How to take payments online

So, you’ve decided to start an online shop, subscription service, or other internet-based business. You’ll need to start taking payments online, but you’re not exactly sure what you need to set up or pay for to do it safely and efficiently – and without being caught out by less than competitive credit card processing fees.

Don’t worry – in this guide, we’ll take you through all the hows and whys of taking online payments. It might seem overwhelming at first, but ultimately you’ll need two things: a merchant account and a payment gateway (or an all-in-one payment solution that will provide both).

How to take payments through an online shop

The two most important steps to taking credit and debit card payments online are:

1. Acquiring a merchant account
2. Setting up a payment gateway

The merchant account is where your money goes (before landing in your business account), and the payment gateway is how it gets there.

You might be thinking: “Can’t I just take the money directly into my business account and cut out the middle person?” It might not sound like it, but having a merchant account actually makes the whole process run smoother, as it allows for instant verification between your bank and the customer’s bank, and makes processing chargebacks easier.

Step 1: How do I choose a merchant account?

There’s no one-size-fits-all approach to choosing the best merchant account, as it will depend on your specific needs. But, the main factors to watch out for are:

Transaction fees: merchant accounts will take a percentage of each sale you make. These will vary from provider to provider depending on how the sale was made, so get yourself the best deal. There can be a lot of hidden and scenario-specific fees, like high rates for non-EU cards.

Contract lengths: many will offer a free plan, which is great if you’re just getting off the ground and need to avoid committing to long term monthly fees – but generally, the transaction fees will be higher. If you already have a steady turnover and don’t mind committing to a longer contract, you should get more competitive transaction fees.

Payout times: different providers will have different timeframes for transferring your funds into your bank account. Some can take a full working week, whereas others can provide next-day payouts. If your business is reliant on having a constant available flow of cash this is something to watch out for.

Support and features: each will offer its own list of extra features and helpful services like invoicing, inventory management, or marketing and data tools. You’ll also want a service that can provide a robust range of help and support if you run into trouble.

Payment types: customers want a wide range of payment options. Mastercard and Visa of course, but also contactless, pay by link, invoices, etc. Don’t waste time and effort setting up your ecommerce platform on the basis you’ll be taking a lot of mobile wallet payments only to find out your merchant account provider doesn’t support them!

Security: a PCI DSS compliant service is a non-negotiable, and one that offers strong security features like data encryption and fraud protection measures a bonus.

Step 2: How do I set up a merchant account?

The specific process, and requirements, of setting up a merchant account will vary between providers – but it’s a safe assumption that you’ll need most of the following:

• Personal identification and proof of address
• Business plan: this should include what type of business you are and what you’ll be selling (you can use our free simple business plan template to get started!)
• Your turnover expectations for card payments, as well as the average transaction value
• Any recent relevant trading accounts

Once you have your documentation in order, you can complete the application online via your chosen provider’s website.

The merchant account provider will then be in touch as to whether your application has been approved, and what the next steps will be. This could take as little as a week, or longer depending on how new your business is.

Step 3: How do I choose a payment gateway?

Much like your merchant account, choosing the best payment gateway will depend on what type of business you’re running and your specific needs. Some will be more suited to sole traders who’ve just started taking low volumes of small transactions, whereas others will be better for businesses dealing with high value luxury items.

The main factors to look out for in a payment gateway are:

• Fees and costs: some will charge a monthly fee, whereas others will have a free plan but will take a percentage of each sale. Always make sure to go over every fee and bill you’ll be subject to before signing up.
• Compatibility: you’ll need it to be able to integrate with your other payment software, like your ecommerce site and shopping cart plugin.
• Security: this will be your customers’ biggest concern, and so it should be yours as well! Make sure your payment gateway provider is fully encrypted and data compliant.
• Customer support: is there a 24/7 help service if your business operates around the clock?
• Payment types: what type of payment cards and methods are accepted?

Another key decision in which payment gateway is right for you is the choice between a hosted, self-hosted or an API-hosted gateway. If that sounds a bit technical, don’t worry – we’ll go into more detail below.

Our top-rated payment gateways are:

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FEATURED PROVIDER	BEST OVERALL
Airwallex	takepayments	Stripe	Worldpay	Shopify	Revolut
Best for: Not yet assessed	Best for: A flexible payment structure	Best for: Strong security features	Best for: Selling high-value goods	Best for: An all-in-one solution	Best for: Affordability
Overall score Not yet rated	Overall score 4.8	Overall score 4.6	Overall score 4.2	Overall score 4.2	Overall score 4.2
Transaction fees from 1.30% + 0.20 GBP	Transaction fees from Quote-based	Transaction fees from 1.4% + £0.10	Transaction fees from 0.75%	Transaction fees from 1.5%	Transaction fees from 0.8%
Monthly costs None	Monthly costs £25 + VAT	Monthly costs None	Monthly costs £40	Monthly costs From £19	Monthly costs None
Payout time Up to three business days	Payout time Next business day	Payout time Up to three business days	Payout time One business day	Payout time Two to five business days	Payout time Next day
Contract length None	Contract length One month minimum	Contract length None	Contract length 18 months	Contract length None	Contract length None
Visit Airwallex	Compare Quotes	Compare Quotes	Compare Quotes	Compare Quotes	Compare Quotes

Step four: How do I set up a payment gateway?

