Last editedJun 202311 min read
To set up basic online payment processing for your business, you will typically need a combination of a payment processor, a payment gateway and a merchant account to accept credit and debit card payments and digital wallet payments. To accept instant and recurring account-to-account bank payments, you can go with an all-in-one provider like GoCardless. Exactly which option you decide to go with will depend on your business and its unique requirements.
Although it might seem like a relatively simple process, accepting payments online can often be a complex undertaking that requires many different parts to work in harmony together. You can also streamline the process by bringing your payments under one roof, but much will depend on your customer base and your unique requirements. As a small business owner, it’s important to know the different options for accepting and processing payments online so you can understand the benefits and risks of various payment collection methods.
In this article, you will learn:
Online payment basics and how online payment works
Which online payment processing methods are available
Which online payment process may be suitable for your businesses
The benefits of the different web payment processing options
After reading this article you will be able to make an informed decision about the next steps in your online payment process journey.
How to collect payments with GoCardless
Create your free GoCardless account, access your user-friendly payments dashboard & connect your accounting software (if you use one).
Easily set up & schedule one-off or recurring payments via payment pages on your website checkout or secure payment links.
From now on you'll get paid on time, every time, as GoCardless automatically collects payment on the scheduled date. Simple.
How online payment works
Before discussing how online payment works, we need to understand the main methods for processing payments online.
The main online payment processing methods relevant to UK businesses are:
account-to-account bank payments
credit and debit cards
digital wallets (e.g. PayPal, Apple Pay).
Cards have historically been the most frequently used online payment method, but digital wallets are increasingly popular, thanks to smartphones. Similarly, account-to-account bank payments have seen a resurgence in recent years as a new generation of FinTechs combined with the development of open banking protocols have allowed SMEs access to proven payment collection methods such as Direct Debit and new payment products such as Instant Bank Pay.
We will now look deeper into the details of bank payments, card payments and digital wallets, as well as the major payment providers.
Processing account-to-account bank payments
In order to accept account-to-account bank payments online, all you need is a bank account. However, to reap the full business benefits of accepting bank payments, you will need a payment provider such as GoCardless.
Historically automated bank payment schemes, such as Direct Debit, have only been available to enterprise-level businesses, but as technology has advanced, a wave of FinTech providers have enabled SMEs access to the many business benefits of bank payment schemes.
GoCardless provides businesses with cost-effective access to the Direct Debit and Instant Bank Pay schemes and offers complementary products such as Protect+ and Success+ to combat fraud and failed payments.
With GoCardless taking care of the compliance and technical aspect of bank payment collection, business owners and finance managers can enjoy peace of mind and focus on more business-critical tasks.
Payments can be set up in the Merchant Dashboard in just a few clicks, authorisation forms are automatically sent to customers, and, once authorised, automated payment collection begins on the date set by you with no further action required by the customer.
How account-to-account payment processing works
Accepting account-to-account bank payments is a direct transfer of funds between two UK banks, making it a simpler process than accepting card payments, which involve multiple intermediaries.
The process is as follows:
The customer authorises payment via an online form allowing the business to automatically collect the funds when due.
The business’ bank and the customer’s bank communicate and action the payment request when the payment is due, ensuring the correct amount is debited from the customer and credited to the business.
There is typically a clearance period of three days between the payment due date and the date the funds are deposited into the business’ account.
Bank payments - key takeaways
Whilst bank payment is not typically suitable for online retailers and e-commerce stores, it does offer several advantages for businesses that need:
to collect recurring payments
to collect invoice payments
to collect instant payments
to collect from customers based in UK, EU, USA, the Nordics, Australia or New Zealand
to eliminate late payments
to reduce manual admin
Using bank payment schemes such as Direct Debit and Instant Bank Pay to collect one-off or regular and irregular recurring payments offers businesses:
lower transaction fees
higher payment success rates
elimination of late payments
significant reduction in manual admin
better visibility on upcoming payments
high levels of security
Processing online card payments
If you’re looking to accept card payments online, you’ll need three critical pieces of software. These three components work together; if even one is missing, the entire system will stop working.
Here’s a little more information about the critical components of online payment processing for cards:
A Payment processor manages the card transaction process by transmitting data from your customer’s credit/debit card to your bank and the customer’s bank.
Payment processors deal with issues such as:
credit card validity
If sufficient funds are in their account, the transaction will be approved, and the payment will go through. In a sense, you can think of the payment processor as an intermediary between the bank and the merchant.
A Payment gateway is essentially an online version of a point-of-sale device, helping to connect your website and the payment processor. Furthermore, payment gateways can help connect your merchant account with credit/debit card issuers.
In short, the payment gateway handles the technical side of the transaction and ensures that you’ll be able to receive your customers’ payments.
A Merchant account is a specific type of bank account that enables your business to accept online payments. Without a merchant account, there’s nowhere for the money that your customers have transferred to you to go.
While you won’t have direct access to the account, funds from your merchant account will be transferred automatically to your business bank account within one or two working days.
