4 best payment processing companies in the UK

Regardless of the type of business you run, having a deep understanding of payment processing is crucial. Whether you have a physical store, an e-commerce site, or a mobile business, this knowledge is vital for success. This guide explores the intricacies of payment processing and provides valuable advice on selecting the ideal payment service provider (PSP) for your business.

What are payment processing services?

Fundamentally, payment processing services facilitate the transfer of funds from the buyer's account to the merchant's account. It includes transaction authorisation, fraud protection, and financial regulation compliance and requires a digital and physical infrastructure that ensures safe and swift transactions, governed by stringent regulatory norms.

Payment processing services handle the entire transaction, from consumer purchase to merchant account transfer, which includes the technical and logistical aspects of payment processing. This allows firms to focus on their operations rather than payment processing.

The importance of payment processing services

Payment processing is essential for organisations as it enables them to accept payments via different payment methods, such as credit and debit cards, digital wallets, pay by bank and bank transfers. These services not only optimise the payment process but also improve the customer base by allowing businesses to provide various payment alternatives.

What are payment processing solutions?

The technology and equipment required for processing payments comprise payment processing solutions. Based on the nature of the business, these solutions are customised, whether it's an online, in-store, or mobile business. Let’s take a closer look at these alternatives:

●     Online payment processing solutions: Online payment solutions are indispensable for e-commerce enterprises. These typically consist of payment gateways that establish a connection between the merchant's website and the payment processor. PayPal, Stripe, and GoCardless are examples of payment gateways that guarantee the security and convenience of online transactions. These solutions are essential for online enterprises because they support a variety of payment methods, such as direct bank transfers, digital wallets, and credit cards.

●     In-store payment processing solutions: Brick-and-mortar stores use POS systems to process checkout transactions. POS systems take credit, debit, and mobile payments via hardware and software. Square and Clover offer complete POS systems for businesses of all sizes. Inventory, client loyalty, and sales reporting are common characteristics of these systems.

●     Mobile payment processing services: Mobile commerce is growing, so businesses are increasingly moving towards mobile payment options. These services enable smartphone and tablet transactions using contactless payments, mobile wallets, and QR codes. Customers may securely pay with their phones using Apple Pay, Google Wallet, and Samsung Pay, which benefits both businesses and customers.

●     Integrated payment processing solutions: Enterprises with an omnichannel presence spanning online, in-store, and on-the-go businesses prefer an integrated solution that can operate seamlessly across different platforms.

What are the key components of payment processing?

While the process seems simple enough, it has some small yet critical components that play a vital role in the smooth functioning of the entire ecosystem.

●     Merchant: Merchants, who receive payment from their customers, are at the core of the payment processing ecosystem.

●     Customer: The payment processing cycle is initiated by the payment information provided by customers.

●     Payment gateway: The technology that securely transmits transaction data from the merchant to the payment processor is known as a payment gateway. It functions as a bridge between the payment processor and the merchant's website or POS system, ensuring the encryption and protection of data throughout the transaction process.

●     Payment processor: The payment processor is the entity responsible for the transaction process, which encompasses authorisation, authentication, and settlement. Payment processors are essential for the secure and efficient completion of transactions.

●     Acquiring bank: The merchant's bank, the acquiring bank, is accountable for the receipt of the transaction's funds. Funds are deposited into the merchant's account through the collaboration of the procuring bank and the payment processor.

●     Issuing bank: The customer's bank is the issuing bank, and it is responsible for providing the funds for the transaction. Before releasing the funds to the acquiring bank, the issuing bank verifies the customer's payment details and authorises the transaction.

What are the basics of payment processing?

A complex infrastructure governs the payment processing fundamentals. Business owners should understand the mechanism that keeps the process running smoothly. Here are the four main stages that payment processing companies in the UK follow:

●     Authorisation: The payment process commences when a customer swipes a card, enters card details online, uses a digital wallet or makes an open banking payment. The payment processor requests authorisation from the issuing bank after receiving the transaction data. The issuing bank determines whether the consumer has sufficient funds or credit and responds with an approval or decline.

