6 best payment systems for UK small businesses

As a small business owner, you have a very full plate – from funding, business setup and operations to financial management, and much more. A robust business payments solution takes care of one of the key considerations for a small business or startup. In this piece, we will explore the various payment systems for small businesses and guide you in selecting the best options based on your unique requirements.

What are payment systems?

Payment systems facilitate secure online financial transactions between businesses and their customers for buying and selling goods and services. These systems consist of a variety of components, which include payment gateways that securely transmit payment information, and payment processors that manage the technical aspects of the transaction. It is essential for businesses that wish to provide their clients with secure, efficient, and seamless online payment options to comprehend the various components of business payments.

The main components of a payment system include:

Payment gateways:

Payment gateways like PayPal, Stripe, and Authorize.Net connect merchant websites to banking institutions and card networks for payment processing. Their encrypted transmission of consumer payment information protects sensitive data from fraud.

Payment processors:

Payment processors manage transactions between merchant and client banks. They handle technical aspects of fund transfers and ensure success. For instance, First Data and Global Payments.

Merchant accounts:

A merchant account is a bank account that enables businesses to accept payments, such as credit and debit card payments. Transaction funds are deposited into the merchant account before being transferred to the business's main bank account. Managing online transaction monies requires merchant accounts.

Point-of-sale (POS) Systems:

POS systems, such as Shopify POS or Square, use hardware and software to process payments at physical retail locations. Modern POS systems link with online payment gateways, allowing businesses to effortlessly process in-person and online transactions.

Security protocols:

Effective security protocols are essential for payment systems. Protecting consumer data and preventing fraud requires PCI DSS compliance. SSL encryption, tokenisation, and other security procedures protect transaction data.

Fraud detection tools:

Payment gateways and processors commonly use advanced fraud detection techniques to monitor transactions for suspicious activity. These solutions detect and prevent real-time fraud using algorithms and machine learning.

What are the top small business payment systems in the UK?

Every small business payment system has some specialised services and some limitations. We have handpicked 6 of the best payment processors based on their experience, flexibility, and commercial viability.

Wonderful

Wonderful is a new entrant in the business payments market in the United Kingdom. However, its payment solutions, such as a mobile POS app for in-person transactions, payment APIs and plugins for ecommerce platforms and accountancy software integration, has made it a popular choice for small business in the UK. Wonderful’s payment solutions are powered by Open Banking which enable small businesses to accept instant bank payments which are credited directly into the business account and transaction costs are as low as 1p per transaction.

PayPal

PayPal is a global leader in payment systems with over 400 million active accounts. It provides a variety of services, such as invoicing, business payments, and point-of-sale systems. PayPal is a preferred small business payment option due to its reliability and user-friendly interface.

Square

Square revolutionised payment processing services with its mobile card scanner. Currently, it provides a comprehensive point-of-sale system that encompasses inventory administration, invoicing, and e-commerce integration. Square's transparent pricing—that is, its absence of long-term contracts and hidden charges—makes it an appealing alternative for small enterprises.

GoCardless

GoCardless is an optimal payment method for small businesses, especially those that depend on regular payments such as subscriptions. The company specialises in direct debit payments, providing an efficient and automated solution that minimises the administrative workload associated with invoice management and late payments. GoCardless seamlessly interacts with major accounting software, making it an effortless solution for small businesses.

Shopify

Shopify's all-in-one payment system for small businesses works easily with its e-commerce platform. Credit cards, Apple Pay, and Google Wallet are accepted, and payment processing is safe. It costs £19 per month, including the Shopify store, a 1.5-2.5% transaction fee, and 25p for every transaction. Shopify's simplicity and scalability make it suitable for small businesses managing online and in-person transactions.

Stripe

Stripe is distinguished by its comprehensive APIs, which enable businesses to personalise their payment systems. It is renowned for its global reach and scalability, and it supports a diverse array of payment methods, such as digital wallets and credit cards. Stripe is the preferred option for businesses that are technologically savvy and require sophisticated features and integration capabilities.

How can small businesses take payments?

The evolving realm of payment systems presents small businesses with several ways to accept payments. However, each method comes with its own benefits and challenges. Here are some of the options that you can consider:

Cash payments

Cash is a traditional payment option and does not incur any processing fees. Nevertheless, use of cash is declining, particularly as digital payments become increasingly prevalent. Handling physical money, safeguarding it, and guaranteeing precise bookkeeping are all components of cash management, which can be time-consuming, costly and susceptible to errors.

Debit and credit cards

In the present day, credit and debit cards are ubiquitous in transactions. In 2020, card payments constituted more than 51% of global payment transactions, as per Worldpay. The acceptance of card payments has the potential to increase sales, as many consumers prefer the convenience and security of cards. Businesses are required to account for processing fees, which typically vary from 1.5% to 3% per transaction, contingent upon the card type and provider.

