How to choose a payment system for your business

In 2018, card payments surpassed cash as the UK’s favourite way to pay. And experts estimate that 50% of all payments will be made by card in 2020. So, if your business doesn’t take card payments yet, you may be missing out.

In this article, we’ll explain the two main types of merchant service providers and take a closer look at five payment solutions to help you find the right option for your business.

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• Merchant account vs. third-party payment processor
• Choosing a payment solution for your business

Merchant account vs. third-party payment processor

Every business that takes card payments needs access to a merchant account. This is another type of bank account that is separate from your normal business bank account and is held with an external provider. There are two main options:

1. Set up a unique merchant account through a provider like Worldpay, FirstData or PaymentSense. There’s usually a contract involved but fees are calculated based on your turnover, so tend to be cheaper for established businesses.

2. Get access to a merchant account through a third-party payment processor like PayPal, Stripe or Square. This usually isn’t a long-term contract so is best suited to small businesses which don’t take regular card payments or have a lower turnover. Fees triggered per transaction are typically higher.

Choosing a payment solution for your business

When choosing a payment solution, it’s important to consider the needs of your business.

• Do customers want to pay you online, in-person or over the phone?
• Do you need to take payments on the go or at events?
• How often do you use your card machine? Does this vary month to month?
• Do you have a high annual turnover via card payments?

1.    PayPal Here

In 2017, PayPal launched its mobile card machine to rival competitors such as SumUp and Square. Now businesses can use PayPal to take card payments in person, as well as online.

Key features

• Accepts all major credit and debit cards, contactless payments, Google Pay, Apple Pay and Samsung Pay.
• Works via an app on your smartphone.
• Takes payments in-person and over the phone.

Cost

The PayPal Here terminal costs £45 + VAT. You then pay a fee on each transaction which varies depending on your turnover and the fee structure you choose. Fees range from 2.75% for businesses which turnover less than £1,500 per month, to as low as 1% for those who turn over more than £15,000.

Pros

• Customers already trust the PayPal brand.
• Sends receipts by email or SMS or to a compatible printer.
• No contract or fixed monthly costs - ideal if you don’t use it regularly.

Cons

• Your fees could fluctuate monthly depending on how much you turnover.
• If your turnover drops below £1,500 in any given month, you will automatically be transferred from Merchant Rates to PayPal’s more expensive Standard Rate Fees.
• Relies on Wi-Fi or your smartphone’s mobile data connection which can be costly.

Best for

New businesses or those which don’t take card payments regularly. Although transaction fees are relatively high, there’s no monthly subscription fee so you only pay when you make a sale.

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2.    SumUp

If you need a mobile card reader and are willing to try a lesser-known brand, SumUp can offer lower fees than PayPal.

Key features

• Accepts all major cards, contactless payments, Google Pay, Apple Pay and Samsung Pay.
• Completely mobile for taking payments on the go.
• Two card reader options.

Cost

SumUp has two options which provide different types of card readers:

• 3G Card Reader. Includes a built-in 3G sim card with unlimited mobile data and costs £99 + VAT (regularly reduced to £69).
• Air Card Reader. Works via an app on your smartphone and costs £29 + VAT (regularly reduced to £19).

An additional cost consideration is the 1.69% fee per transaction for all businesses.

Pros

• No contract or monthly fees.
• Easy to set up online with no paperwork.
• Ideal for taking card payments at events.

Cons

• The smartphone option can be heavy on your mobile data costs.
• Takes 1-3 working days for funds to clear in your bank account.
• The 3G Card Reader can only take around 50 transactions on a single charge.

Best for

New businesses that need to take payments on the go and don’t need lots of features. However, it should be noted that there is no phone support for SumUp in evenings, so it is not suitable for businesses which operate during these hours.

3.    Square Terminal

The Square Terminal is a modern-looking piece of equipment that offers a range of features. You can use it independently or alongside the Square Reader (to take payments on the go) and the Square Stand (as your point of sale).

Key features

• Accepts all major credit and debit cards, contactless payments, Google Pay, Apple Pay and Samsung Pay.
• Takes payments in-person, online and over the phone.
• Prints receipts.
• Room to grow without changing provider.

