small businesses also need payment-processing technology that is flexible enough to adapt to evolving technologies and consumer payment preferences and scalable enough to support growing transaction volumes and expansion into new markets.

Flexible, scalable payment-processing technologies futureproof payments for small businesses without compromising on speed, efficiency, convenience, or security. These technologies grow with small businesses without requiring major upgrades or cost increases.

The business landscape is not static, and the payment solutions used by small businesses should not be static, either. Merchants must optimize their payment approach with easy-to-implement, customizable payment solutions that can adapt and scale as their needs change.

Fighting Cybercrime

Finally, on security, cybercrime is a major concern for consumers regarding digital payments. A Chubb report on the Impact of Cyber Scams on Trust in Digital Payments found that, worldwide, more than 60% of consumers responding to the survey indicated they have altered their behavior or reduced their usage of digital-payment platforms due to concerns about cyber scams or fraudulent activities.

Fraud risk is also a pressing concern for small businesses. Fraud is expensive for merchants, translating to higher credit card processing costs and chargeback fees. A study from Juniper Research forecasts that merchant losses from online payment fraud will exceed $362 billion globally over a five-year period (2023 to 2028), with losses of $91 billion in 2028 alone.

Payment-processing technology is advancing to combat payment fraud with security measures such as AI and tokenization.

AI is emerging as a critical tool for ensuring the security of payment information. AI boosts the speed and accuracy of fraud detection, analyzing transaction patterns for unusual activity to detect fraud in real time. Mastercard noted that AI enhancements boost fraud-detection rates by 20% on average.

Tokenized transactions involve a process that replaces sensitive payment information, such as credit card numbers, with algorithmically generated numbers and letters called a “token.” When a consumer taps a contactless card or a phone in a store or to make payments in-app or online, the actual card information is never shared. Tokenized transactions reduce fraud risk, reducing false declines and enhancing the customer experience.

Advanced payment processing technology with strong security can help small business owners secure customer payment information, avoid higher credit card processing fees and chargebacks, and protect their bottom line.

Wrapping up

Inflation is a growth inhibitor for businesses. However, optimizing payment strategies with payment-processing technology that simplifies and reduces costs, delivers on evolving customer payment preferences, grows with the business, and focuses on security can help small businesses successfully navigate tough economic times and even drive growth.

A payment-processing partner with transparent pricing that reduces payment complexity and costs, offers the payment options customers prefer and businesses require, and includes advanced security features to combat payment fraud is a partner that small businesses need to remain competitive in good times and in bad times.

 —Austin Mac Nab is founder and chief executive of VizyPay.