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Updated: 23/02/2012

More people than ever are shopping at home in their PJs and paying online, instead of on the high street and as a result internet shopping is booming. There’s lots of money to be made and to get a slice of the action, there are online payment systems popping up to facilitate internet spending. This is a quick guide to the main services available, what they do and how much it will cost you to use them.

• What is an online payment system?
• Is it secure?
• Which is the best value?
• Online payment systems for business

What is an online payment system?

Online payment systems do exactly what they say on the tin. They allow you to transfer funds online – either to pay for consumables or to transfer money to other people. They are different from debit and credit cards as the merchant or person receiving the money never gets to see your account details and so doesn’t have to be responsible for keeping them safe on their database. Instead, you enter your details into your online account to upload funds and then the payment comes straight out of the online account, protecting your bank account details.

Instant payments
Bank transfers can take days to clear, so if you need to transfer some money quickly then you can use an online payment system. The money will appear in their account seconds after you execute the transfer.

Paying online
Because the transfer of funds is instant, these payment systems are great for online purchases. They also protect you from fraud as you can pay for something without handing over your card details.

Is it secure?

Yes. Online payment systems can actually give those who don’t have a credit card a lot more protection for their payments. With a credit card, the payment can be withdrawn if goods are not received. This is because the contract is between the retailer and the credit card company rather than the individual and the retailer. So even if you don’t have insurance, the credit card company does and will be able to get their, and your, money back. Online payment systems also have security built into their payment systems, but often these can differ.

For example, PayPal protects your money under PayPal buyer protection. This allows the buyer to dispute a payment if they don’t receive the goods or the goods are significantly different to the description. The protection covers up to £500 worth of purchases from qualified sellers on eBay (for sellers who have over 98% positive feedback) and £150 from non-qualified sellers.

PPPay and Skrill offer a different security practice in the form of an escrow payment facility. This allows you to transfer funds into a holder account administered by PPPay or Skrill. Once the funds are in this account, PPPay or Skrill inform the seller that the funds are ready and waiting so they can send their item safe in the knowledge that they will get their cash. Then once the item is received, the buyer can give the green light for the transfer to be completed. After a 24-hour inspection period for PPPay and 14 days after the purchase for Skrill, during which you can cancel the payment at any time, the money will then be transferred into the seller’s account. However, if the item is not received the funds are safe and will be transfered back to your account.

This kind of protection is perfect for auction sites where people may try to swindle you out of your money. In our opinion, this system is better than Paypal’s buyer protection as it is much more efficient – you’ll get your money back straight away without having to spend hours writing complaint letters. However, the buyer will have to pay to use it – 99p per escrow payment for PPPay. We think it’s worth it to be sure that your money is protected.

It also protects sellers. As a seller you can insist that the buyer use an escrow payment which guarantees that they don’t pull out of the purchase agreement once you’ve sent your goods off to them. One of the conditions of the escrow payment is that items must be sent by recorded delivery. This means the seller has proof that they actually have sent the item. The buyer then cannot claim they haven’t received the item and withdraw their payment as the seller will have proof of delivery. By showing this to PPPay, they can judge who the funds belong to and execute the transfer if you are genuinely owed the money.

The escrow payment is the only way to protect your money with PPPay or Skrill as any instant transfer payments cannot be contested or stopped.

Which is the best value?

The service provided by online payment systems is pretty cheap. You get lots of services for free, but they’ve got to make a profit, so they do charge you for some transactions.

All you have to do to use any of these online payment systems is have an email address and a bank account. Then all you need to do is go to the website of the system of your choice and sign up.