●     Authentication: The transaction details, including the card number, expiration date, and CVV code, are verified during the authentication stage. This phase is essential for the prevention of fraud and the verification of the legitimacy of the transaction. Open banking transactions do not use card networks and, since Strong Customer Authentication (SCA) is inherent in open banking payments, which are typically confirmed in a mobile banking app using biometric security, this sensitive financial data is not collected, transmitted or stored.

●     Clearing: The transaction detail are then transmitted to the acquiring bank, which processes the payment. The funds are temporarily held by the acquiring bank during the clearing stage before they are transmitted to the merchant's account.

●     Settlement: This is the final stage of the payment process. The transaction is finalised when the funds are transferred to the merchant's account by the acquiring bank. Although settlement typically requires a few days, certain payment processing companies provide faster settlement options to enhance the financial flow of businesses. Open banking settlement is near real time, typically completing within a few seconds.

What are the advantages of using a payment processing service?

Payment service providers (PSPs) provide a more extensive solution by combining payment processing with supplementary services, such as fraud prevention, reporting, and customer assistance. Small and medium-sized enterprises find PSPs to be highly favoured due to their all-in-one solution that streamlines the payment process and minimises the requirement for engaging with multiple service providers.

How do payment processing companies work?

Payment processing companies act as the connecting bridge between buyers, sellers, and their respective banks. Critical technical aspects of the transaction chain, such as data transmission, security, and compliance, are managed by payment processors. Their task is to ensure that transactions are duly authorised, authenticated, cleared, and settled with the least possible turnaround time while adhering to statutory compliance.

What is a good rate to be paying for payment processing?

For every business, big or small, investing in a payment processor involves serious cost considerations. Hence, you need a clear understanding of the factors influencing the fee structure of payment processing companies.

Factors influencing the commercial charges

The cost of payment processing can be significantly influenced by a variety of factors, such as the type of business, transaction volume, payment mechanism, and the specific payment processing services. These fees are typically expressed as a percentage of each transaction, with a typical range of 1.5% to 3.5%, in addition to a fixed fee per transaction (typically around 20p in the UK card processing sector). Businesses should take note of probable additional expenses, including establishment fees, monthly fees, and chargeback fees, which can contribute to the overall cost of payment processing.

Finding a fair rate

A “good” rate is defined by several factors, including the services offered by the payment processing company, its reputation, and the overall cost. You should map these to the specific requirements of your business and assess whether the investment is making long-term business sense. While most enterprises are looking for the cheapest payment processing solutions, you must be aware of factors like the scalability, security, and reliability of settlements.

Rate comparisons

Businesses should assess the fees of various payment companies in order to determine the most favourable rate. Furthermore, it is crucial to select a service provider that is compatible with your business's transaction volume and payment methods, as certain companies offer tiered pricing models that offer discounts to high-volume merchants.

4 best payment processing companies

Keeping a balance between features, flexibility, and cost-effectiveness, we have shortlisted a mix of new and seasoned operators who are making a wave in the UK market.

1. Wonderful

Wonderful is a UK-based payment processor with highly effective payment processing solutions in affordable packages. Its easy-to-implement payment processing service operates on the open banking system, making it convenient for buyers and sellers to use.

Fee structure:

●     Flat-fee model: Wonderful’s ‘Plus’ plan is priced at £19.99 plus VAT and includes 2,000 monthly transactions. Wonderful also offers a free plan for UK registered charities.

●     Additional charges: The fee for transactions outside the bundle is only 1p per transaction. There is no hidden charge or percentage-based fee on sales volume.

Key Features:

●     Instant payment: Powered by the open banking system, Wonderful processes payments in a few simple steps and settles the same with the merchant's account immediately.

●     Integration: It sits alongside any existing payment options, thus reducing additional infrastructural investment.

●     Scalable: With a flat-fee framework, you are not penalised for an increase in your sales volume.

Ideal for:

Wonderful is apt for small businesses looking for affordable payment processing solutions that can offer flexibility while scaling up.

2. Finix

Finix allows businesses to handle payments themselves using its own payment infrastructure. It allows firms to design, scale, and monetise payments in-house. It's particularly useful for SaaS enterprises and platforms that wish to integrate payments directly with their products.

Fee Structure:

●     Pricing Model: Pricing that is tailored to the unique requirements and volume of the business.

●     Monthly and Setup Fees: There are no standard fees; however, they may vary depending on the custom solution that is provided.

