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5 of the cheapest online payment systems for UK businesses

Kingsley Ohia Kingsley Ohia - 13th Dec, 2022

With the wide variety of online payment systems available today, we take a look at some of the most cost-effective payment gateways in the UK...

Online payment systems are evolving rapidly in the UK. Making sure your checkout experience is simple, fast and secure for your customers is critical to maximising revenue generation, but the costs of payment processing can vary quite dramatically, especially for larger transactions.

The good news is, recent developments in alternative payment methods mean online businesses can provide fantastic payment experiences whilst making significant savings on payment processing fees.


What is an online payment system?

Online payment systems or 'payment gateways' are third-party services that allow retailers and service providers to take online payments from their customers. As well as facilitating the checkout process, these systems usually allow businesses to search and filter transactions, initiate refunds, send receipts via email and more. Most payment gateways can be integrated seamlessly into an existing checkout flow.


Are there any free payment gateways in the UK?

Currently, there are no truly free payment processing services available to UK businesses. We found an extremely small amount of services which claim to be free, but once you dig a little deeper there is almost always a cost.

However, many UK businesses are making savings on transaction fees by supplementing the traditional credit / debit card payment model with alternative payment methods.


What constitutes payment processing costs?

The costs associated with processing payments may include:

  • A fixed fee per transaction
  • A percentage fee per transaction
  • Platform / subscription fees
  • Set-up fees

Percentage fees: The real sting?

If cutting costs is a priority, businesses can gain a lot by minimising percentage fees. A move away from this traditional percentage-based charging model can represent real savings, especially for larger transaction values.

For a £50.00 payment, a typical debit / credit card fees might be 1.5% + 20p. Even for this relatively modest transaction, the percentage fee of 75p dwarfs the fixed fee of 20p. On larger purchases percentage fees can become significant. For a payment of £5,000, this 1.5% fee becomes £75.


5 of the cheapest online payment systems in the UK

Here we've provided a range of options to suit different requirements and payment types, with a focus on minimising costs.

For Open Banking payments

In the vast majority of cases, Open banking payments offer significant cost savings compared to card payment gateways. Open Banking payments, don't involve cards at all. Instead, they connect your customer with their existing online / mobile banking app so that they can authorise a secure payment directly to your business bank account.

These Open Banking payments may also be referred to as 'instant bank payments', 'easy bank transfers', 'A2A (account-to-account) payments' or 'Payment Initiation Services'.

Wonderful

Wonderful is a purpose-driven payment gateway that brings more than just instant bank payments at an attractive price point. It also provides its service free to any UK registered charity, so as well as saving costs, Wonderful customers help to process millions in charitable donations across the UK.

Wonderful provides a cost comparison tool to demonstrate the savings that can be made over traditional card payment providers like Stripe and PayPal.

£9.99/month for up to 1,000 transactions | No percentage fees | Alternative plans for higher volumes (greater savings)

GoCardless

GoCardless is a well-established provider offering lots of functionality, integration options and competitive card processing fees. Much like Wonderful, GoCardless pioneers the cost-busting and conversion-boosting benefits of instant bank payments. It also offers recurring payments and custom branding options for an additional monthly fee. However there is still a percentage fee on every transactions, which may not be the most cost effective solution for higher-value transactions.

1% + 20p | No set-up fees | Optional monthly fees for additional features (custom branding)

For card payments

If taking payments via credit or debit card is a must, there are lots of options to choose from. Processing fees can vary quite dramatically so it's worth comparing costs.

Stripe

Stripe is a well-established provider offering lots of functionality, integration options and competitive card processing fees. Pricing is kept simple and there are no additional fees for extra functionality. Stripes great reporting features come out-of-the-box.

1.5% + 20p / transaction | No set-up fees | No monthly fees

WorldPay

In contrast, popular payment provider WorldPay charges significantly more per transaction than Stripe. However, it also offers a monthly payment option which can offer savings at higher volumes. WorldPay also supports PayPal payments, although these are subject to PayPal's higher rates.

2.75% + 20p per transaction (pay as you go) | No set-up fees | £19 - £45 monthly fees (greater savings)

For when you need more than just payments

The payment systems above focus on payments alone (payment gateways) and they require some technical knowledge to integrate. However, if you're looking for something that can provide much more, such as website hosting, stock management and even shipping, there are some great options available. As you might expect, these all-in-one platforms are more costly due to the additional functionality they offer.

Shopify

Compared to some other all-in-one eCommerce solutions like WooCommerce, Shopify offers good value. The platform has grown rapidly in recent years, with features to support everything from marketing to website templates, online payments and even point-of-sale systems (for in-person payments).

