Payment Methods

Offering the payment methods preferred by your customer base can boost top-line revenue and increase customer satisfaction. About one in seven consumers said they would abandon their shopping cart if their online preferred payment method isn’t available (67% according to a survey of 8,507 consumers in the UK, US, France, Germany and Australia and 69% from a survey of 2,000 UK consumers). 

This article will look at the main payment methods used for transactions made online and in person so you can reduce your cart abandonment rate, increase the average order size and potentially decrease processing fees. 

Market share for payment methods in the UK

Despite there being more methods of payment and more alternative currencies, card payments will continue to dominate in the UK in the foreseeable future – particularly when done through digital wallets. Given this, it’s important for UK-focused businesses to use a payment processor that optimises authorisation rates for cards (and with low card processing fees).

Source: Worldpay 2024 Report

POS financing: Credit extended to consumers at the point of sale. This includes credit offered by retailers, by financial institutions, and by third-party BNPL services such as Klarna and Afterpay.

Cash

The use of cash continues to decline and now accounts for less than 10% of the value of all in-person payments in the UK. This is forecast to shrink to just 6% in 2027.

Although the UK is shifting away from cash, a wholly cashless society faces resistance, while the Bank of England claims that cash remains important to UK society.

It is interesting to note the volume of cheques also continues to fall and in 2023, only accounted for 0.2% of payments made in the UK.

Debit & Credit Cards

Although debit and credit cards continue to dominate UK payment methods, they are becoming less prevalent as a direct payment method (i.e. not used within a wallet). They are increasingly used within digital wallets. 

However, their direct use shouldn’t be overlooked though, with contactless debit and credit card use totalling £18.3 billion in 2023. In percentage terms, contactless accounts for 38% of all payments, compared to 3% in 2015.

In the UK in 2023, direct use of debit and credit cards accounted for 74% of the transaction value of point-of-sale payments (28% from credit cards, 46% from debit cards) with 14% from digital wallets. It is forecast that the share from credit and debit cards directly will decrease to 63% in 2027 with digital wallets rising to 29%.

The shift to wallets is altering how consumers use cards in card-dominated markets, but it is not fundamentally changing the underlying transaction share. In 2027, 83% of POS transactions will be processed directly by cards or cards within wallets.

Credit Cards

Credit cards are significantly more expensive to process than debit cards for UK businesses (see examples of credit cards vs debit card fees here). The direct use of credit cards accounted for 28% of in-person payments and 24% of online payments in 2023. It is predicted that they will be used more within digital wallets in the future and their direct use will only account for 24% of in-person payments and 18% of online payments in 2027.

The market share of the three most popular credit card schemes in the UK are:

• Visa: 68%
• Mastercard: 30%
• American Express: 2%

90% of the UK are Visa and Mastercard cardholders, and these cards account for around 90% of global payments outside of China. 

Diners Club International, JCB International and UnionPay International are other card schemes that currently operate in the UK but have a market share below 1%.

So, you should definitely accept Visa and Mastercard, but should you accept American Express?

Businesses pay higher payment processing fees for Amex transactions but American Express claims accepting their card attracts more frequent spending from those who spend more on average. In their promo video, they claim UK Amex Cardmembers spend over 3.9 times more money annually and spend more than 3 times as often than non-Amex cardholders due to the rewards they offer the cardholders. 

So, accepting Amex may reduce your gross profit margin, but your revenue, in theory, should rise.

Debit Cards

Although the direct use of debit cards is set to decrease for both e-commerce and in-store sales, their overall use (including digital wallets) will likely remain constant. 

Processing a debit card has always been more affordable than credit cards. In-person processing fees for credit cards are roughly 0.7% to 3.4%, while debit card fees are 0.4% to 1.7%. This is helped by interchange fees being reliably cheaper with Visa and Mastercard debit cards.

Maestro is often perceived to be a third type of debit card in the UK. But, it’s important to remember that it’s owned by Mastercard and is being phased out.

More relevantly, UnionPay (UPI) should be a serious consideration for UK sellers. This is a Chinese payment network that issues debit cards. Fees are slightly higher than Visa and Mastercard, but it could help secure sales from Chinese tourists.

Buy now pay later (BNPL)

Buy now pay later transactions accounted for 7% of the total value of UK e-commerce transactions in 2023. Although convenience and accessibility have increased, forecasts suggest it will remain at 7% in 2027, perhaps in part due to heightened interest rates.

Visa, who offer a BNPL service, claim that 37% of merchants that accepted Visa’s payment instalments saw an increase in overall sales, and 43% of UK instalment users spent more frequently. This is in part because BNPL reduces cart abandonment with a 20% boost in checkout conversions reported by Klarna (although these results are far from impartial). 

However, offering BNPL comes at a cost. The fees for accepting BNPL are not only higher (3% to 7%), but they have a broad range depending on the processor.  But, given that BNPL is often favoured for high-ticket items, these are less likely to be high-frequency, low-margin goods.

