Your guide to payment processing: Solutions, services and top UK payment companies

Regardless of the type of business you run, 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 processor for your business.

The UK payment processing industry

Market overview & key insights

The UK payment processing sector is experiencing significant growth, with an approximate value of $490.7 billion in 2024, and a forecasted compound annual growth rate (CAGR) of 11.6% through 2029. By the end of this period, the market is projected to reach around $849.6 billion, highlighting the increasing adoption of digital payments among both businesses and consumers.

This flourishing market is supported by a comprehensive network of banks, payment processors, payment gateways, and regulatory authorities. As consumer expectations rise for effortless, secure, and rapid online transactions, UK businesses must keep abreast of the latest payment processing developments to maintain their competitive edge.

Understanding the key players, emerging technologies, and regulatory landscape is essential for choosing the right payment processor. A well-informed choice ensures seamless transactions, robust security, and full compliance, enabling businesses to thrive in an increasingly digital economy.

Payment processing fundamentals

Payment processing generally consists of five primary phases and functions within an intricate framework that ensures transactions are processed efficiently. Understanding the fundamentals of this process is essential for business owners.

The five phases of payment processing

1. Payment initiation: The payment process begins when a customer initiates a transaction by swiping a card, entering card details online, using a digital wallet, or making an open banking payment.
   
2. Payment authorisation: Once the transaction has been initiated, the payment processor receives the transaction data and requests authorisation from the issuing bank. The bank then verifies whether the customer has sufficient funds or available credit and responds with either an approval or a decline.
   
3. Payment authentication: In this stage, the transaction details—such as the card number, expiration date, and CVV code—are verified to prevent fraud and ensure the legitimacy of the transaction. Open banking transactions bypass card networks and leverage Strong Customer Authentication (SCA), typically confirmed via a mobile banking app using biometric security. As a result, sensitive financial data is neither collected nor stored.
   
4. Clearing: Once authorised and authenticated, the transaction details are sent to the acquiring bank for processing. During this phase, the acquiring bank temporarily holds the funds before transferring them to the merchant's account.
   
5. Settlement: The final stage of payment processing occurs when the acquiring bank transfers the funds to the merchant’s account, completing the transaction. While standard settlement can take a few days, some payment processors offer faster options to improve business cash flow. Open banking settlements, in particular, are near-instant, often completed within seconds.

Key elements of payment processing

Even though payment processing may appear simple, it includes several crucial elements that collaborate to guarantee secure and smooth transactions.

●     Merchants: Essential to the payment processing ecosystem, merchants receive payments from customers in exchange for their goods or services.

●     Customers: The payment process is initiated when a customer submits their payment information to finalise a transaction.

●     Payment gateways: Serve as a secure link between the merchant and the payment processor. Payment gateways send transaction details while encrypting sensitive data to avert fraud. They integrate with the merchant’s website or POS system to enable secure payment processing.

●     Payment processors: The payment processor manages the entire transaction flow, encompassing authorisation, authentication, clearing, and settlement. They are responsible for ensuring that transactions are processed securely among all parties involved.

●     Acquiring bank: This bank is associated with the merchant and is responsible for receiving funds from customer transactions. It collaborates with the payment processor to transfer the funds into the merchant’s account.

●     Issuing bank: The bank associated with the customer, referred to as the issuing bank, authorises transactions by confirming payment details and ensuring adequate funds or credit are accessible before releasing the payment to the acquiring bank.

Types of payment processing solutions

UK businesses need reliable payment processing solutions to accept and manage transactions securely. These solutions encompass the technology and infrastructure necessary to enable payments through various channels—whether online, in physical stores, or through mobile devices. Depending on the specifics of the business, payment solutions can be tailored to ensure smooth transactions. Below are the main types of payment processing solutions that are available:

1. Online payment solutions: E-commerce companies depend on secure online payment solutions to handle transactions effectively. These typically include payment gateways, which serve as a link between a merchant’s website and the payment processor. Notable payment gateways in the UK include PayPal, Stripe, and GoCardless, allowing businesses to receive payments through credit cards, digital wallets, and direct bank transfers. These solutions boost security and ease for online shoppers.

