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It is easier than ever for businesses in the UK to accept payments online but deciding on the best payment methods and card processing solutions is not so simple.
Each year more payment methods are available (i.e. global and domestic debit and credit cards, digital wallets, open banking etc) and companies offering online payment processing solutions. This article will provide a summary of the main online processing options for small businesses in the UK and help you decide which are best for your specific business.
Credit and debit card payments are by far the most popular payment method in the UK. In 2023 direct use of debit and credit cards accounted for 74% of the transaction value of in-person payments and 48% of ecommerce payments.
They are also used indirectly via digital wallets which account for 14% of the transaction value of in-person payments and 28% of ecommerce payments in 2023. Of the card schemes used, Visa or Mastercard dominate and account for approximately 91% of all online payments in the UK, either from direct payments or via digital wallets.
Transactions made by card are more expensive than bank transfers and direct debits due to the number of intermediaries involved. These include the merchant bank, the card scheme and the card issuing bank. There are also other monthly and one-off costs involved which are listed in our guide to card processing fees.
Key considerations of card payments are PCI compliance, fraud and authorisation rates.
Digital wallets
They are also known as pass-through wallets and are open, semi-open, or semi-closed, crypto. Pass-through digital wallets like Apple Pay and Google Pay are the most popular and growing their market share.
UK usage of digital wallets for in-person payments is forecast to more than double from 14% in 2023 to 27% in 2027. They are even more popular for e-commerce transactions and forecast to be used in half of all online UK transactions in 2027, up from 38% in 2023.
You can think of a digital wallet as a software wrapper containing encrypted details of debit and credit cards. They remove the need for a physical card by tokenizing a consumer’s card details and sending them to the card network and issuer for processing. They make their money by taking a small fee from the card issuer or network but consumers don’t have to pay anything extra to use them
They can help reduce failed payments by filtering out expired cards for the payer and add a layer of encryption to reduce fraud. This alleviates some of the PCI-DSS compliance burden from merchants. The three main digital wallets that consumers like to use in the UK are:
Google Payments is perhaps the most relevant because it has the broadest reach in terms of devices, so this is the one many sellers integrate first. Geography matters here, because Chinese customers may expect Alipay, while Indian customers are keen to use Google Pay.
Open banking is a more direct way to accept payments in terms of cutting out intermediaries. Through APIs connected to banks and payment providers, a secure transaction can occur directly from the customer’s bank account. This is typically done in banking apps, a payment link, or a QR code.
Account to Account (A2A) payments are increasingly being used in the UK but still only account for 7% of transactions in the UK. This small market share is not predicted to rise any time soon despite government initiatives to increase its adoption. Some notable A2A providers in the UK include:
Bank transfers
Bank transfers are another low-cost way to accept online payments, so long as it isn’t international. In Europe, SEPA (Single Euro Payments Area) is the standard, being reliable and affordable. However, it should be noted that bank transfers can sometimes be a little slower, particularly for first-time transfers, but they’re very useful for recurring transactions (i.e. subscriptions). Because they can be a little clunky for customers, they’re typically used for domestic B2B payments.
In the UK, there are two types of bank transfers: BACS and CHAPS.
BACS is typically for smaller and/or regular payments, like direct debits. It can take a couple of days because they’re processed in batches. Slower, in this case, means cheaper.
CHAPS is for either urgent or high-value transfers, such as large business payments or a property purchase. Unlike BACS, these are real-time and same-day transfers.
Direct debits are a form of bank transfer where customers’ bank accounts are used to schedule regular payments. The customer only approves them once, reducing friction and cost. As they remove the chance of card expiration, the higher authorisation rate is also a benefit.
BNPL is where customers make purchases instantly but without transferring the payment in full. Instead, the provider, such as Klaner or Afterpay, pays you on their behalf. The provider will then collect money from the customer at a later date or in instalments, sometimes interest-free.
The BNPL provider takes on the burden of credit checks, invoice chasing, and credit risk instead of the seller. As a result, BNPL providers typically charge higher fees than standard card processing but have also proven to help convert sales. RBC Capital Markets once estimated that BNPL payments increase conversion rates up to 30%, and lift average ticket size to 50%.
Although there are millions of cryptocurrencies, Bitcoin, Ethereum, and a few others are primarily used for online payments. Providers like Coinbase Commerce and BitPay help facilitate wallet-to-wallet transactions. It is possible to accept payments without a provider, but more risks are introduced.
When accepting online payments, you’ll need a merchant account and a payment gateway.
The payment gateway connects your website to the payment processor (a little bit like a card terminal in a high street shop), where the customer can enter their card details.
Most online payment methods (i.e. bank-to-bank, digital wallets) will typically be integrated via your payment gateway – through pre-built support via API or plugin.