Skrill

Fee to Join: Free (Non-business accounts will be charged a monthly service fee of 1 Euro (or equivalent) – however the fee will be waived as long as you have logged in to the account or made a transaction in the last 18 months.)
Domestic transfer cost: 1% of transaction value, €0.50 max
International transfer cost: €0.50 max
Upload fee: via bank – free; via credit/debit card – 1.9%
Withdrawal fee: via bank transfer – €1.80; via credit/debit card – €1.80 (Visa only); via cheque – €3.50

Paypal

Fee to Join: Free
Domestic transfer cost: Free
International transfer cost: £0-1500 – 3.9% + £0.20
Upload fee: via bank – free; via credit/debit card – 3.4% + £0.20
Withdrawal fee: Free
Receiving funds:A personal payment is free if the sender uses their Paypal balance or bank as a source. If they use a credit or debit card there is a small fee that the sender can either decide to pay or pass it on to you. If you’re receiving a business payment you will be charged a fee of 3.4% + 20p.

PPPay

Fee to Join: Free
Domestic transfer cost: Free
International transfer cost: Free
Withdrawal fee: charge of 1% (min. £0.75 / €5)
Receiving funds: All cards – 3.3% + £0.20; bank account – 3.3% + £0.10; account balance – 3.3%
Multiple currency transactions: Free
Escrow payments: £0.99

Nochex

Fee to Join: Free
All transaction costs: 2.9% + £0.20
Withdrawal fee: For withdrawals over £50 – FREE. For withdrawals under £50 – 25p.

Nochex is the chosen online payment system on the online government and police auction site bumblebee. For this site you obviously know that you are dealing with genuine sellers – the police. However, there is no security protection offered by this site unless the law forces are involved. You cannot get your money back once it’s been sent unless you make a complaint to the police and they investigate the crime. We recommend that you therefore steer clear of using it unless you are using it for bumblebee.

Online payment systems for businesses

Business-only online payments operate slightly differently to regular online payment services because, in essence, you’re paying for a system for your customers to use, rather than using one yourself. As a result, you will likely have to pay a fee for the system to be integrated into your website.

There are a whole array of payment systems that your business can use, here are a few of the best to get you started:

Google Checkout

Checkout is Google’s foray into the world of sales processing systems and has already started to establish itself as one of the better online payment systems.

• Cost – Free
• Transaction processing fees: Less than £1500 – 3.4% + £0.20, £1500 – £5999.99 – 2.9% + £0.20, £6000 – £14999.99 – 2.4% + £0.20, £15000 – £54999.99 – 1.9% + £0.20, £55000 or more – 1.4% + £0.20
• An additional 1% fee will be assessed on transactions where the merchant’s country is different from the buyer’s billing country
• Accepts major credit and debit cards, including VISA, MasterCard, American Express and Discover

eWAY

eWay payment gateway makes it easy for your business to accept online card payments. They also accept payment from all major credit cards including VISA, Mastercard and American Express.

There are three yearly pricing plans to suit every type of business:

Budget:

• Cost – £230 per year
• Fee – 33p per transaction
• Web and manual payments
• Basic seller reporting

VIP:

• Cost – £500 per year
• Fee – 16p per transaction
• Multi-user access
• Web and manual payments
• Basic seller reporting

Premium:

• Cost – £1,300 per year
• Fee – 14p per transaction
• Multi-user access
• Web and manual payments
• Basic and custom seller reporting

Sage Pay

Sage Pay processes millions of secure payments each month for over 30,000 businesses and their customers range from startups through to major online, consumer and business brands, meaning that whatever the size of your business you’ll likely be covered.

• No set-up fee
• Cost – £20 per month up to 1000 transactions per quarter
• Fee – 10p per transaction on more than 1000 transactions per quarter
• Accepts PayPal, Visa, Mastercard, Amex, Maestro, JCB and more

2checkout

2checkout also offer an online payment processing service for businesses. Their hosted payments page lets customers make purchases in any of 8 payment methods, 15 languages, and 26 currencies.

• Free to join, but underwriter review conducted as part of application process
• Fee – 5.5% + $0.45 per transaction
• Accepts VISA, MasterCard, American Express, Discover, JCB, Diners Club, PayPal and Debit
• Seller reporting

Useful links

• Skrill
• Paypal
• PPPay
• Nochex
• Google Checkout
• Sage Pay
• eBay