Optimizing Wallet Payments While Avoiding Third-Party Fees: A Practical Guide for the UK Market

Tubrazy Shahid
Mar 28
4 min read

If you’re building an app with a wallet system, minimizing third-party fees while ensuring fast, seamless, and legal transactions is critical. Whether users are topping up, making payments, withdrawing funds, receiving salaries, or transferring money, there are cost-effective strategies to optimize your setup.

Here’s a breakdown of the best approaches tailored for the UK market.

1. Top-Up: How Can Users Add Money Without Using Card Payments?

Card payments often come with high processing fees (1.5%–3%), making them an expensive option for funding wallets. Instead, consider the following low-cost alternatives:

Best Solutions:

✅ Faster Payments (FPS) via Open Banking – Users can fund their wallets instantly from their bank accounts using open banking APIs (e.g., TrueLayer, Yapily, or Tink). Fees: Near zero.✅ Direct Debit via Bacs – Ideal for users who add funds regularly, direct debits offer lower fees than card transactions but are not instant (3 business days).✅ Instant Bank Transfers (Variable Recurring Payments - VRP) – The next evolution of direct debits, VRP allows users to set up recurring payments without card fees, offering flexibility and lower costs.

What to Avoid?

❌ Credit/Debit Card Payments – High fees and chargeback risks.❌ PayPal or Similar Services – Transaction fees can be 2.9% + fixed charges.

2. Payments: How Should Users Pay Businesses & Other Users via QR Code?

For seamless peer-to-peer (P2P) and business payments, QR codes provide an intuitive solution.

Best Setup:

✅ UK Open Banking Payments via QR Code – Businesses and users scan a QR code that triggers an instant bank transfer via open banking. Providers like TrueLayer, Banked, or Ecospend facilitate this, offering real-time, low-cost payments. (Fees: ~0.1%–0.5%)✅ Wallet-to-Wallet Transfers – Users make instant payments within your app without third-party fees (similar to PayPal balance-to-balance transfers).

What to Avoid?

❌ Card-Based QR Payments – These transactions incur interchange fees (Visa/Mastercard).❌ PayPal QR Code – High transaction fees (2.9% or more per transaction).

3. Withdrawals: How Can Users and Businesses Cash Out to Their Bank Accounts Quickly & Cheaply?

Efficient withdrawals are essential for user trust. The goal is to minimize delays and costs while staying compliant.

Best Solutions:

✅ Faster Payments (FPS) via Open Banking – Users and businesses receive funds instantly into their UK bank accounts. Providers like Modulr, ClearBank, or TrueLayer enable this. (Fees: Near zero to £1 per transaction)✅ SEPA Instant for EU Transfers – If your app supports international payments, SEPA Instant allows near-instant bank transfers to EU accounts with low fees.

What to Avoid?

❌ SWIFT Transfers – Expensive and slow (1–3 business days, £15+ fees).❌ PayPal Withdrawals – High fees and delays (up to 72 hours).

4. Payroll & Early Wage Access: How to Pay Employees Instantly & Offer Early Salary Withdrawals?

Many employees prefer on-demand access to their wages instead of waiting for payday. Implementing instant salary payouts can enhance retention and satisfaction.

Best Setup:

✅ Faster Payments for Instant Payroll – Automate payroll via FPS using a Payment Service Provider (PSP) like Modulr, GoCardless, or Salary Finance. Employees receive wages instantly, 24/7.✅ Earned Wage Access (EWA) – Allow employees to withdraw a portion of their salary before payday using open banking payments. Companies like Wagestream or Hastee already offer this.

What to Avoid?

❌ Traditional Payroll Banks – Slow (2–3 business days) & expensive fees.❌ Payday Loans – High interest rates and regulatory risks.

5. Transfers: How Can Users Send Money to Each Other Instantly?

P2P transfers should be instant, free (or low-cost), and frictionless.

Best Setup:

✅ Wallet-to-Wallet Transfers – Users send money instantly within your app without involving banks (similar to Cash App or Revolut).✅ Faster Payments (FPS) for Bank Transfers – For users sending money to non-wallet users, integrate FPS for real-time UK bank transfers.

What to Avoid?

❌ PayPal Friends & Family – Still incurs small fees and delays.❌ Crypto-Based Transfers – Not ideal for fiat-focused users due to volatility & conversion costs.

Legal & Compliance Considerations in the UK

1️⃣ Obtain an E-Money License or Partner with an EMI

To operate a wallet system legally, you must be licensed as an Electronic Money Institution (EMI) or partner with a licensed provider like Paynetics, Modulr, or Railsr.

2️⃣ Comply with FCA Regulations

The Financial Conduct Authority (FCA) regulates payment services in the UK. You may need to register as a Payment Institution (PI) under PSD2.

3️⃣ Implement Strong KYC/AML Controls

To prevent fraud, integrate Know Your Customer (KYC) and Anti-Money Laundering (AML) checks using providers like Onfido, Sumsub, or Veriff.

Final Thoughts: The Best Approach for Your Wallet System

To build an efficient and low-cost payment ecosystem in the UK, follow these strategies:

✅ Top-Ups: Use open banking & FPS instead of cards.✅ Payments: Implement QR-based instant bank transfers via open banking.✅ Withdrawals: Enable instant Faster Payments to UK bank accounts.✅ Payroll & Early Wage Access: Automate real-time salary payouts via FPS.✅ Transfers: Offer instant wallet-to-wallet transactions for seamless P2P transfers.

By leveraging open banking, Faster Payments, and EMI partnerships, you can eliminate third-party fees, ensure instant transactions, and remain legally compliant in the UK.

#Fintech #DigitalWallets #Payments #OpenBanking #FasterPayments #PayrollTech #P2PTransfers #FintechCompliance #UKPayments

Disclaimer

The information provided in this article is for general informational purposes only and does not constitute legal or financial advice.

Author & Crypto Consultant

Shahid Jamal Tubrazy (Crypto & Fintech Law Consultant)

Shahid Jamal Tubrazy, a certified top expert in Crypto Law from Duke University, is a leading authority in the cryptocurrency and blockchain space. As a seasoned Fintech lawyer, he offers a full spectrum of services, including licensing, legal guidance for ICOs, STOs, DeFi, and DAOs, as well as specialized expertise in crypto mediation, negotiation, and mergers and acquisitions. With a proven track record and published works on Blockchain Regulation and Cryptocurrency Laws, Shahid provides unparalleled insights into the complexities of the fintech world, ensuring compliance and strategic success. 🌐💼 #CryptoLaw #Fintech #Blockchain #LicenseServices #CryptoMediator #MergersAndAcquisitions #CryptoCompliance #FrozenAssetsrecovery.