Payment challenges for UK small businesses

In the UK, small businesses form the backbone of the economy, yet they are still being held back when it comes to payments. From high fees and poor support to cash flow issues and fraud, there are several pain points that a reputable payment service provider can help address.

Online payments typically have higher processing fees due to the increased risk of fraud. When it comes to smaller businesses, especially those selling lower-value items, this can cause a significant impact on their bottom line.

UK payment processors typically charge 1.5 % to 3.5 % per transaction, with some fees reaching 6%. When it comes to card processing, fees charged are broken down into three main types: scheme fees (charged by card schemes, including Visa and Mastercard), interchange fees (charged by the card provider), and acquirer fees (charged by the merchant acquirer).

Card schemes have recently come under scrutiny from several governing bodies, including the Payment Systems Regulator (PSR), which have criticised the increase in fees being charged to merchants. Because UK law bans passing fees on to customers, merchants are left to absorb the cost, which has resulted in smaller merchants being less competitive than their larger counterparts.

There are a couple of ways in which SMEs can tackle the high fees associated with payment processing. Firstly, try and negotiate better fees with your existing payment service provider. It can be worth investigating other provider fees to put you in a better position. There’s nothing to be lost by asking.

Secondly, diversifying the payment methods you offer can help to increase conversions, which then helps to offset higher fees. Alternative Payment Methods, such as digital wallets and open banking payments, are becoming increasingly popular among UK consumers and can reduce dependence on card processing. By providing more options at the checkout, friction is reduced, leading to fewer cart abandonments.

UK small businesses are facing growing challenges from online fraud, which continues to rise in both scale and complexity.

Common scams include phishing attacks, account takeovers, and chargeback fraud, all of which not only drain funds but also demand significant time and resources to investigate and resolve. Additionally, Authorised Push Payment (APP) scams have cost consumers hundreds of millions, damaging merchant reputations and shaking customer trust, which can lead to long-term drops in sales.

With the rise of AI, new fraud threats are emerging that small businesses need to be aware of. Fraudsters are increasingly using AI-generated deepfake audio and video to impersonate legitimate customers or employees in e-commerce.

By creating highly realistic fake voices or videos, they can trick customer service teams or fraud departments into approving fraudulent transactions or making unauthorised changes to payment details. These attacks often combine personalised social engineering tactics, making it hard to distinguish real requests from fake ones. Awareness of inconsistencies in communication, like unnatural speech patterns or video glitches, helps flag potential deepfakes.

To tackle these ever-increasing risks, UK small businesses need to take a proactive approach to fraud management. Using up-to-date risk management tools and staying informed about emerging fraud tactics is crucial, as fraudsters constantly adapt their methods.

A chargeback occurs when a customer disputes a transaction with their issuing bank, resulting in a request for a refund for the goods or services they paid for, which then leaves the merchant out of pocket.

Payment service providers will have a fixed fee for each chargeback, usually between £15 and £25 per incident, though in some cases they can reach £150 or more.

These charges are on top of the original transaction amount that the merchant is required to refund to the customer. The precise cost depends on factors such as the payment service provider, the type of dispute, and the terms of the merchant's agreement with their acquiring bank. Even worse, many people who make chargebacks keep the item purchased, further impacting the merchant!

Some chargebacks are a genuine mistake (such as a customer not recognising a transaction on their bank statement). Known as ‘friendly fraud’, UK merchants lose over £128 million annually, of which 58% stems from unrecognisable billing descriptions.

To help mitigate this, as a small business owner, you can implement clear returns policies to reduce the number of non-fraudulent chargebacks, as well as ensuring the name of your business (rather than the payment service provider or trading name that doesn’t match the merchant name) appears on customer bank statements.

Chargebacks are also an operational burden, with a reported 60% of businesses managing them entirely manually. There’s no doubt that chargeback fraud is difficult to manage, but with the right tools, the process can be far more efficient.