2% + 25p / transaction | No set-up fees | £19 - £259 monthly fees for additional features

What are the advantages of an Open Banking system?

The Open Banking system is transforming payment gateways in the UK. Here are some of the major benefits of this revolutionary system:

Cost-effectiveness:

One of the main advantages of Open Banking is cost reduction. In comparison to traditional card-based transactions, open banking typically has lower fixed charges. This makes it the cheapest online payment gateway option in the UK for businesses across various sectors. Enterprises can save significantly on card network fees as it connects directly with customers’ bank accounts.

Transaction speed:

Unlike traditional payment methods, the instant payment facility of Open Banking leads to faster fund settlement. This has a major impact on the cash flow management of small business payment systems.

Improved security:

The primary risk of data compromise occurs when sensitive card information is stored in conventional payment systems. Open Banking provides a stronger security platform, as businesses are not required to save private customer data. Advanced authentication, such as biometric verification, allows payment gateways in the UK to secure online transactions further.

Enhanced transparency and control:
Open Banking enables customers to check their real-time balance before making payments and provides immediate confirmation for businesses to verify a transaction. This fosters greater transparency and trust between both parties.

Technological advances and altering consumer preferences are driving the evolution of payment gateways in the UK. Some of the redefining future trends are:

Augmented API integration:

The backbone of Open Banking is API integration, which allows seamless data transfer between third-party services and banks. You will witness a more robust API ecosystem that will enable businesses to expand their service offerings. This includes smoother payment processing, customised financial advice, tailored loan products, investment plans, etc.

Better fraud detection and prevention:

Artificial intelligence (AI) and machine learning (ML) are two major technological breakthroughs that are augmenting fraud detection and prevention. They can identify probable fraudulent intent based on transaction patterns in real time. Open Banking platforms are adopting these advanced security measures that are more potent at mitigating threats than traditional methods.

Expanding the reach of the digital economy:

With the increased adoption of Open Banking, the underserved population has better access to banking services. This enables individuals and small enterprises to reap the benefits of the digital economy, thus expanding the potential customer base for online payment providers in the UK.

Mobile-first payment gateways:

The smartphone revolution is opening the door for mobile-first payment solutions. Open Banking applications with sophisticated financial management tools go beyond simple commercial transactions. Small business payment systems are leveraging this trend to attract mobile-savvy customers.

Redefining the customer experience:

Open Banking is gradually embracing new-age technologies like chatbots and voice-activated payments that are within regulated frameworks. These integrations are increasing the overall functionality of the UK payment gateway by providing an enriched user experience.

Coexistence of banks and fintech organisations:

The new era of online banking is moving toward a synergistic relationship between banks and fintech companies. The reliability of the traditional banking system is all set to merge with the technical agility of online payment providers in the UK, leading to the development of more customer-centric products and services.

Conclusion

Open Banking system is revolutionising the online payment system in the UK. With enhanced security, cost efficiency, and a compelling customer interface, it brings several benefits for medium and small businesses. Wonderful is leveraging these advantages to provide seamless service to enterprises using UK payment gateways. We provide a simple, fast, and secure instant payment platform that will transform your online banking experience. Check out our services for further details.

FAQs

Is there any difference between a payment processor and a payment gateway?

A payment processor primarily manages the transaction data, while a payment gateway authorises the transfer of funds between customers and enterprises. Choosing an appropriate payment gateway is critical for small business payment systems for cost-effectiveness and efficiency.

What is the process of integrating a payment gateway into my website?

Generally, detailed documentation and customer support from your selected payment gateway in the UK will act as a guide. They usually provide plugins or APIs that facilitate hassle-free integration with your existing eCommerce platforms, like Shopify or WooCommerce.

Do payment gateways have any hidden charges?

One of the key factors in selecting a payment gateway in the UK is to verify if there are any charges levied beyond the transaction fees. Setup fees, maintenance charges, chargeback fees, etc., are potential add-on expenses. You must read the fine print carefully before signing up.

What is the standard fund settlement time?

Open Banking payments usually provide instant settlements, though it may depend on your service provider. Traditional payment methods, typically take between 1 and 3 business days for fund transfers.

What happens if there’s a data breach?

You must inform the customer and the gateway of the probable anomaly. Most payment gateways in the UK have advanced fraud detection mechanisms to handle such situations.

What are the tax implications of a payment gateway in the UK?

Online payment gateway charges are usually subject to VAT. However, if you are VAT-registered then you can reclaim the fees. The transaction fees should be recorded as business expenses, while the gross sales will come under the income head.

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