Digital wallets

Digital wallets that facilitate mobile payments, such as Apple Pay, Google Wallet, and Samsung Pay, are gaining popularity among small business owners due to their simplicity and flexibility. In the context of the COVID-19 pandemic, these methods have become increasingly popular due to their ability to effect rapid, contactless transactions. Mobile payments can expedite the purchasing process and improve convenience; however, they necessitate compatible hardware and software.

Payment systems

Online payment systems are crucial for both web-based and brick-and-mortar businesses. The online payments market in the UK is estimated to close the year at around $513 billion. Small businesses that cater to a niche global market can take global payments via PayPal, Stripe, and Shopify. These solutions integrate easily with e-commerce platforms and secure transactions. Internet-based payment systems can boost consumer satisfaction and repeat business for small organisations that ensure PCI DSS compliance to protect client data.

Bank transfers

Bank transfers are another traditional payment method that is still popular in the UK, particularly among B2B enterprises. They offer a secure payment platform suitable for high-volume transactions. On the flip side, the process can be slow and affect cash flow conditions adversely.

An integrated or multi-method payment system is the perfect approach for small businesses to cater to a diverse customer base.

What is a mobile POS?

A mobile point-of-sale (mPOS) system is a portable point-of-sale system that facilitates business payments using a dedicated wireless device, tablet, or smartphone. It allows merchants to accept payments from any location, which is particularly beneficial for small businesses and mobile vendors, as it increases convenience and flexibility.

Mobile POS has become one of the preferred small business payment options. The significant growth witnessed by the mobile POS sector is also critical to small businesses as it lends another option for accepting secure and hassle-free payments. With an expected CAGR of 14.66%, the mobile POS market in the UK is scheduled to cross the $300 billion mark by 2028. Apart from the top players like Lightspeed, Clover, and TouchBistro, a relatively new entrant, Wonderful is making waves in the UK market. Let’s review all of them to understand their unique offerings:

Wonderful

Wonderful's One app allows instant bank payments from client accounts using open banking technology, a secure and efficient alternative to traditional card-based payment systems. Instead of percentage-based transaction fees, it charges £9.99 for 1,000 monthly transactions and 1p per transaction outside the bundle. This is ideal for small firms with high transaction volumes. The app combines with other business tools to create secure payment links that can be shared via numerous channels, making it ideal for organisations looking to streamline their payment procedures and remove cost.

Lightspeed

Lightspeed's mobile POS system is popular because of its user-friendliness and versatile features. In addition to complete CRM features, it offers real-time inventory tracking and extensive sales data analysis.

Clover

Its adaptability and customisable capabilities distinguish Clover's mobile point-of-sale system. It offers a diverse selection of hardware options, such as handheld barcode scanners and readers.

Touchbistro

TouchBistro is a mobile point-of-sale system that has been specifically designed for and extensively used in the restaurant industry. It offers staff management options, menu administration, and the ability to customise table layouts.

What is the best mobile payment system?

Some of the most popular mobile payment systems are:

Apple Pay

Apple Pay lets users securely pay with their iPhones or Apple Watches, thanks to its seamless integration. It has a face ID and a touch ID for added security. Regions with many Apple device owners prefer this arrangement.

Google Wallet

Android users have another strong alternative. It accepts credit, debit, and digital wallets and offers NFC contactless payments. For Google-based enterprises, Google Wallet interfaces with other Google services, making it adaptable.

Samsung Pay

Samsung Pay is unique in that it works with both NFC and magnetic stripe terminals, which are still commonly used. Samsung Pay is flexible for small businesses that haven't switched their payment terminals to NFC.

What are swiping machines, and how do they facilitate payment systems for small businesses?

Small businesses need swiping devices, often called card readers or POS terminals, to take credit and debit card payments. These machines read customers' magnetic strips or chips when they swipe or insert their cards. The swiping machine securely sends payment information to the payment processor, which validates and completes the transaction in real-time.

Swiping devices help small businesses capture card-using clients by expanding payment alternatives beyond cash. This tool lets small businesses provide customers with a fast, secure, and convenient way to pay in-store or on the go. Contactless payments and mobile device connectivity are added to many modern swiping machines, increasing flexibility. SumUp and Square offer affordable, user-friendly devices that small businesses can simply integrate into their payment systems to improve consumer convenience and sales.​

Which swiping machine is good for small-scale businesses?

While touch-free payments have been gaining traction, traditional card-based methods are still very much in vogue. Brick-and-mortar stores, in particular, have to maintain a robust payment system that can handle card transactions safely and quickly. This is where card readers and swiping machines come into play. Let’s look at some of the best swiping machines for small businesses in 2024:

Square Reader

The card reader offered by Square is widely recognised for its versatility and user-friendly nature. This device may be connected to your smartphone or tablet and is compatible with both magstripe and chip cards. The transaction charge, which amounts to 2.6% plus an additional 10 cents per swipe, is competitive for most small businesses in the UK. Furthermore, the scanner is compatible with Square's comprehensive point-of-sale system.