Cost

The Square Terminal costs £199 + VAT. You pay 1.75% per in-person transaction and 2.5% per ‘keyed-in or online transaction’ - when a customer pays by card over the phone or through your website. Custom rates are available for businesses with an annual turnover exceeding £250,000.

Pros

• Money in your bank the next business day.
• Cordless device with a rechargeable battery that lasts all day.
• Includes access to additional features in the Square Point of Sale app such as reporting and customer management tools.

Cons

• Fees may be higher if you have a high turnover via card payments or process high-value transactions.
• Increased rates apply to card payments taken online and over the phone.

Best for

Small to medium businesses that don’t have a consistently high turnover yet but want to grow and value features that will help them get there. Great for those that don’t want a card machine that’s tied to a counter, such as cafés and restaurants.

4.    Stripe

Stripe is an online payment processing service for e-commerce businesses and PayPal’s leading competitor.

Key features

• Accepts all major credit and debit cards.
• Allows you to take payments, accept donations and issue refunds through your website.

Cost

You pay 1.4% + 20p per transaction for European cards and 2.9% + 20p per transaction for non-European cards.

Pros

• Transparent pricing structure.
• Can be integrated with a range of existing services including website builders including Wix and Woocommerce and invoicing apps such as Xero.
• Unlike PayPal (which diverts customers away from your website to the PayPal checkout), Stripe can be coded into your website so that customers see your own logo and branding throughout the checkout process.

Cons

• It can take up to 10 days for your first Stripe payment to reach your account if you have a UK or EU bank account.
• Stripe deposits funds into your bank account using a payment schedule which varies depending on your country and type of business. Most UK and US customers will receive payments within seven days.
• If you have a custom-built website, you will need some coding knowledge or a developer on hand to integrate Stripe into your website for you.

Best for

E-commerce businesses which want to take card payments via their website and businesses which want to receive payment via third-party apps such as an invoicing tool. If you don’t mind waiting a week or so for funds to land in your account, then Stripe offers a good alternative to PayPal with more reasonable fees.

5.    WorldPay Countertop Card Machine

In contrast to the rest of the payment providers featured here, WorldPay provides your business with its own merchant account. This means you have more flexibility to add different options, like a virtual terminal to accept card payments over the phone or the facility to send payment links to customers, as your business grows.

Key features

• Accepts all major credit and debit cards plus contactless card payments, Apple Pay, Google Pay and Samsung Pay.
• Works via your landline or broadband connection.
• Needs to be plugged into a power source. If you need the benefits of having your own merchant account but want to take card payments on the go, try WorldPay’s portable card machine.
• Easy to add more payment options such as a virtual terminal with features like Pay by Link.

Cost

Your fees are calculated based on your annual card turnover and average transaction value. For example, according to WorldPay, a business that turns over £65,000 per year with around 50% accounted for by card payments and an average transaction value of £50 can choose from the following plans:

1. Simplicity plan. 18-month contract with a terminal hire fee of £17.99 and 1.5% fee on Visa and Mastercard transactions (some cards incur a higher fee).
2. Pay as you go plan. No fixed contract. £150 setup fee to purchase your terminal and 2.5% fee on all card transactions. There are also premium transaction charges and authorisation fees of 4.5p on this plan.

Both plans include next day terminal replacement.

Pros

• Discount for Federation of Small Businesses (FSB) members.
• More economical if you use your card machine regularly or process high-value transactions.
• Reliable connectivity through your landline and broadband connection.

Cons

• You have to commit to a contract and pay a set monthly fee or purchase your terminal outright and pay a higher fee on transactions.
• Businesses with a lower turnover pay higher fees and fees vary between card types.

Best for

Established or growing businesses with a high annual turnover, who use their card machine regularly or process high-value transactions.

Gazprom Energy is a leading and award-winning business energy supplier, helping thousands of small businesses manage their gas and electricity contracts. To find out more about what we can offer your business, visit the homepage or call us today on 0161 837 3395.

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