Enabling your business to accept payments in the UK creates the opportunity to grow your customer base in the top European market for online shopping. E-commerce revenue in the UK totalled £129 billion in 2021, representing the many possibilities for business growth. Businesses and customers in the UK have spent recent years grappling with new and shifting factors, including transformed payment experiences, rigid payment security measures, and faster-than-ever international transactions.

Here, we’ll explore how foreign businesses can participate in the UK payment system by:

• Implementing security measures
  
• Incorporating contactless payments
  
• Streamlining international transactions
  

The state of the market

In the United Kingdom, where the primary currency is the British pound sterling (GBP), common payment options include traditional and modern methods. Though cash is still used in the UK, digital payment methods are more popular, and they continue to gain ground. Widespread use of smartphones has accelerated the adoption of mobile wallets such as Apple Pay and Google Pay, which facilitate quick, touchless transactions while maintaining digital purchase records.

Multiple agencies supervise and regulate financial activities within the UK. Familiarity with the local regulations and supervisory bodies will help make an expansion into the UK as smooth as possible. Among these institutions are the Bank of England, the Financial Conduct Authority (FCA), and His Majesty’s Treasury (HMT). These agencies establish rules and guidelines to promote transparency and data protection, including mandates for Anti-Money Laundering (AML) and Know Your Customer (KYC) procedures.

Payment methods

Payment preferences vary across the UK, constantly evolving as payment trends shift with new technological advances.

Current usage

Contactless payments have rapidly gained popularity in the UK: 83% of people in the UK make contactless payments. Customers and businesses use this method for its quick transaction time, ease of use, and integration with other technologies such as digital wallets.

Leading contactless payment methods include digital wallets and contactless cards, and Apple Pay and Google Pay dominate the digital wallet sector. Contactless cards and digital wallets use near-field communication (NFC) technology, which lets customers make credit or debit card payments by bringing their physical card or mobile device close to a point-of-sale (POS) terminal.

Mobile payments have noticeably increased in the UK, with both businesses and customers adopting various methods for financial transactions. The number of people who use smartphones to make in-store contactless payments in the UK is expected to increase by nearly three million between 2022 and 2026. Mobile payments are gaining acceptance among smaller businesses and freelancers due to their minimal setup requirements and emerging technologies, such as biometric authentication, which add extra security.

Popular B2C payment methods in the UK

• Contactless credit and debit cards
  
• Digital wallets (e.g. Apple Pay)
  
• Bank transfers
  
• Direct debits (e.g. Bacs)
  

Popular B2B payment methods in the UK

• Credit cards
  
• Bank transfers
  
• Direct debits (e.g. Bacs)
  

Emerging trends

Cryptocurrency is starting to influence the UK financial sector, with a 2022 survey showing that around 10% of UK adults hold or have held cryptoassets. Customer interest for cryptocurrencies is particularly strong among younger people, with the 2022 survey finding that 76% of cryptoasset owners in the UK were under 45. Businesses are also showing interest, and several large corporations accept cryptocurrency for goods and services; some even include digital currencies in their asset holdings. However, regulatory uncertainties and questions about large-scale adoption persist.

Ease and friction of entry

Expanding your business into the UK isn’t all that different from expanding into other developed markets, although it is complicated by the fact that the UK is no longer a part of the European Union. Here are a few factors to keep in mind (though this is not a full guide):

Taxes

Running a business comes with multiple financial obligations, including national and local taxes. Income and corporate taxes are primary considerations at the national level. Business rates – a type of tax levied on business properties – are sometimes referred to as “non-domestic rates”, and they can apply depending on the location and size of the business. Sales tax, or value-added tax (VAT), is another consideration, and the standard VAT rate is set at 20%.

Chargebacks and disputes

Although the UK doesn’t have a specific central body that regulates chargebacks, general customer protection laws are in effect. The Consumer Credit Act and other UK-specific laws offer guidance for the dispute process and set forth corrective measures. Chargebacks can be financially burdensome for business, affecting more than just immediate revenue. Additional consequences can include chargeback fees from banks and the potential termination of your merchant account if chargebacks become too frequent.

International payments

Whether your business involves cross-border purchases in person from tourists or online purchases from customers abroad, here are some key aspects of accepting international payments in the UK to consider:

• SEPA transfers
  Although no longer a member of the European Union, the UK still belongs to the Single Euro Payments Area (SEPA) zone. SEPA allows for fast credit transfers between the 36 member countries.

• Currency conversion
  Currency conversion remains a key concern for UK businesses involved in international trade. Like the US, the UK uses floating exchange rates, which means the value of currency changes based on market forces such as supply and demand. Businesses have multiple options for handling currency conversion, such as traditional banks, online platforms, and foreign exchange brokers.

