Payment Methods in the UK

Paperless money transfers and online payment methods have become more and more prevalent over the past couple of decades. Replacing cash and cheque payments, cashless money transfers offer increased convenience and further ease for many employers and service providers. However, are paperless options always best for consumers? Our latest guide explores the different paperless payment methods you can use in the UK.

What payment methods are available in the UK?

The different methods of payment you could use include:

1. Standing Orders

2. Direct Debits

3. Continuous Payment Authority (CPAs)

What are standing order payments?

A standing order is an instruction from the payer, service, or product recipient for their nominated bank to pay a third party at set intervals. Standing orders are often used to pay rent, phone contracts as well as utilities. Standing orders can be arranged to be recurring or set up to occur repeatedly over several payment periods.

The UK has also, in the last decade used a new system which allows these transfers to arrive the same day instead of within the previously accepted 3-day standard practice. In some countries including South Korea, each transfer incurs a fee. However, in the UK, this is rarely if ever the case.

What is a direct debit?

As opposed to an instruction to the bank in cases of standing orders, a direct debit requests a money transfer from the service provider. This includes debit or sometimes even credit card providers such as Visa, MasterCard, American Express and others. When it comes to UK payment methods, this has been a popular option over the past 50 years. Direct debit payments account for over £4 billion each year, with nine out of ten people living in the UK using direct debits for various services and subscriptions.

As opposed to standing order payments, the company taking the payments determines the value and frequency of each transaction. This is common in areas such as utilities, where the consumption of the product or service can vary from month to month.

It is important to remain diligent, and always make sure you have enough money in your bank to pay out. Forgetting how much you are spending on payments can cause you to overlook direct debits in your budget, which can cause you to overdraft your account, which could harm your credit rating in the longer term.

For help with budgeting and saving, why not head over to our guide on saving on your monthly expenses?

What is a Continuous Payment Authority (CPA)

A CPA, or Continuous Payment Authority, goes a step further than a direct debit. Whereas a direct debit gives a company authorisation to take payments at regular intervals, (albeit determined by the payee), a CPA gives further reaching permissions to the payee. These permissions include being able to take payments once they are owed without necessarily being taken on a specific ‘set’ date.

What can I use online payment methods for?

You can use these methods for different financial and everyday products including:

• personal loans

• rent to your landlord or the council

• utility payments

• credit cards

• your gas and electricity provider may require you to set up a direct debit

• in cases of direct lender loans, as well as via brokers or comparison sites, a CPA is very often required to be set up to ensure that borrowers are less likely to miss repayments.

It is important to discern between the different types of automated payment methods in the UK so you can budget and predict your future finances. Many people in the UK think for example, that they have standing orders, when in fact they have direct debits or even continuous payment authorities. It’s important to get to grips with the different methods of payment and understand how each one works.

Which payment method is safest?

Standing orders can be set to run for a certain amount of time, making this the easiest method to stay in control of. Direct debits are also set by you from your bank account, making this another very safe method of online payment in the UK.

CPAs, however, have somewhat fallen out of favour over recent years, often due to consumers falling into potential traps, such as when a free trial of a product or service turns automatically into a full-blown subscription.

What can I do if I get charged after my free trial has ended?

Little can be done in these cases and another difficulty is the fact that cancelling these payments are at the discretion of the payee. Should the company not wish to cancel the CPA in question, this can always be done at the bank or card issuer directly.

The Financial Conduct Authority (FCA) has noted in recent years, that financial institutions may not have been behaving appropriately in such cases by not always cancelling CPAs when requested by the payer. It is fully within the rights of the bank account holder to cancel CPAs through their bank without the consent of the payee. This form of transfer is often associated with companies who offer online payday loans.

It is also very important to regularly check bank statements to make sure that everything that you pay for on a regular basis is still used. Too often do people forget to cancel a spending commitment or CPA, or they may be on the wrong tariff without knowing. What is key to bear in mind, is that you can always cancel these by contacting your bank or credit card provider.

Hopefully you’re now aware of the different paperless payment methods available in the UK. Whether it’s the convenience of direct debit payments, or the ease of standing orders, nowadays there are plenty of ways to make safe and secure payments online.