SumUp Air

The SumUp Air card reader is renowned for its high level of portability and user-friendly interface. The device establishes a connection with your smartphone or tablet using Bluetooth technology, providing a smooth and uninterrupted payment process. Small businesses in need of a mobile solution will find it cost-effective as well.

iZettle Reader 2

The iZettle Reader 2, which is now a subsidiary of PayPal, is a highly commendable option. It provides fast transactions in a secure environment at a transaction fee of 1.75%. The reader is compatible with contactless payments and seamlessly interacts with multiple point-of-sale (POS) systems.

A broad selection criteria

When choosing a swiping machine, carefully evaluate its compatibility with your existing system to avoid additional expenditure, its overall fee structure (including hidden fees, if any), and customer support. For mobile businesses, battery life and portability are key considerations too. Further, an upgraded multi-utility device that can process chip cards and contactless transactions may be beneficial in the long run.

How do electronic payments affect cash flow management?

Electronic small business payment options play a pivotal role in cash flow management. Here are some of their major advantages and challenges:

Faster processing

Most electronic payments, including credit and debit card transactions, are processed quickly, usually within 24 to 48 hours. Payment systems powered by Open Banking deliver almost instant payments and settlements, whereas cheques, bank transfers, and other traditional methods of payment can take days to clear. The speed at which payments can be realised affects the working capital of small businesses significantly. Faster settlement times mean ready access to funds, which is important for keeping things running smoothly for small businesses and avoiding short-term loans.

Enhanced cash flow visibility

Real-time transaction monitoring is facilitated by electronic payments, which improves the visibility of cash flow. Electronic transactions are automatically recorded, enabling precise and timely financial administration, in contrast to cash payments, which necessitate manual handling and depositing. This transparency facilitates small businesses to make informed decisions in the areas of budgeting, supplier payments, and inventory management.

Integration and automation

Most electronic payment systems integrate seamlessly with your legacy accounting software, which facilitates reconciliation and minimises errors. This automation has the potential to reduce administrative costs and save time, both critical considerations for small businesses. In addition, certain payment processors provide cash flow management tools, such as immediate payouts or tax savings features, that can further improve cash flow efficiency.

Potential fee-related challenges

Electronic payments are quick and easy, but there are drawbacks as well, like chargeback risks and processing fees. Charges for each transaction can vary from 1.5% to 3%, and they quickly accumulate, which is particularly critical for companies with narrow profit margins. Chargebacks can also impact cash flow, which occurs when customers contest purchases and ask for refunds. Companies should account for these expenses when setting their prices and planning their cash flow.

Optimise cash flow with a balanced approach

Small businesses should optimise business payments by offering a variety of payment methods to their customers. For instance, you can give incentives to your customers to adopt cheaper payment methods, such as bank transfers, which can be one way to cut expenses. You can also stabilise your cash flow and lessen the impact of seasonal changes by subscribing to electronic payments for recurring invoices.

Conclusion

Selecting a suitable payment system is critical for small business entities. Payment systems for go a long way towards streamlining operations for small businesses which eventually leads to enhancing the customer experience.

Today's competitive environment requires a trustworthy and efficient payment system. The correct POS system, internet payment gateway, or mobile payment solution will help your business run smoothly and satisfy customers. You'll succeed if you research and choose the right payment system.

FAQs

What payment systems do you use for your small business?

The payment systems you select will be contingent upon your business model and requirements. PayPal, Square, Stripe, and Wonderful are popular choices. Assess the features and costs of each system to ascertain which one is most appropriate for your business.

What is the best payment system for small businesses?

Transaction volume, budget, tech savviness, etc. define the ideal payment system for small businesses. PayPal and Square are popular for their ease of use, global reach, and comprehensive suite of features, while Wonderful is a strong contender for its customised solutions and cost-effectiveness.

Which payment system is best for startup businesses?

Square and PayPal are frequently recommended for startups due to their transparent pricing, simplicity of use, and low setup costs. Additionally, Wonderful provides a comprehensive array of payment solutions that are specifically designed to meet the requirements of startup businesses.

How to get the best payment system for my online business?

Think about what your business needs, compare fees, and put systems that work well with your platform at the top of your list to find the best payment system. Before making a choice, look for safety features and try out different choices by downloading them.

How to offer online payment solutions as a small business?

Small businesses should choose a secure, flexible payment gateway that integrates with your WooCommerce platform and accepts several payment methods. Make sure the checkout process is mobile-friendly and secure.

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