Barriers to payment innovation prove challenging for Kiwi small business owners.

New research by Xero has revealed payment convenience is key for Kiwi consumers, but barriers such as expensive fees are turning off small businesses from embracing new digital methods.

Launched today, Xero’s latest report ‘I want to pay that way’, delves into the changing payment habits among consumers and how small businesses are adapting.

Three quarters (75%) of New Zealanders typically use their physical bank card to pay in store, while one in seven (14%) take only their mobile phone to pay in store. Cash is one of the least used – only 8% of Kiwis have cash readily on them to pay in store.

However, small business owners say they have a much higher reliance on cash payments, with 72% believing if cash disappeared tomorrow, it would have an impact on their business.

Bridget Snelling, Aotearoa New Zealand Country Manager at Xero, says it’s essential for Kiwi small businesses to consider their digitalisation options when it comes to customer payment methods.

“Aotearoa New Zealand has a long history of embracing innovative payment solutions, starting with the introduction of EFTPOS, which made us an early leader in digital payments. As technology continues to evolve and convenience remains king, it’s important we continue to progress in this direction,” says Snelling.

Payment preferences shifting

From a consumer perspective, it appears payment preferences are starting to shift – a quarter of Kiwis use Apple Pay or Google Pay to make payments, with younger generations leading the way in mobile payments.

Looking at Gen Z in particular, 48% of these consumers use Apple or Google Pay to make payments, compared with 28% of millennials, 17% of Gen X and 11% of Baby Boomers..

But small businesses are slower to embrace this technology, with only 17% of Kiwi small businesses offering Apple Pay and/or Google Pay payment facilities to their customers.

Read more: Xero’s small business winners at Beautiful Business Fund 2023

“It’s clear there is a strong preference for using digital payments by Kiwi consumers. Despite this, small businesses across the country are keen to hang on to cash payments, creating a mismatch between consumer desire and small business payment capabilities,” says Snelling.

Just one-third (39%) of Kiwi small businesses have adopted a new payment method in the last 6 – 12 months, while 87% of Kiwi small business owners say there is a barrier preventing them from offering new/different payment methods to their customers.

Expensive fees limited almost one-third (32%) of Kiwi small businesses from embracing new payment methods, while a quarter either see no clear advantages (28%) or believe it’s too complex/time-consuming to set up (26%).

For those Kiwi small businesses who have adopted new payment methods, the most popular reported benefit is reduced time to be paid (19%), followed by increased sales (16%) and reduced time chasing payments (14%).

The move to digital payments also has a broader benefit for the New Zealand economy.

“Our work with the New Zealand Institute of Economic Research shows a 20% increase in the number of businesses adopting cloud-based business tools in the future could add up to $7.8 billion to Aotearoa’s annual GDP through improved productivity,” says Snelling.

“It’s essential we support small businesses to embrace digital tools to unlock their full economic potential.”

Check out the full report here.