Collecting payments in various European countries can be really simple, but you need to understand how they work. If your business is located in the US, but you have customers in Europe, the fee structure and payment options can vary. They will not only be different between Europe and the US, but they can also vary slightly from country to country.
You do have plenty of options, though. As a merchant selling goods and services internationally, you want to be conscientious of both the risks and benefits. You also want to provide your customers with a variety of payment options to suit their needs, which will improve the customer experience and ultimately customer loyalty.
Methods of Payment in the UK
In the UK and across Europe, there are a variety of payment methods that are widely used. Not unlike the US, many of them include credit or debit cards. Here are some of the most popular payment methods currently being used in the UK and other European countries.
Credit and Debit Cards
As you might expect, credit and debit cards are popular in the UK, just as they are in other countries. From the consumer perspective, cards are easy-to-use, readily available forms of payment. Most cardholders don’t think twice about using them to make purchases both online and in-stores.
For merchants, cards offer a great option for customers but are associated with some pretty high transaction fees. Many high risk credit card processing companies charge a fee of 2-5% per transaction. You will also likely be charged a fixed fee per transaction, as well.
In addition to processing fees, many banks and payment processors will also charge a cross-border fee for accepting payments internationally. The money will also be subject to exchange rates as applicable. This doesn’t mean that you shouldn’t accept card payments, though.
Depending on your specific business and the fees your processor charges, you might be better off opening an international bank account to take payments in the UK. If you have a merchant account with a UK bank, you can accept payments there and likely see a significantly reduced fee structure.
Direct Debit / ACH
Another easy way to accept payments in the UK is through direct debit payments. If you’re familiar with ACH payment processing, then you probably know how it works. Direct debit is one of the key types of payments that are processed via the ACH network.
More often than not, direct debit is used for recurring payments. If your business has a subscription-based payment model, this can be a great option for you to offer customers. It is a little bit slower in terms of receiving funds than a credit or debit card transaction but is often associated with lower fees.
Depending on your specific bank and merchant account, you might need additional accounts with a bank in the UK in order to process these types of payments. This is not typical, but it could be something that comes up as you go through the process of setting up your business.
Although e-money is not a typical term in the US, the concept is. This is a type of payment system, representing real money but held in an electronic account. PayPal is a great example of this type of payment method.
Merchants who use PayPal or another e-money platform as their exclusive form of payment leave a lot to be desired by their customers. Although these systems are extremely easy to set up, not everyone in the world uses them. Additionally, there are some drawbacks to these online payment processing systems.
- They tend to be almost as expensive as credit and debit card transactions. They can have transaction fees ranging from 1.5% to 3.5%, plus additional cross-border and other fees.
- These systems also lack usage in the UK. Although they are extremely popular in the US, they account for less than 10% of online payments made in the UK. This means that you’re limiting your customer base, which is not usually a good business plan.
- These systems re-route customers to their own website to complete their payment. While some consumers are perfectly comfortable with this, others are not. It can negatively impact your customers’ experience with your brand, especially if the payment processor’s website is malfunctioning.
Instead of using e-money as the exclusive form of payment available on your site, it would be smart to just have it as an additional option. This way, consumers can choose to use it if they want to, but they won’t have to.
If you run an online business that sells products business-to-business (B2B), you might want to consider allowing bank transfers for payments. These are typically only used for large purchases and are often used in B2B transactions. The biggest thing to consider here is how much the transfer fees will be.
Depending on your bank, and the UK bank that your customer uses, these fees can vary substantially. It’s smart to give your customer a few different options for payment, especially if it’s a large amount of money changing hands. You may also want to consider opening an account with a domestic bank in the UK to avoid large transfer and transaction fees.
If you want to get really savvy and avoid transfer fees, you could consider some of the peer-to-peer platforms similar to PayPal that will allow you to transfer large sums of money. However, in general, you can do this between a US bank and a UK bank without too much trouble. Just be sure to investigate the associated fees before making the transfer.
If your business is a US-based business that is considered high risk, it doesn’t mean that you can’t sell to consumers in the UK. A little bit of research into your bank and your payment processor’s fee structure will go a long way. Once you know what the fees are and the potential solutions available, you can make an educated decision about how to proceed and be able to accept high-risk payments in the UK.