UK Payment Methods

UK’s Payments Ecosysystem is regulated by the PSR (Payment Systems Regulator) which covers:

• System operators (such as Pay.UK [which operates Bacs, Faster Payments, and Cheque and Credit Clearing including the Image Clearing System], Visa, Mastercard and LINK)
• Payment service providers (PSPs) (such as banks, building societies, merchant acquirers and payment institutions)
• Infrastructure providers for the systems (such as Vocalink, which provides the infrastructure for LINK, Bacs and Faster Payments)

How UK pays: More than many European countries, Britain is clearly a card market. British consumers pay for 51% of all online transactions by credit or debit card. 32% are paid for with an e-wallet, 7% by bank transfer and 1% in cash. 9% are paid for with other, niche, payment methods. Looking at the card market, Visa has a 78% market share, Mastercard 21%, and American Express 1%.

Other payment methods:

• • BACS: (Bankers’ Automated Clearing Services ) Bacs payment services are operated and managed by Pay.uk, an organisation responsible for the UK’s retail interbank payment systems.
  • There are two main types of Bacs payment;
    • • Direct Debit: where one party has been given permission to pull money from the bank account of another party. 
      • It is typically used for taking regular or recurring payments like household bills, subscriptions, memberships or charitable donations. 90% of the UK public pays regularly with direct debit. Direct Debit is extremely flexible and can be used to collect a wide variety of payments, including:
        • • one-off payments
          • invoice payments
          • irregular recurring payments
          • subscription payments

                          Advantages of Direct Debit

• • • • • • Lower cost per transaction than credit and debit cards.
          • Great for recurring payments. Once you have a Direct Debit in place, you can sit back and forget about it. 
          • With the Direct Debit Guarantee, customers are protected against payments made in error or fraudulently. 
          • Unlike credit and debit cards, which can be stolen, lost or expire, a Direct Debit is relatively future-proof. That means failed payments are minimised. The success rate of Direct Debit with GoCardless is 97.1% and above, compared to just 85% – 90% for cards

                         Disadvantages of Direct Debit

• • • • • • Direct Debit is not suitable for same-day payments, as payments take 3 working days to process. Traditionally, Direct Debit could only be offered by larger businesses with the financial and legal resources to be scheme-compliant. Though Direct Debit still requires Bacs-approved software, third-party payment platforms such as GoCardless are making Direct Debit accessible to SMEs and smaller businesses.
          • Though ‘set and forget’ is usually seen as a benefit of using Direct Debit, some customers may prefer to keep complete control of their payments and manually action each transaction themselves.
          • If a customer does not have the necessary funds in their bank account, then their bank could refuse to pay the Direct Debit.
      • Direct Credit, where a party deposits the money in the other party’s account.
  • Bank-to-Bank payments can also be made through Faster Payments and CHAPS. Faster Payments allows for near real-time payments between bank accounts in the UK. Meanwhile, CHAPS is a same-day payment method for high-value transactions (e.g. for buying property).

    • Faster Payments (FPS) provides a way of sending and receiving low-value, real-time payments with no fees, and can be completed online, via banking apps, in branch, and by phone. Faster Payments are usually free, and as the system is capable of processing a high volume of transactions, it can be utilised not only for instant transfers, but also standing orders, bill payments, and forward payments. Online and mobile banking benefitted hugely from the introduction of Faster Payments, with customers able to send funds in real-time at the click of a button. The downside to Faster Payments is that it is capped at £250,000, though most financial institutions will set their limit far lower than this cap. This means that businesses and consumers are still tied to using CHAPS if they need to make a same-day payment, or Bacs if they have some flexibility on settlement times.

    • CHAPS (Clearing House Automated Payment System) is a real-time gross settlement system (RTGS) that was introduced to speed up payment processing of high-value transactions in the UK. Providing instructions are received before the specified cut off time on a working day, funds will be processed on the same day. Urgent real-time settlement of funds is also available.

      CHAPS is often used for the transfer of one-off payments, such as property purchases, wholesale financial payments, corporate treasury, and other high-value payments, however, there is no minimum or maximum payment limit. While fast and reliable, CHAPS is not cheap, with some banks charging end users up to £35 per transaction. Additionally, once a payment is instructed, it is irrevocable between direct participants (bank to bank), meaning that it is not possible to revoke the payment. Financial institutions including PSPs access the system indirectly with payments being routed via direct participants.

  • PayPal
  • BNPL:
    • Klarna
    • ClearPay (aka AfterPay outside EU)
  • PayM (Shutting down in 2023)
  • Account to Account Transfer:
    • • Pay By Bank App (MasterCard)
      • Pay with bank Transfer (Amex)
  • LINK is the network of cash machines that give you access to your bank account from almost anywhere in the UK.