Payment gateway providers include:
When choosing a payment gateway, consider the monthly and per-transaction fees, but also the payment types they support.
A merchant account is the bank accounts that allow you to accept card payments. They’re a temporary holding space for money where it can then be moved to your general business bank account.
A full-service payment processor is an all-in-one solution for accepting payments while keeping your business secure and compliant. They bundle a payment gateway and merchant account into one package.
Full-service payment providers include Worldpay, TrustPayments, and Opayo. They can help simplify the process of accepting online cards and likely even provide additional services like virtual terminals. However, you’re tied into their ecosystem which may lack customisation options.
E-commerce platforms like Shopify, Bigcommerce and Magento are an all-in-one shopfront and payment solution.
This option has the minimum amount of technical overhead, as the checkout page and payment gateway have pre-integrated options.
Open-source e-commerce platforms (e.g. Magento, Opencart, Prestashop) often support third-party payment gateway plugins. These are a relatively low-code way to integrate a broader selection of payment gateways and acquirers, potentially getting you a better deal.
Closed-source providers like Shopify typically have their own integrated payment solutions, like Shopify Payments, but sometimes also allow third-party integration. For example, businesses using the Worldpay eCommerce package can integrate with Shopify via the Worldpay Shopify plugin.
Another option is to choose an acquirer-agnostic payment gateway that is paired with a separate merchant account. For example, Total Processing can be used for your gateway, and an acquirer like Worldpay for your merchant account.
This approach can offer more flexibility, as you can select the best options for payment processing and merchant services based on features and rates. It’s a more complex setup, and can even lay the groundwork for payment orchestration, particularly when working with multiple acquirers.
If you have an established site and would only like to integrate a shopping cart, you have many options. When using WordPress, the likes of WooCommerce can be integrated via a plugin. Here, many pre-built and easily customisable checkout pages can be created. Outside of WordPress, Snipcart or Ecwid can be integrated into most websites easily.
These will manage product listings and order management, but you will still need a payment processor to handle the transactions. This is often suited to businesses who don’t want to use an expensive e-commerce platform like Shopify, yet want a low-code solution for a modern checkout page.
A payment link is a way to collect payments without having a website or hosting a checkout page. By sharing a link, the customer is taken to a secure checkout page hosted by the payment link service provider, such as Square, PayPal or Stripe. A payment link could be shared via WhatsApp, email, or even just hosted on a simple website. Ultimately, it just means not hosting the checkout page yourself.
This can work well for subscriptions, with log-in account workarounds such as the customer receiving a one-time password via email (popular among coffee and newsletter subscriptions). This way, an account can be managed without the merchant ever hosting their sensitive log-in information.
Email invoices with a “Pay Now” button embedded can be useful for speeding up the payment of invoices. This is useful for service-based businesses that use invoicing. This functionality is offered by most payment processors for an additional monthly fee and transaction rates will be the same as those offered for online payments.
Pay by bank uses open banking technology that facilitates bank-to-bank transfers without needing a card. Providers like TrueLayer and GoCardless will send customers to authorise the payment from their banking app. Again, no website is needed, as you can send a payment link or QR code via email.
QR code payments can occur in many ways, but all of them use a QR code to share the payment information. Once scanned with a smartphone, the customer will either be taken to a web address (payment link) or taken to an in-app payment (e.g. if the QR code was for WeChat). PayPal and Square provide QR code payments, and these take customers to a standard checkout page where they can pay via card.
A virtual terminal allows you to accept card payments over the phone. The customer reads aloud their card details while the sales agent types them in manually into a secure, web-based interface. This is useful for handling phone bookings, but card-not-present transactions can incur higher fees due to a risk of fraud.
The rate offered to your business to accept online payments will depend on a broad range of factors such as your sales volume, business type and average transaction value. The card type used and the location of the person paying will also affect the rate applied to the transaction.
Generally, online card payment fees are higher than in-person fees due to the higher risk of fraud. Meanwhile, credit card fees are higher than debit card fees due to credit risk, as well as the higher processing costs and consumer protection regarding chargeback rights.
Payment processing fees
Payment processing fees are made up of three primary components:
Incidental Fees
Incidental fees are charged by the payment processor and include early termination fees, setup fees, PCI compliance fees, chargeback fees, and refund processing fees. Some are charged monthly, but others are triggered by specific events.
The Minimum Monthly Service Charge (MMSC) is also important to consider for small online sellers. It’s the minimum amount charged, meaning that if your sales are below the minimum threshold, you pay the MMSC, which could be somewhere in the region of £5 to £25.
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Compare preferential rates and card processing offers from the UK’s leading merchant account providers
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Your details will not be shared
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