Major UK BNPL providers include:

• Klarna
• Clearpay
• Paypal Pay In 3
• Instalments enabled by Visa

Bank transfer / Account to Account (A2A)

Account to Account (A2A) payments only account for 7% of transactions around the world, and the UK is in line with this average. This share is not predicted to rise any time soon despite government initiatives to increase its adoption. Brazil and India, however, are seeing much faster adoption due to being less card-dominated.

The growth of open banking in the UK has been relatively slow and does not look like it will pose a serious threat to credit and debit card payments. If the government succeeds in its initiatives the share of Pay by Bank could grow to 8-10% of e-commerce spending in the UK by 2027.

Specialist A2A Providers:

• Trustly
• TrueLayer
• GoCardless
• Wonderful Payments
• Token.io
• Banked

Many payment processors also offer Pay by bank apps (Worldpay, Trustpayments etc.) that can easily add this payment method to your checkout. 

When it comes to merchant fees, A2A payments are often cheaper than debit cards. They bypass card networks and eliminate interchange fees. One of the largest providers in the UK, TrueLayer, claims fees are under 1% of the transaction value. Their future use in the UK isn’t well understood, but adding it as an option, and potentially passing on the savings to the customer, could be competitive. 

Digital Wallets

Digital wallets, also known as pass-through wallets, can be categorised as: Open, semi-open, semi-closed, or crypto. 

Examples of open wallets include:

• Apple Pay
• Samsung Pay
• Amazon Pay
• Google Pay
• Coinbase Wallet

Pass-through digital wallets like Apple Pay and Google Pay are the most popular and have a growing market share. They remove the need for a physical card by tokenising a consumer’s card details and sending them to the card network and issuer for processing. They never actually hold the funds themselves (like PayPal can) but make it more convenient for the consumer to pay quickly. All they need to do is either type in the CVV or use a fingerprint verification.

UK usage of digital wallets for POS transactions is forecast to more than double from 14% in 2023 to 29% in 2027.

Digital wallets are the leading e-commerce payment method in the UK accounting for 38% of all transactions (almost identical to the US). They are forecast to be used in half of all online UK transactions in 2027.

Globally, digital wallets are dominant in e-commerce transactions, accounting for 50% of the total transaction value and is expected to rise to 61% in 2027. This highlights the future global dominance that digital wallets are set to have. It is yet to be seen if any region will match the adoption seen in APAC where digital wallets are forecast to account for 77% of ecommerce transactions in 2027 (70% in 2023) and 66% of POS transactions in 2027 (50% in 2023) . 

When it comes to POS payments, digital wallets accounted for 30% of the global POS transaction value, but is set to rise to 46% in 2027. This is mostly because NFC is now on all modern phones, and mobile wallet apps are increasingly used to collate loyalty cards. Although digital wallets are less common with POS sales, their forecasted CAGR (annual growth) is very similar to e-commerce digital wallet 

The added convenience of a digital wallet is a big driver of their success. 45% of consumers have said they feel frustrated when they have to manually type in their payment details within an online checkout page. 

As with all payment methods it is important to adapt to the local preferences. For example, PayPal dominates digital wallets in Germany and Italy, MobilePay dominates Denmark while Alipay dominates China.

Electronic wallets (e-wallets)

Electronic wallets often get confused with digital wallets. The main difference is that customers can pre-load their e-wallets with funds, either through bank transfer or card, and sometimes with cash. PayPal is an e-wallet, although it can also be similar to a digital wallet (i.e. paying with card without depositing funds). PayPal also has its own buy now, pay later scheme, thus proving itself to be a versatile service.

Direct Debit

Direct debits are a type of A2A payment method but specifically relate to the automation of routine payments via direct bank transfer. These are most often used for utility bills, loans, subscriptions and clearing credit cards.

There are two main types of Direct Debits: fixed (set monthly amount) and variable (fluctuate based on the bill). Bacs is the system used in the UK, and over 4.8 billion transactions were processed in 2023. 100 million were via B2B collections, 572 million subscriptions, 1.82 billion utility bills payments, 916 million insurance transactions, and 1.4 billion classed as “other”. There are expected to be 5 billion Direct Debit payments in 2033.

It’s worth noting that the monthly failure rate for Direct Debits in the UK is seeing a sharp rise, from 0.42% in June 2020 to 0.91% in May 2024 (seasonally adjusted). The main contributor of this is thought to be the increase in utility bills, which have seen a rise in recent years.

Vouchers, prepaid and gift cards

Vouchers and gift cards continue to be popular in the UK, with a 9.5% growth in sales in 2024 H1 compared to 2023 H1. Buying a £20 gift card only valid at a specific shop and then gifting it to a friend was a typical example of gift card usage 

However, the growth and use of gift cards now come mostly from employee benefits. This is highlighted in the fact that 72% of the gift card market share is B2B, with B2C only overtaking during Christmas time. This highlights the seasonality of gift cards as a seller. Plus, 2024 was the first time that digital gift card sales overtook physical ones.