Some online payment processing software packages offer an all-in-one solution that ties together the payment processor, payment gateway, and merchant account in one bundle. In other cases, the payment gateway and merchant account will be combined with a third-party payment processor.
If you want to make the process for accepting credit and debit cards as simple as possible, it’s best to go with an online payment processing company offering an all-in-one solution, like Worldpay or PayPal.
The payment process for cards
When accepting card payments online, eight different entities are involved in the process:
the business (you)
the credit card network
the payment processor
the payment gateway
the merchant account
the customer’s bank
Here are the online payment process steps:
1. The customer first chooses an item to purchase and completes the checkout process. They’ll choose to pay via credit/debit card and enter their card details on your payment page.
2. Next, the card information is transferred to the payment gateway. At this point, the payment gateway will transfer the information to the payment processor.
3. The payment processor then transfers the transaction information to the credit card network, verifying the customer’s credit card details.
4. Once the verification is complete, the card network requests authorisation to release the funds with the customer’s issuing bank. After confirmation that there are sufficient funds in the account and a verification check has been run to ensure that the transaction isn’t fraudulent, the issuing bank will submit a response to the credit card network that indicates whether or not the transaction has been approved.
5. This information is then relayed to the payment processor, which requests a funds transfer from the issuing bank. These funds are then transferred to the merchant account, where they’ll sit for a couple of days before they’re transferred to the business’s bank account by the payment processor.
Card payment key takeaways
While card payments are largely convenient for customers and provide same or next-day payment confirmation for businesses, they are not without issues.
Due to the number of steps and intermediaries involved in the process, transaction fees are relatively expensive for merchants accepting card payments. Furthermore, cards are susceptible to fraud and also experience relatively high payment failure rates due to lost and expired cards, resulting in lost customers for subscription businesses.
Read more about online payment options.
Processing digital wallets payments
Digital wallets are increasingly popular with consumers in certain markets but are not a good option for everyone. As a business, here are the steps you might want to take to get set up to accept online digital wallet payments:
Research digital wallets
Check for compatibility
Apply for a merchant account
Integrate the digital wallet
Test the integration
Comply with regulations
The payment processing steps when accepting digital wallets as online payments in the UK are as follows:
Customer selects an item for purchase
Digital wallet key takeaways
Whether digital wallets will be an important part of your payment collection mix will depend on your target market and how they access your website.
For businesses with a target market typically under 35 years of age and who access the web primarily through mobile devices, digital wallets should definitely be among the payment methods offered to customers.
However, digital wallets will not be an important part of your payment mix for businesses whose customer base is older, or whose website is accessed mainly via desktop computer. Similarly, B2B businesses will have less need for digital wallet payments than B2C businesses.
We have discussed how the basics of online payment processing for small business works across the three major payment methods - bank payments, cards and digital wallets - and highlighted the main providers. It is clear that when choosing a payment provider for your business, it’s essential to ensure it’s a good fit with your business goals and customer base.
Payment processing use cases
Before deciding on a payment provider, you should establish exactly which payment methods you will accept so you can research relevant providers.
Bank payment use cases
Businesses that generally have a high volume of recurring payments, such as subscription-based businesses or businesses that bill customers on a regular basis, would likely be better off accepting bank payments.
This is because bank payments typically have lower transaction fees than credit or debit card payments. They also have a lower payment failure rate which reduces costs and increases revenue for the business.
Additionally, bank payments are less susceptible to fraud and more convenient for your customers. Bank payments are automated, so customers aren’t required to make manual payments each time.
There are multiple use cases for collecting online via bank payments:
Recurring billings: Businesses that need to process recurring invoices, such as utility companies or service providers, can benefit from the lower cost, ease of set up and automation of recurring bank payments.
Subscription-based businesses: Companies that offer recurring services such as monthly or annual subscriptions can benefit from the automation, high payment success rates and cost-effectiveness of bank payments.
Non-profit organisations: Charitable organisations and non-profits will find the cost-effectiveness of bank payments and the ability to set up recurring donations very attractive.
Small business: Small businesses with limited budgets benefit from bank payment's low transaction fees, the absence of monthly fees and, most importantly, the elimination of late payments.
Invoicing businesses: Late payment of invoices is a considerable issue for UK SMEs, but collecting payment via automated bank payment ensures invoices are settled on due dates, meaning no more late payments.
Utility companies: Utility companies such as gas, electric, and water companies would be better off accepting Direct Debit payments as it makes it easy for customers to keep up with their bills and pay them on time.
Government agencies: Government agencies such as local authorities, tax collection agencies, and government departments would be better off accepting Direct Debit payments as it makes it easy for citizens to pay their taxes and other government-related payments.
Educational institutions: Educational institutions such as schools and universities would be better off accepting bank payments as it makes it easy for students and parents to pay tuition and other fees.
Businesses that don't sell to the general public: B2B businesses that sell to other businesses and not consumers, may find bank payments to be more suitable than card payments.