2. In-store payment solutions: Retail POS systems are crucial for managing card and mobile payments during checkout for brick-and-mortar retail stores. Point-of-sale systems, such as those provided by Square and Clover, enable businesses to accept debit and credit cards, contactless payments, and mobile wallets. Many contemporary POS systems also incorporate extra features like inventory management, customer loyalty programs, and real-time sales tracking, making them valuable assets for business expansion.

3. Mobile payment solutions: With the growth of mobile commerce, businesses are progressively implementing mobile POS solutions that facilitate transactions through smartphones and tablets. These solutions accommodate contactless payments, QR code transactions, and mobile wallets such as Apple Pay, Google Wallet, and Samsung Pay. Mobile payment options provide enhanced flexibility for businesses and an uninterrupted checkout experience for consumers.

4. Integrated payment solutions: Integrated payments offer a cohesive payment processing solution for businesses that function across multiple platforms—online, in-store, and mobile—that guarantees seamless transactions across all channels. These solutions assist businesses in managing payments more effectively while delivering customers a consistent and convenient payment experience.

Payment processing services

What are payment processing services?

Payment processing services facilitate the safe and efficient transfer of payments from a customer's account to that of a merchant. These services are provided by FCA-authorised payment processors and handle essential tasks such as authorising and managing transactions, preventing fraud, ensuring compliance with regulations, and settling funds, which results in smooth and secure transactions.

How do payment processing services work?

Transaction management

Payment processors manage the entire transaction process—from the moment a customer starts a payment to when the funds are finally settled into the merchant’s account. By handling the intricate technical and logistical details of payment processing, these services enable businesses to concentrate on growth, customer satisfaction, and operational efficiency without the hassle of managing payments in-house.

Technology and compliance

Modern payment processors utilise advanced digital and physical technologies, including encryption methods, payment gateways, and point-of-sale (POS) systems, to make payment acceptance more secure and efficient. They also ensure compliance with UK financial regulations, like PCI DSS (Payment Card Industry Data Security Standard), protecting both businesses and consumers against fraud and security risks.

Modern features and business impact

Furthermore, contemporary payment processing services offer integration with e-commerce platforms, solutions for recurring billing, and multi-currency support, serving businesses of various sizes and industries. As digital payments continue to gain popularity, selecting the right payment processor can improve customer experience and support business growth.

Why are payment processing services important?

Payment processing is essential for businesses as it allows them to accept payments securely through several methods, including credit and debit cards, digital wallets, bank transfer solutions, and direct bank transfers. These services simplify transactions and enhance customer satisfaction by providing convenient and secure payment choices.

The benefits of using a payment processing service

Numerous businesses in the UK opt for payment processors that offer all-inclusive solutions, merging payment processing with additional services like fraud prevention, transaction analysis, and customer assistance. These offerings are particularly advantageous for small and medium-sized enterprises (SMEs) as they simplify payment management, lessen administrative workloads, and eliminate the requirement to liaise with various providers.

By integrating security measures, adherence to regulations, and cutting-edge payment technology into one platform, payment processors boost operational efficiency, lower the risks of fraud, and facilitate quicker fund settlements. This not only aids businesses in effectively managing cash flow but also enhances the customer experience and contributes to long-term financial stability.

What is a competitive payment processing rate in the UK?

Choosing the appropriate payment processor requires thorough cost analysis. Grasping the elements that impact pricing frameworks can assist businesses in obtaining the best possible rates.

Key elements influencing payment processing rates

The cost of payment processing depends on several variables, including:

• Type of business – Certain sectors, like high-risk merchants, may incur elevated fees.
• Volume of transactions – Larger transaction volumes could qualify for reduced rates.
• Methods of payment – Card payments, digital wallets, and open banking transactions may have different fee structures.
• Service features – Some providers impose additional charges for fraud protection, chargeback management, and premium customer support.

In the UK card processing sector, typical fees range from 1.5% to 3.5% for each transaction, along with a fixed charge of approximately 20p per transaction. Extra expenses such as setup fees, monthly fees, and chargeback costs may also be applicable, affecting the total expenditure.