One major use for prepaid cards is their security. In the event of fraud or stolen card details, only what’s on the card can be stolen. This helps convert sales for less trusted sites.

Another reason behind their use is anonymity. Paysafecard is an example of a closed-loop prepaid card, where users can use cash to load funds and spend it online to avoid transactions appearing on their bank statements. Customers looking for adult products or engagement rings may want this option.

Examples include:

• UnionPay
• Paysafecard
• Mastercard Prepaid
• Visa Prepaid card
• Love2shop
• One4all

Benefits of accepting multiple payment methods

• Attract more customers: It is wise to tailor your payment methods to your typical customers (e.g. if you sell online you would increase sales by accepting iDEAL if you sold to Dutch customers, BLIK for Polish customers and Alipay and UnionPay for Chinese customers). 
• Increased conversion rates: 13% of cart abandonments are because there weren’t enough payment methods
• Increase customer satisfaction and loyalty: Amex claims that sellers accepting their cards see a rise in repeat customers. The same could be true for other methods, particularly ones centred around anonymity, convenience, or gathering rewards.
• Reduced fraud: 25% of cart abandonments are because the user doesn’t trust the site with their credit card information. Mobile wallets can help overcome this fear due to the tokenisation of card details, while prepaid cards limit financial risk for customers.
• Optimise payment costs: The customer will often choose what’s best for them, and often this is what’s best for the seller (e.g. a local method with lower FX fees).

Summary of Payment Methods

Best payment methods for each region by business types

When accepting payments, it’s important to consider the location of the customers. For global customers, Visa and Mastercard are of course dominant, along with Amex and Diners Club. Afterpay and Klarna should cover BNPL needs, and for digital wallets, Google Pay and Apple Pay are a must.

Other considerations:

• Asia-Pacific customers: Focus on UnionPay and JCB, as well as digital wallets like Alipay, WeChat Pay, and GrabPay. Asia-Pacific customers are half as likely to use credit cards compared to the global average. BECS is used for direct debits.
• European customers: European customers trust PayPal, and frequently use iDEAL, Cartes Bancaires, and Bancontact. SEPA is used for direct debits.
• Customers from the Americas: Cash App Pay is rapidly rising. The NA and LATAM use credit cards more than anyone. ACH debit and pre-authorized debits are used.

For a visual look at the preferred payment methods around the world, we’ve put together Stripe’s recommendations:

[table]

Recommended payment methods for in-person payments: Credit and debit cards, wallets

Assuming you are not relying on cash or cheques, customers typically prefer card machines that have near-field communication (NFC) technology, enabling contactless payments. Allowing American Express payments (either with the card itself or via a digital wallet like Apple Pay) will increase customer satisfaction but the costs will be higher.

Recommended payment methods for e-commerce: Credit and debit cards, wallets, Pay by Bank, BNPL, real-time payments

Recommended payment method for SAAS and subscription services: Credit and debit cards, wallets, direct debits

Recommended payment method for professional services: Credit and debit cards, direct debits, bank transfers, real-time payments

How can I add payment methods to my checkout page?

Firstly, you need to have a payment service provider that accepts the payment method(s) you require. If they do, the method for adding payment method options will depend on whether you use a hosted, self-hosted or API gateway. Instructions will be provided by your gateway/payment processor about how to activate that payment method on your checkout page.

How to choose the right payment method for your business

Location

Use the table above to consider your customers’ preferences based on location. Furthermore, language and localisation within your payment gateway is very important. For international customers, globally accepted options like Visa and Mastercard should be fine, but local customers may prefer regional methods like UnionPay (China) and iDEAL (Netherlands). Some brands like PayPal have high trust across the world.

Business model

If your business model expects a high number of refunds and disputes, bank transfers and vouchers aren’t suited. If you already have tight margins, an expensive payment method may simply be unviable. Likewise, B2B subscriptions have very different requirements to a local shop. In general, £34 billion of consumer transactions are spontaneous, compared to £6.3 billion which are regular. Consider whether your business model relies on recurring payments, and high-ticket items, and whether you expect refunds or if your customers may want anonymity. 

Payment channel

In-person sales are increasingly driven by NFC for contactless payments, but consider the option of gift cards, particularly around Christmas time. For online payments, accepting digital wallets together with standard cards is highly recommended and it may also be worth considering BNPL for e-commerce stores with a younger age demographic.

Security and compliance

When accepting card payments, it’s important to remain compliant with PCI DSS. Online card payments can be more secure through 3D Secure 2.0 (extra layer of authentication), and shifts liability from the merchant to the card issuer regarding chargebacks. Ultimately, tokenisation and robust encryption are musts, but sometimes your current security setup can hinder what payment methods to offer.

Scalability and integration

Payment methods need to facilitate the growth of your business. Cash may be accepted among a small clientele, but as it scales, bookkeeping becomes more difficult. Multi-currency support and FX fees are also important regarding scalability, as well as integration into your ERP system. Your current payment processor will also play a big part in what methods you choose as they will all have their limits on which methods they can integrate with.