Merchants must understand that the UK payments market is in a state of flux – and learn how to leverage this for eCommerce sales.
Between Brexit and the coronavirus pandemic, the United Kingdom is in a moment of massive economic upheaval. In the last two years, consumers across the UK have been turning toward eCommerce like never before and in 2021 over 85% of UK residents were already shopping online (Hootsuite).
So the question remains: has your business adapted to this nationwide shift towards online payment preferences? Or could you fall behind in the United Kingdom eCommerce race?
The Top Payment Methods in the United Kingdom
UK eCommerce Payment Processing
The B2C ecommerce market in the UK is valued at US$233 billion- nearly double that of powerhouse Germany valued at $133 billion (Statista).
Diving deeper, mobile ecommerce is a major driver of this trend, particularly among Gen Z and Millennial shoppers (MerchantSaavy). 55% of ecommerce spend is performed on mobile which, according to JP Morgan, “dwarfs all other [markets] in Europe.” (Internet Retailing). With smartphone penetration at 83%, in-app purchasing has, in turn, seen a rise. Already, 70% of UK residents report regularly using apps to shop (Hootsuite).
Therefore, connecting with UK consumers to grow your sales means understanding shopping habits and their preferred payment options.
Top Payment Methods in the United Kingdom
Like most of the developed world, nearly every financial transaction in the UK relies on some form of technology. However, unlike its counterparts, the UK market sees a huge percentage of purchases made through an alternative payment method.
While other global markets are still adapting to new tech, consumers in the UK are already making regular payments with contactless, buy now pay later and bank transfer services.
This use of different payment methods is important to recognise while attempting to penetrate the UK eCommerce market.
Here are the top UK payment methods:
- Digital Wallets
- Bank Transfer
- Buy Now, Pay Later
Debit and credit cards remain the top payment method (for now), with 53% of online sales in the United Kingdom being paid for with a card (JP Morgan). Debit is particularly important in the UK, with the Bank of England reporting that the popularity of debit cards has overtaken cash in recent years.
Since the 1990s the well-known payment service provider, PayZone, helped make card payment the default option throughout the country. Much of this success was due to leasing and selling payments terminals and other equipment to vendors. More recently, PayZone has helped provide digitised credit card solutions, such as mobile payment for car parking.
A growing percentage of transactions are gravitating toward contactless payments. The majority of these consumers use tap cards and mobile. Two of the most popular contactless payment methods are Google Pay and Apple Pay.
As far as online payment methods, United Kingdom retailers must be able to accept the ever-more popular digital wallets. Digital wallets have become one of the most widely-used payment methods in the UK with the PayPal leading the fray.
But since 2018, the UK’s Open Banking initiative has made it easier for fintechs to get their hands on user data collected by institutional banks to develop competing payment system products.
Recently, multiple smaller, more bespoke payments and financial services providers are chipping away at PayPal’s commanding lead.
- Skrill is a digital payment provider that was established since 2001. Now, they operate with over 32 million active users around the world (Skrill). Skrill’s services are particularly popular for international payments since they offer a competitive exchange rate relative to banks.
- Revolut, the British digital bank that evolved into one of the largest fintechs, offers a super app that integrates ApplePay and GooglePay digital wallet services. It is currently used by over 15.5 million individuals, one of the highest user numbers of Europe’s online banks (Business of Apps).
In 2020, just 17% of eCommerce transactions were completed using cash, making it one of the least popular United Kingdom Payment Methods for online transactions (UK Finance).
Amid the Covid-19 pandemic, even cash in storefront retail saw its usage dramatically drop. As the fear of viral contamination endures, cash is unlikely to make a comeback on the scale it once was.
Although bank transfers only make up 6% of ecommerce payments right now, this could be one of the most popular online payment methods in the UK in the future (Statista). We expect to see bank transfers make some notable gains in the years to come, especially with the concurrent decline of cash.
The UK has had the framework for peer-to-peer bank transfers through its Faster Payment Network since 2008. And in September 2021, Faster Payments processed 879 million transfer payments; the most it had ever processed in a single month (Pay.uk). Much of this success is due to the highly secure nature of bank account regulatory standards in the UK.
As real-time payments technology cuts processing lags down to almost zero, bank transfers have surged in popularity with consumers and merchants.
The UK bank transfer system also facilitates direct debit payments for regular payments to the same company. Therefore, this payment method is also commonly seen among recurring payment plans such as the mobile phone industry.
Buy Now, Pay Later
The UK’s e-commerce industry (particularly in the clothing sector) has seen a surge in adopting of Buy Now, Pay Later (BNPL) as a preferred payment method.
The Buy Now Pay Later service provider pays the entire bill, and offers an interest-free installment-based plan to the customer. Thus, the customer does not have to input their credit card details or rely on a potentially detrimental credit card payment.
The most popular service for Buy Now, Pay Later service in the UK is Klarna. Approved by the financial conduct authority in 2014, the payment service now works with over 5,000 UK merchants. In 2021, the company reported year-on-year growth of over 200% in the UK market (Airnow).
Building a Digital-Forward, Inclusive Payments Framework
The UK’s payments landscape will be in a major state of flux for some time to come, but one thing is for certain: mobile shopping and payments for local and cross-border purchases are on an upward trajectory.
Having a card-first, digital-friendly approach to payments is important, but merchants need a flexible and inclusive solution to capture all customers.
Lower Your Fees for Every Transaction –
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Rapyd offers simple, pay-as-you-go pricing that lets you offer locally preferred payments to power growth around the globe. Rapyd offers significantly lower fees for merchants domiciled in the United Kingdom and Europe.
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Rapyd makes it easy to reach billions of customers by accepting cards and local payments worldwide.
Airnow. Market share of Revolut bank app downloads through IOS and Android worldwide as of October 2021, by country. Accessed via https://www.statista.com/statistics/1122372/global-share-of-app-downloads-revolut-bank-worldwide/
Bank of England. Is Cash in Decline? https://www.bankofengland.co.uk/knowledgebank/will-cash-die-out
Business of Apps. Revolut Statistics. https://www.businessofapps.com/data/revolut-statistics/
Hootsuite, We Are Social. Digital 2021. https://datareportal.com/reports/digital-2021-global-overview-report
Internet Retailing. UK ecommerce accounts for 19% of total retail, making it worth $233bn. https://internetretailing.net/industry/uk-ecommerce-accounts-for-19-of-total-retail-making-it-worth-233bn-20971
Merchant Saavy. Amazing Stats Demonstrating The Unstoppable Rise of Mobile Payments Globally. https://www.merchantsavvy.co.uk/mobile-payment-stats-trends/
Pay.uk Faster Payment System statistics. https://newseventsinsights.wearepay.uk/data-and-insights/faster-payment-system-statistics/
Statista. ECOMMERCE REPORT 2021 – Statista Digital Market Outlook
U.K. Finance https://www.ukfinance.org.uk/sites/default/files/uploads/SUMMARY-UK-Payment-Markets-2021-FINAL.pdf