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Payment processing systems and solutions

Discover how you can ensure smooth, secure transactions with the right payment processing service — and compare payment processors with SpotDif.

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Your guide to payment processing systems

These days, many of us use card payments for our everyday purchases. From online shopping to contactless payments, we’re moving away from cash and towards card transactions. But have you ever wondered how these payments are processed? Behind the scenes, payment processing systems are consistently working hard to ensure that your transactions are smooth and secure.


Not only is this important for customers but it’s also essential for businesses. No matter your business size or industry, if you handle transactions, finding the right payment processing system is key to smooth, secure finances. Payment processing systems seem complex at first, but our guide is here to explain how they work and what to look out for. Once you have a good understanding of your options, you can compare payment processor suppliers using our handy online tool.

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Payment processing: what it means and how it works

Payment processing is the technology that ensures every transaction at your business, — whether online or in-store —  is secure and streamlined. Whenever a customer makes a purchase by swiping a card, tapping their phone, or clicking 'pay' on your website, payment processing is actively at work. Put simply, it moves money from the customer’s account to yours, ensuring transactions are seamless.


Payment processors act as the digital link between your business and your customers. They help you exchange goods and services for money, playing a pivotal role in the economy by facilitating billions of transactions daily.


How does payment processing work?

In our experience, it’s vital to understand the system that keeps your business running smoothly. As well as helping you keep a close eye on your transactions and finances, it means you can have a clearer picture of what to look for when comparing payment processing suppliers.


So, what does payment processing entail? Here’s a breakdown of the key components and steps offered by payment processing service providers.


1. Payment gateway: This is your virtual cash register. It first captures payment information from your customers when they make a purchase. This information is then encrypted to maintain security and sent on for initial approval. Think of it as the first checkpoint in the transaction process.

       


2. Payment processor: Acting as the financial go-between, the payment processor takes over once the payment gateway forwards the encrypted data. It performs several key functions:


       


  • Validates the transaction to ensure it's legitimate.


  • Confirms that the customer has sufficient funds for the purchase.


  • Approves the transfer of payment from the customer’s bank to your merchant account.
       


3. Customer’s bank: Also known as the issuing bank, this holds your customer's funds. Once the payment processor confirms the transaction's validity and fund availability, the customer's bank authorises the transfer of funds to your merchant account.

4. Merchant account: This is where the money lands once everything is approved. It’s specifically set up to receive funds from card transactions and holds the money securely before moving it to your main business bank account.

       


5. Secure network: Throughout this process, every piece of information is protected by a secure network. This network acts as the backbone of your payment system, encrypting data and safeguarding communications from potential cyber threats, ensuring that all details remain confidential and secure.

       


As you can see, payment processing involves several actions. Some companies offer support in one area — such as managing your payment gateway — while others provide a full payment processing service, covering every aspect of the transaction.

The benefits of an effective payment processing system

An effective payment processing system does wonders for your business. It streamlines transactions and bolsters security, giving your customers the confidence to shop with you.


This setup not only simplifies operations but also supports your business's growth in a competitive digital marketplace. Wondering why else you should take your time in looking for the best payment processing service possible?


  • Ease of use: A good payment processor simplifies transactions. It lets your customers pay how they want, whether that's by credit card, debit card, or digital wallet.

  • Security: With rising concerns over data breaches, a secure payment processor protects your customers' sensitive information. This builds trust and credibility for your business.

  • Cash flow management: We understand that maintaining a steady cash flow is vital for your business. A reliable payment processor ensures that payments are deposited quickly into your account, helping you manage finances more efficiently.

  • Global reach: If you're looking to expand your business, the right payment processor is essential. It allows you to accept payments from customers all over the world.

  • Reduced admin: Automated processes cut down on manual tasks like data entry, saving you time and reducing errors.
  • Insights and analytics: Understanding customer spending habits can help you make informed decisions. Many processors provide analytics tools that help you track and analyse your sales.
contactless payment machine

Types of payment gateways

Exploring the different types of payment gateways is essential for making smart choices that align with your business's specific needs. Whether you're processing payments on your website, through an app, or in a brick-and-mortar shop, understanding how these gateways work can really boost your efficiency and security. 


So, what are your options? Let's dive into the various types of payment gateways and uncover which might be the best match for your business environment, ensuring every transaction is as smooth and secure as possible.


Online transactions

Do you work in eCommerce? If you accept online payments for goods and services, you have several payment gateway options.


Hosted payment gateways

These redirect your customers to a secure, external page to enter their payment details.  The transaction is processed externally, which reduces your PCI compliance requirements. After payment, customers are directed back to your site, usually to a confirmation page.


The main benefit of a hosted payment gateway is that it simplifies security and compliance, — especially useful if you lack the technical resources to secure customer data yourself.


Best for: We recommend this type of payment gateway to small businesses or startups that prefer not to handle sensitive payment data directly.   


Self-hosted payment gateways

This type of gateway allows you to manage the entire payment process — from data collection to submission — on your own website. You collect payment details on your website via a form, and then securely transmit this data to the payment processor's network. This option requires robust security measures to protect customer data.


Self-hosted payment gateways offer complete control over the user experience and payment processing, allowing for customisation and potentially faster processing times.


Best for: These are suited to businesses that require a fully integrated checkout experience and have the capability to secure customer data.


API-hosted gateways

This gateway type integrates payment processing capabilities directly into your website or mobile app through an API, without redirecting customers. 


APIs allow real-time data transmission between your website and the payment processor, enabling transactions to be processed as soon as the customer submits their payment information.


A major advantage of an API-hosted gateway is that customers have a smooth and uninterrupted user experience. You can also customise your options.


Best for: In our experience, API-hosted payment gateways are ideas for eCommerce aiming for a seamless user experience that keeps customers on their site throughout the transaction.