Businesses that need instant payments: Instant Bank Pay offers real-time payment collection for UK businesses via open banking protocols. Many businesses need immediate payment, often whilst a recurring payment is set up, and this can now be completed cost-effectively via Instant Bank Pay.
Card payment use cases
Accepting card payments online is a must for certain businesses due to their convenience for consumers. This being the case, the main use cases for accepting card payments online in the UK are e-commerce stores and online retailers.
Businesses with a global customer base and those that need to confirm payments instantly should accept card payments. These businesses trade the high fees and failure rates associated with card payments for global reach and same or next-day payment confirmation.
Digital wallet use cases
Digital wallets for online payments will not be a relevant option for many businesses. Online payments exclude high street stores and hospitality businesses as they deal mostly with in-person payments, however, some types of businesses will have a strong incentive to accept digital wallet payments:
E-commerce businesses: E-commerce businesses will definitely need to accept digital wallet payments, as many customers prefer this payment method when shopping online.
Online retail businesses with mobile payments: Retail businesses that accept mobile payments will definitely need to accept digital wallet payments as it's the most common mobile payment method.
Businesses that cater to younger consumers: Businesses that cater to younger consumers, such as fast food delivery services, online gaming, and streaming services, will definitely need to accept digital wallet payments as usage is much higher in this demographic.
It's worth noting that while these businesses will definitely need to accept digital wallet payments, they should also consider other payment options to cater to payer preferences. Studies show that offering a mix of payment methods increases sales and transaction value.
How to Add Payment Processing to Your Website
There are several ways for businesses to add payment processing to their website:
Payment gateway: One of the most popular options for adding payment processing to a website is to use a payment gateway. A payment gateway is a service that connects a website to a merchant account and payment processor. It securely transmits the customer's credit card information to the payment processor for authorisation and processing. Some popular payment gateway providers include Stripe, PayPal, and Square.
Shopping cart software: Another option is to use shopping cart software, which is software that allows businesses to set up an online store and accept payments. This software can be integrated with a payment gateway or merchant account, and it includes features such as product management, inventory tracking, and customer management. Some popular shopping cart software providers include Shopify, WooCommerce, and Magento.
Developer resources: If your business has a developer team, you can use developer resources provided by payment processors to add payment processing to your website. This option provides more flexibility and control, but it also requires more technical expertise.
Plugins and extensions: For businesses using a content management system (CMS) such as WordPress, there are plugins and extensions available that can be used to add payment processing to a website. These plugins and extensions can be integrated with a payment gateway or merchant account, and they can be used to add features such as payment buttons and shopping carts.
Payment button generators: Payment button generators are easy-to-use tools that allow businesses to create payment buttons that can be added to their website. These buttons can be linked to a merchant account or payment gateway, and they can be used to accept payments for products or services.
Third-party integration services: Some businesses may outsource their payment processing to third-party integration services. These services can handle all aspects of the payment process, including security and compliance, and they can be integrated with a website with minimal effort.
Adding GoCardless to your website
GoCardless offers several options for adding payment collection to your website:
API: GoCardless provides an API that allows businesses to integrate direct bank payments into their website or application. The API enables you to create and manage bank payment mandates, payments and refunds, and access customer and transaction data.
Checkout pages: GoCardless offers customisable checkout pages that can be embedded on a business's website. These pages allow customers to authorise and make payments directly from the business's website.
Payment links: GoCardless also allows businesses to create payment links that can be sent to customers via email or text message. Customers can click the link to authorise and make payments.
Plugins: GoCardless also offers plugins for popular e-commerce platforms such as Shopify and WooCommerce that allow businesses to easily add bank payment collection to their website.
These options allow businesses to choose the method that best suits their needs and technical capabilities. It's also worth noting that GoCardless offers detailed documentation and support to help businesses with the integration process.
Ultimately, the method a business chooses to add payment processing to its website will depend on technical expertise, budget, and specific needs. Many payment processors and gateways provide various options and guides to help businesses integrate their services with a website.
How much does online payment processing cost?
Stripe, Square, PayPal and GoCardless are all popular online payment processors that businesses can use to accept customer payments online.
Perky Blenders, an east London coffee roasting and brewing business, has used GoCardless to automate payment collection to save 2 days of operational work per week for the founders and £20,000 on admin costs.
It’s not only about saving time and money but serving customers better:
The GoCardless integration with Xero has proven to be very valuable for the business, as founders Victoria and Adam explain:
Ultimately GoCardless has streamlined and upgraded the Perky Blenders payment process to provide a better customer experience while at the same time lowering costs and reducing manual work.
We can help
GoCardless provides businesses with a fully-supported and cost-effective online payment processing service for account-to-account bank payments with high levels of security and payment success.
As well as collecting from UK customers, GoCardless offers cross-border payments for Europe, the United States, the Nordics, Australia and New Zealand.
For businesses that want to collect payments on time and with minimal manual admin, GoCardless helps you automate payment collection, reducing the amount of admin your team needs to deal with and eliminating late payments, even on invoices!