This will depend on which type you choose, there are three main versions:

Hosted payment gateways

These payment gateways are hosted by the provider. The upside is they are far easier to set up and connect to your site with no coding required, but the downside is that they take your customer off your website and redirect them to the provider’s site to input payment details, before being returned to your site. This may lead to confusion and a higher number of abandoned carts. If you’re a small one-person-band, you’ll want to opt for a hosted gateway.

Self-hosted payment gateways

This is where your customer will input their payment information directly onto your website page, but the payment details are processed on a third party server hosted by the payment gateway. The downside of this method is that you will be responsible for adhering to PCI security standards.

API-hosted payment gateways

These are connected to your website via an API (Application Programming Interface), meaning that your customer won’t ever leave your site to make payment. They also give you a large amount of control over the look of the page, so you can create a branded payment experience.

The catch? They’re far more complicated to set up, generally needing advanced technical skills. These are suited to more developed businesses with in-house tech teams. You’ll also be responsible for ensuring the customer data is secure and up to PCI standards.

The process of taking a card payment online

Let’s go through a scenario to make this a bit clearer:

1. Nina visits Rosie’s Roses, a website that delivers flowers.
2. After selecting the flowers she wants, Nina is taken to a checkout page, where she is asked to input her payment details.
3. After she clicks on the submit order button, the website sends her card information to the payment gateway (though this stage will vary depending on what type of gateway is being used by the merchant).
4. The payment gateway will then encrypt the card details and pass them on to the acquiring bank acting for Rosie’s Roses.
5. The acquiring bank then passes the baton onto the credit card company who issued Nina’s card, and her bank.
6. The credit card company confirms that Nina has the requisite credit to make the purchase, and the chain of information is reversed back to the payment gateway so that it can go ahead with the purchase (it sounds like a lot of chatting, but it all happens in milliseconds!).
7. If the transaction is approved both Nina and Rosie’s Roses will be notified, and the customer’s bank will send the funds to the business’s merchant account.
8. Rosie’s Roses sends Nina a beautiful bouquet of flowers, the merchant receives Nina’s payment, and everyone is happy!

Accepting mobile wallet payments

Enabling mobile wallet payments is a straightforward process, you just have to make sure you’ve signed up with a payment processor or ecommerce platform that supports them, as it’s not something they all do.

If yours does, you’ll have a mobile wallet payment button on your checkout page. If not, you’ll need to build this into your ecommerce website yourself. This will be trickier, and you’ll need to follow the individual developer guidelines on how to do this.

How to take payments online for services or subscriptions

There are a few key methods of charging online for services or subscriptions:

Direct debit

If you want to take automated, regular payments from a customer without needing them to resubmit their details each time, you can enrol in the Bacs direct debit scheme via your bank.

Once you’re approved, in order to start taking direct debit payments, you need to submit payment files containing your customers’ banking information and details to the Bacs system. Bacs then sends this information back to your customers’ banks, which approve and organise the payments.

You can do this via two different methods:

1. Do it yourself using a SUN number and Bacstel-IP (the cheaper option, but a lot more complex)
2. Use the services of a direct debit bureau (this costs more, but makes your life a whole lot easier)

Payment links, invoices and bills

Payment via invoice is a popular option amongst single-person operations, such as contractors, because you don’t need a website in order to take payment.

There are a number of software platforms that can help you manage and send out your invoices or bills. Some payment processors (such as Stripe) can host a payment page for you – all you need to do is send a link to it to your client via email, direct message, or SMS.

Bank transfer

This is the most straightforward method of online payment. During the checkout process, your customer will be provided with the bank details they will need to send a payment. This normally includes a unique transaction reference number. The customer then manually instructs their bank to send the funds to you, along with the unique transaction reference code.

While you’ll generally be charged less for taking a bank transfer, they are less preferable for the consumer as they’re time consuming and more exposed to fraud, and there’s a much higher risk of error as they have to input your details manually.

How to make sure online payments are secure

To take card payments, you need to be PCI DSS compliant. Any data your business collects from cardholders needs to be securely held with a provider that is compliant with the Payment Card Industry Data Security Standard.

The best and easiest way to make sure this is the case is to sign up with a payment service provider that will handle and store your customers’ sensitive information themselves as part of the service, on their servers, so you don’t have to shoulder that responsibility.