• Platforms from emerging markets
  Payment methods vary by market, meaning businesses must stay flexible and adapt. If you expect to attract customers from other countries when they visit the UK, it can be helpful to accept popular payment methods from emerging markets – such as WeChat Pay and Alipay – to make the checkout process as easy as possible.

Security and privacy

In the UK, businesses in all sectors must focus on security, compliance, and regulatory factors. This is particularly important for payment systems in which the following aspects are intricate and have significant implications:

• Data protection laws
  Local laws on data protection and privacy are stringent, and it’s necessary to comply with laws such as the Data Protection Act. Further initiatives are in progress to strengthen data protection measures, including a proposed bill ensuring the UK’s data laws are on par with the EU’s. Depending on the scope of the business, compliance with international laws such as the EU’s General Data Protection Regulation (GDPR) may also be necessary.

• Anti-Money Laundering (AML)
  AML consists of a set of laws, regulations, and procedures designed to prevent criminals from disguising funds obtained illegally as legitimate income. Like businesses in the United States, businesses in the UK are required to do their due diligence by verifying the identities of their customers and keeping detailed records of transactions.

• Fraud prevention technologies
  To mitigate the risk of fraudulent activities, businesses can employ fraud detection systems that monitor incoming and outgoing online traffic. Automated systems scrutinise user behaviour to flag unusual activities, and transaction monitoring algorithms scan for odd payment activities – such as multiple failed attempts within a short time frame.

Key success factors

Because the challenges involved with operating in the UK range from payment security concerns to international payment complexities, succeeding in this market requires a versatile strategy. Let’s look at how businesses can improve their customer payment experience in the UK:

• Diverse payment methods
  Because credit and debit cards are popular in the UK, businesses can benefit by accepting these forms of payment – especially those that use EMV chips or contactless technology. Accepting popular digital wallets such as Apple Pay and Google Pay can offer customers additional convenience.

• Reinforced security measures
  Extra layers of security, such as two-factor authentication, can minimise fraudulent activity. Real-time analytics can also benefit businesses by identifying and stopping suspicious transactions before they become a major issue.

• Mobile adaptability
  Many customers prefer to shop and pay on their mobile devices, so businesses should create a mobile-friendly payment gateway. Businesses that have their own mobile apps should also allow payments directly within the app to simplify transactions.

• Streamlined checkout experience
  Offering a guest checkout option can achieve a quicker checkout process, and a payment page with clear, easy-to-follow steps can simplify the payment process.

• Simplified international payments
  Displaying prices in different local currencies can be a simple yet effective way to make shopping more convenient for international customers. And for business-to-business (B2B) transactions, offering payment options that are tailored to cross-border payments – such as SEPA transfers – can help create repeat customers.

Key takeaways

Accepting payments in the UK requires a well-rounded strategic vision that meets customer expectations, mitigates fraud risks, and caters to international customers. Here are tips to help your business thrive in the UK:

Implement strong security measures

• Verify customer identities
  Employ methods such as multifactor authentication to verify customers’ identities via multiple means, such as a password and code sent to their email. This can help prevent unauthorised transactions and subsequent chargebacks.

• Protect customer data
  In addition to regulations outlined in the Data Protection Act, comply with Payment Card Industry Data Security Standard (PCI DSS) requirements.

• Mitigate fraud risk
  As e-commerce grows, so does the risk of card-not-present (CNP) fraud – transactions where the card isn’t physically present. Use fraud detection tools for online purchases, such as 3D Secure authentication and machine learning algorithms.

Incorporate contactless payments

• Go contactless in person and online
  Contactless cards are nearly ubiquitous in the UK, and digital wallets are gaining traction. Offering these options can improve convenience for customers.

• Think beyond traditional e-commerce
  Integrate a payment gateway that works well on mobile to capture customer segments that are shopping on their phones.

• Take advantage of added security
  Built-in security measures such as tokenisation, a process that replaces sensitive data with a one-time code, provide added security for contactless payments and digital wallets.

Streamline international transactions

• Customise the checkout process to UK customers
  Translate payment pages and error messages into British English, display prices in pounds, and ensure transparency in currency conversion. For customers outside the UK, show prices in their local currency.

• Accept SEPA transfers
  Accepting SEPA transfers allows for cross-border payments from B2B customers across 35 other European countries, potentially opening up your business to new markets in continental Europe.

• Hedge for currency volatility
  Currency values can shift quickly based on geopolitical events, economic indicators, and market sentiment. It’s important to plan for currency volatility.