In addition, most payment providers will charge merchants a small refund fee, even if a customer has followed the refund process correctly. While not much of an issue if they only happen infrequently, refund fees can add up quickly, and may suggest an issue in not communicating refund policies clearly enough with customers, or having poor support, which leaves them little choice but to request a refund via their issuing bank.

Prevention is always better than cure when it comes to managing chargebacks and refunds, so the use of 3D Secure 2.0, tokenization, and AI‑driven fraud detection are a must.

Partnering with a provider that has robust fraud tools and offers support with disputes is a good place to start. A good payment provider will help to keep your chargeback ratio low, while recovering funds that would otherwise have been lost.

When choosing a payment provider, be sure to ask about what assistance they can offer to help reduce chargebacks, and confirm how much they charge to process them.

At any point, a payment provider can decide that your business no longer fits their preferred customer profile, and as a result, will leave you without the means to process transactions. Trying to find out why an account closure or suspension has occurred takes up a lot of time, especially when it escalates via formal complaints. This leaves many SMEs with no choice but to switch providers, which disrupts operations and incurs integration costs.

While in some cases this happens when a provider is de-risking their portfolio, it can simply happen for no good reason, including if you aren’t deemed to be processing sufficient volume.

Accounts can be closed or temporarily disabled if a payment processor has detected a high number of chargebacks or other potentially fraudulent activity. While these disputes are ongoing, it’s likely that payouts will be frozen, which can seriously impact cash flow for a small business. These sudden pauses may leave a merchant unable to pay suppliers, fulfil orders, and service customers.

It’s important to remember that payment providers have to protect themselves and the businesses they serve from fraudulent activity as part of anti-money laundering (AML) and know your customer (KYC) regulations, so while it can be frustrating to encounter these problems, they can often be resolved once documentation is provided to help them investigate.

However, these issues can be a huge headache for merchants, and some payment providers do not provide good support, offering little to no explanation of what caused the account to be shut down or suspended, or what needs to be done to resolve these issues quickly.

This is just one reason that a lot of businesses, both large and small, choose to partner with more than one payment provider. If the worst should happen, there is a fallback processor, so business disruption is kept to a minimum.

There are several other ways that small businesses can reduce the risk of this happening, including by partnering with a payment provider that offers fast decisions during onboarding and that explains what types of business they do not work with upfront.

Other steps merchants can take are keeping on top of client complaints and responding to negative reviews, checking that new products and services are not in breach of the processor's terms and conditions before launching them, reviewing the automated tools offered by their processor, and taking measures to reduce chargebacks and refunds.

Not all payment providers pay out at the same speed. Some offer next-day or even instant payouts (usually for an extra fee), but for many merchants, settlement will take between two and seven working days.

For small businesses, this delay can cause real problems. You might need to buy more stock or pay for marketing before the money from recent sales actually lands in your account. When cash is tied up like this, it can be hard to keep everything running smoothly, especially if you're already working with tight margins. It might mean holding off on new ads, running low on inventory, or having to dip into savings just to bridge the gap.

Things get even trickier during busy times, like sales or holiday periods. You’re making more sales, but the cash doesn’t come in fast enough to keep up.

When payout times are slow or unpredictable, it becomes almost impossible to budget or grow with confidence. You don’t know when your own money will arrive, which makes everyday decisions feel like guesswork.

For small e-commerce businesses, getting paid quickly and reliably isn’t a nice-to-have - it’s what keeps the lights on and the orders going out. If your current provider regularly delays payments or isn’t transparent about their settlement timelines, it may be time to consider switching.

There are a few ways in which you can reduce the strain caused by delayed payouts. Some providers will give you the option to schedule payouts (daily, weekly, monthly) so you can have more control over when the money arrives in your account.

Another option is to access short-term credit, often referred to as a merchant cash advance, which is repaid as a percentage of each transaction.

E-commerce payments shouldn’t be this hard. But with rising fees, unclear rules, and growing fraud costs, many small UK businesses are seeing profits squeezed and time wasted.

Ecommpay helps take the pressure off. With clear pricing, built-in fraud protection, and real support when you need it, we’re here to make payments work better for you.