Local bank integration

Did you know it’s also possible to connect your eCommerce operations directly with a local bank’s payment system? Local bank integration redirects customers to their own bank’s secure payment page where they complete their transaction. The bank then communicates the result back to your website.


A benefit of this type of payment system is that it leverages the trust and security of local banks, potentially increasing customer confidence and conversion rates.


Best for: We suggest this option for businesses operating in regions where trust in local banks is high and customers prefer familiar payment methods.


In-store transactions

If your business carries out in-store transactions — either alongside online payments or instead of — your payment gateway will work a little differently.


Integrated POS systems

These systems combine robust POS hardware with integrated payment gateways to process in-store payments securely. How do they work? Card payment information is entered, either manually by swiping, inserting, or tapping a card, or throuh contactless payments, and is processed immediately via the integrated system.


These systems speed up transaction times and reduce errors, improving the whole customer checkout experience.


Best for: In our experience, an integrated POS system is best for retail shops with heavy foot traffic and a need for fast, reliable payment processing.


Mobile POS systems  

A mobile point-of-sale system allows you to accept payments anywhere within or around your premises. You may have an external card reader or use a mobile phone or device to process payments directly at the point of interaction.


Mobile point-of-sale systems offer flexibility in payment location. This can help improve customer service by reducing wait times.


Best for: If mobility is key to enhancing your customer experience — for example, if you run a cafe or restaurant with table service, we recommend looking at this type of payment system. 

Want to learn more about point-of-sale systems? Take a look at our guide to electronic payment (ePOS) systems.

How much are payment processing fees?

When looking into payment processing fees for your business in the UK, here’s what you generally need to know:


  • Transaction fees: These can vary from 1.5% to 3.5% of the transaction amount for credit card payments. Debit card payments might be lower.

  • Authorisation fees: These are quite small, typically about 1p to 3p per transaction.

  • Merchant Service Charge (MSC): This is usually between 0.25% and 0.35% per transaction.


These fees help cover the costs of processing payments, maintaining the payment infrastructure, and supporting the profitability of card networks. It’s a good idea to regularly check these fees and talk to your provider to make sure you’re getting a fair deal. Consulting with financial advisors or payment processing experts can also keep you up to date with the latest rates.

card machine

Payment processing companies in the UK

Let’s take a close look at some of the top payment processing companies in the UK. Whether you’re running an online shop or taking payments in person, picking the right payment processor is key to smooth transactions and happy customers.


Stripe

Stripe is fantastic for those who love tech. It’s very adaptable, integrating easily with your business systems. It’s perfect if you’re after a customised online payment process and don’t mind paying a bit more per transaction for top-notch security. 


However, the costs can add up for smaller businesses. It’s best for eCommerce businesses that need flexibility and strong security.


GoCardless

GoCardless is great if you handle regular payments like subscriptions. It has low fees, which is a plus for handling lots of transactions. 


But it only deals with direct debits, so it's a bit limited. We find it’s ideal for businesses like gyms or subscription boxes, where regular billing is common.


PayPal

PayPal is a well-known option that’s easy to use and accepts payments from around the world. It’s secure and works well for small to medium-sized shops online. The downside? Its fees are higher than some others, and it can sometimes put a hold on your funds. It’s a good choice if you're looking for reliability and a familiar name for your customers.


Square

Square is super for small businesses and pop-ups because it’s easy to set up and use. It offers a free POS app, which is a big plus.


However, it does charge higher transaction fees, and its inventory features aren't the most advanced. It’s perfect for cafes and small shops that need a straightforward, effective payment solution.


Apple Pay

Apple Pay is all about speed and security, making payments a breeze for anyone with an Apple device.


It's fast and uses biometric security, but remember, it won’t work for customers without Apple gadgets. We recommend integrating Apple Pay if you run a space where quick, hassle-free payments are vital, like fast-food spots or busy cafes.


What about transaction fees? 

Here’s an overview of how each payment processing service matches up when it comes to transaction fees.

Choosing the best payment processor

Not all payment processing service providers are the same. Different providers charge varying merchant or credit card processing fees. It stands to reason that you want to make sure you’re facilitating fast, secure transactions without paying excessive charges. So where do you start with finding the best payment processor for your business? 


We recommend always having the following points at the front of your mind when comparing payment processor services.


  1. Fees and costs: Make sure you understand all fees involved, including transaction fees, monthly fees, setup fees, and any hidden costs. 


  2. Type of transactions: Make sure the processor can handle all the types of payments you need, whether it’s in-person, online, or mobile.


  3. Ease of integration: Your payment processor should easily integrate with your existing systems like your POS system and accounting software.


  4. Security: Security is key. Choose a processor that uses strong encryption and complies with PCI DSS standards to protect your customers' information.


  5. Customer support: Good support is vital — ensure the processor you choose offers reliable customer service for any issues that might arise.


  6. Scalability: As your business grows, your processor needs to keep up. Check that they can handle more transactions and complex needs as you expand.


Taking the time to consider these factors will help you pick a payment processor that not only fits your current needs but also supports your business growth.

Find the best payment processing services with SpotDif

With over 2 billion debit and 379 million credit card transactions happening in the UK this year, it’s clear to see that card payments are a popular choice for consumers — and that’s without taking digital payments into account.  

So whether you run an independent cafe or an online business catering to a worldwide customer base, having the right payment processing system is essential for success and growth. If you’re wondering where to start with finding the right payment processor for your needs, try SpotDif. We’ll scour the UK and compare the best payment processing services so you can provide top service for your customers — and minimise merchant fees.

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Tansy Dando
Wealth and Business Writer
I aim to bring clarity to the complex sectors of wealth and business with researched content designed to help you make the best financial decisions for your needs.
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