How to identify the best payment processing rate

A competitive rate depends on the services, security, and scalability offered by the payment processing company. While many enterprises focus on the lowest transaction costs, it is vital to consider:

• Dependability and speed of settlement
• Measures for preventing fraud
• Integration with current business systems

Identifying the best payment processing rate goes beyond just transaction costs. Businesses should prioritise reliability, security, and seamless integration to ensure a smooth payment experience. By evaluating these factors alongside pricing, enterprises can choose a payment processor that supports long-term growth and operational efficiency.

Payment processing companies

What are payment processing companies?

Payment processing companies provide solutions and services which facilitate secure and efficient financial transactions among buyers, sellers, and financial institutions. They handle the technical elements of payments, which include data encryption, fraud prevention, regulatory compliance, and transaction settlement. By ensuring that payments are authorised, authenticated, cleared, and settled according to UK financial regulations, these companies assist businesses in maintaining smooth and secure payment operations.

Key players in the payment processing industry

Top international payment processing companies like Visa, Mastercard, PayPal, and Stripe manage billions of transactions everyday, serving as the foundation of digital payments globally. Nevertheless, the UK market also includes several specialised payment processors that cater to different business requirements. Some target high-risk merchants, while others provide customised solutions for small and medium-sized enterprises (SMEs), subscription-based businesses, and mobile payment platforms.

• SumUp and Zettle are popular among SMEs and smaller retailers for their user-friendly mobile card readers and point-of-sale (POS) systems.
• Worldpay and Checkout.com provide enterprise-grade payment solutions with a strong global presence, supporting businesses that operate across multiple markets.
• Wonderful is an emerging UK payment processor that leverages open banking technology to deliver faster, more secure transactions at 1p per transaction.

How to evaluate payment processing companies

With numerous options available, UK businesses must thoroughly evaluate payment processors based on their sector, transaction volume, security features, and integration capabilities to identify the most suitable choice for their requirements.

1. Pricing and fee structures

Understanding a payment processor's pricing model is crucial. Some processors offer tiered pricing, allowing high-volume merchants to benefit from lower transaction fees. Businesses should compare costs, including transaction fees, monthly charges, and additional service fees, to find a cost-effective solution.

2. Security and compliance

Strong fraud prevention tools and adherence to industry standards, such as PCI DSS (Payment Card Industry Data Security Standard), are essential for safeguarding transactions. A reliable payment processor should offer advanced security measures like encryption, tokenization, and fraud detection systems.

3. Integration and scalability

Seamless integration with existing business systems, e-commerce platforms, and accounting software is key to operational efficiency. Additionally, businesses should choose a payment processor that can scale with their growth to avoid the hassle of switching providers later.

4. Customer support and reliability

Responsive customer support is critical, especially for businesses processing high volumes of transactions. Businesses should evaluate a processor's support channels, response times, and overall reliability to ensure smooth operations.

4 best payment processing companies in the UK

Selecting the right payment processing company requires balancing cost-effectiveness, security, integration, and scalability. By thoroughly assessing pricing, service quality, and long-term business needs, UK businesses can choose a payment processor that enhances efficiency, improves customer experience, and supports sustainable growth. With this in mind, we have shortlisted a mix of new and seasoned payment processing companies that are making waves in the UK market, offering a blend of features, flexibility, and affordability.

1. Wonderful

Wonderful is a UK-based payment processor which offers POS solutions powered by open banking for online and in-person transactions. Their API integration and mobile POS app offer instant payments and settlements at only 1p per transaction.

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.

Conclusion

Payment processing services are essential for contemporary businesses as they impact operational efficiency, customer satisfaction, transaction security, and overall financial health. When selecting a payment processing company, it is important to carefully evaluate elements like reputation, range of services, security protocols, and pricing models. By opting for a trustworthy and affordable payment processor, companies can guarantee smooth transactions, improved security, and sustained growth in a progressively digital economy.

FAQs

How should new businesses approach payment processing?

Emerging businesses should begin by determining the kind of payment processing services they require, taking into account aspects like anticipated transaction volume and preferred payment methods. It is crucial to assess various payment processors, analysing their fees, security features, integration capabilities, and customer support.

What are the best payment processing companies in the UK?

The expanding payment processing sector in the UK has drawn major global players while supporting the development of local companies. Among the prominent payment processing companies in the UK are Wonderful, PayPal, 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.

Photo by Christiann Koepke on Unsplash