Key Features:

●     Customisation: Enables businesses to personalise their payment infrastructure.

●     Scalability: This is an advantage for expanding organisations that require an adaptable payment system.

●     Support: Provides businesses with personalised assistance in optimising their payment operations.

Ideal for:

Businesses that desire to integrate payment features directly into their software and seek greater control over their payment processing are going to benefit the most from Finix’s services.

3. Shopify

Shopify Payments is a payment service that works with Shopify's e-commerce platform. It makes handling online sales easy. You don't have the involvement of third-party payment processors, which allows businesses to handle payments straight through Shopify.

Fee Structure:

●     Online credit card rates: 2.9% + 30 cents per transaction for the Basic plan.

●     In-Person Rates: 2.7% per transaction when utilising Shopify's point-of-sale system.

●     Additional charges: Shopify Payments does not impose any additional transaction fees; however, external payment gateways incur a 2% fee.

Key Features:

●     Integration: Shopify is fully integrated, ensuring a seamless experience.

●     Fraud Analysis: Integrated fraud detection tools.

●     Multi-Currency: Suitable for international sales, as it supports a variety of currencies.

Ideal for:

E-commerce enterprises that utilise the Shopify platform require a payment processing solution that is both integrated and user-friendly.

4. Square

Square is a popular payment processor that effectively handles both in-person and online transactions. Small businesses, like stores, restaurants, and service providers, like Square because it's easy to use and doesn't require a long-term contract.

Fee structure:

●     In-person payments: 2.6% + 10 cents per transaction.

●     2.9% + 30 cents per transaction for online payments.

●     3.3% + 30 cents per transaction for invoice payments.

Square provides a no-monthly fee structure, which makes it accessible to small enterprises.

Key features:

●     Free POS Software: Square offers free POS software that is particularly well-suited for small businesses.

●     Hardware Options: Provides a diverse selection of hardware options, such as registers and card readers.

●     No long-term commitments: Square operates on a pay-as-you-go model, which means there are no long-term contracts or concealed fees.

Ideal for:

Small businesses that require a payment processing solution that is flexible, affordable, and effective for both online and brick-and-mortar businesses.

How does the payment processing industry work?

The UK payment market, estimated to close at around $490.7 billion in 2024 has a projected compound annual growth rate (CAGR) of 11.6% until 2029, taking the market value to approximately $849.6 billion by the end of the period. Such a huge market understandably has a vast ecosystem involving banks, payment companies, gateways, and regulatory bodies. For business entities in the UK, it’s important to have some clarity on the operating mechanism of this industry.

The global payment system is powered by the infrastructure and technology provided by established payment processing companies like Visa, Mastercard, PayPal, and Stripe, which dominate the payment processing industry. These corporations process billions of transactions daily. Nevertheless, the industry is also home to a diverse array of smaller, specialised processors that concentrate on specific sectors, including high-risk merchants, small businesses, and mobile payments. For instance, Wonderful is fast becoming a popular name in the UK market due to its adoption of simple, fast and secure open banking technology, user-friendly interface and highly aggressive price point.

Conclusion

Payment processing services are an important component of modern business. They have a huge short-term and long-term impact on operational convenience, customer satisfaction, transactional security, and the resultant business health of organisations of all sizes. While selecting the ideal partner from several payment processing companies in the UK, you must consider their reputation, service packages, and cost structure to make an informed decision.

FAQs

How should new businesses approach payment processing?

First, new businesses should figure out what kind of payment processing services they need based on the expected number of transactions and customer interests. You need to look at the costs, benefits, and customer service of several payment processors to find the best one for your needs.

What are the best payment processing companies in the UK?

The UK’s expanding payment processing industry has made it one of the top markets for several international players while encouraging new organisations to grow within the country. Some of the key names are Wonderful, PayPay, Stripe, Square, and Helcim.

What is the best real-time payment processor for businesses?

Wonderful, Stripe, and Square are popular choices for instant payment processing.

How do payment processing companies work?

Payment processing companies facilitate transactions between merchants and consumers by managing the technical aspects of payment processing, such as authorisation, authentication, and settlement.

What is the FCA in England?

The Financial Conduct Authority (FCA) is the regulatory entity responsible for the regulation of financial markets in the United Kingdom, ensuring that businesses operate fairly and transparently.

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