Digital payments: helping UK businesses grow

Posted On: 
17th December 2018

How is value created by digital payments? Peter T. Dunn explains.

In an age when the digital economy is making it easier for consumers to shop across borders and for retailers to maintain and grow their businesses, the value of digital payments is rarely fully appreciated.

Digital payments provide retailers, non-profits, governments, consumers, and financial participants with substantial value, especially compared with traditional payment methods. Physical payments, such as cash or cheques at the point of sale, are rapidly being replaced by digital payments, fundamentally changing where consumers spend, what they buy, and how they shop.

Today’s consumers are demanding faster and more convenient ways to pay; and retailers must embrace new payment methods to maintain and grow their businesses.

Governments too are considering ways to reduce the use of physical payments, both as payers and acceptors, in order to create efficiencies and increase recorded economic activity and tax receipts. As such, there is a lot of discussion about the total cost of accepting digital payments compared with traditional methods. However, to concentrate only on acceptance costs ignores at least half of the overall cost-value relationship.

How is value created by digital payments?

To delve deeper into this issue, Mastercard recently commissioned a study: ‘Illustrating the Value Provided by Electronic Payment Products to European Merchants’. The research took a close look at data in nine European countries: Italy, Germany, the United Kingdom, Sweden, France, Spain, the Netherlands, Poland, and the Czech Republic. The study was subsequently expanded to over 30 countries.

These analyses focus on the value provided to retailers and compare it to their overall cost of acceptance — costs from the point of sale to the depositing of funds in the merchant’s bank — including: equipment; labour; security; losses; merchant service charges; and other related costs. The findings illustrate that, globally, the value created by the use of card payments far outweighs the total cost of acceptance, with the value provided being more than double the total cost for credit and debit card transactions.

Value is created for a business through a combination of factors: additional revenue; larger margins and profits from sales to existing and new customers; cost efficiencies in the delivery of existing and new products; and improved customer experience and reputation through the adoption of innovative sales, marketing and processing. Digital acceptance provides these benefits by:

  • Not limiting customers to cash in hand: On average, debit and credit transactions are two to four times the size of cash transactions at the point of sale. In addition, new acceptors of card payments usually see a 10-15 percent increase in their average transaction size, linked to value and volume.
  • Giving retailers access to a global customer base and vice versa: For example, about 15 percent of sales are from cardholders from outside of the UK or from European cardholders making cross-border transactions.
  • Allowing retailers to make sales that would not be practical or even possible using cash or cheques: According to recent research carried out by Mastercard, 57 per cent of consumer spending in the UK now takes place online, with 27 per cent taking place on a smartphone or tablet.

Beyond these revenue-related benefits, acceptors of digital payments receive additional value through:

  • Prompt, guaranteed transactions: Digital payment products provide a guaranteed sale and prompt payment via electronic processing and authorisation that the transaction and its payment are the result of legitimate activity.
  • Cost efficiencies and security: Digital payments minimise the need for counting, safeguarding, and storing physical currency, and limit losses from lost or stolen cash. Queues become shorter, resulting in fewer lost sales.
  • Innovations in technology: Unattended terminals, mobile payments, tokenisation, biometrics, machine learning, and added security features are also providing additional access, incremental volume and cost savings to retailers of all sizes.

It is evident that digital payments bring considerable value to retailers and their customers through increased sales, convenience, and, above all, security benefits that far offset the total cost of acceptance. Industries that utilise digital payments have seen substantial growth over the past few years — and this growth is expected to accelerate as e-commerce expands — adding to the amount of incremental sales.

Ultimately, it is important that all parties understand the benefits provided digital acceptance in order to create an environment of legal certainty and a well-functioning marketplace.


Peter T. Dunn presently provides global advisory services through Peter T. Dunn & Company. He was a founder of the management consulting firm, Edgar, Dunn & Company. He has over 40 years of experience in strategic consulting in payments.