Stripe serves as a good starting point for many businesses. However, as your revenue increases or your business model becomes more complicated, Stripe may not be as beneficial. Many merchants experience issues like account freezes, sudden closures, withheld funds, or limited customer support. As a result, they are often looking for more stable and scalable online payment solutions.
This guide explores how Stripe works, how it compares to other platforms, and what alternatives exist for merchants who’ve outgrown its limits.
How Does Stripe Payment Processing Work?
Stripe is known for its fast setup, sleek developer tools, and wide adoption across industries. But beneath that simplicity lies a system that prioritizes platform protection over merchant flexibility. To decide if Stripe is the right fit—or if an alternative might serve you better—it’s important to understand how Stripe’s processing model works, how risk is managed, and how it affects your control over payments.
For a complete breakdown of Stripe’s payment processing system, fee structure, and when it becomes a liability for growing businesses, read our in-depth guide: How Stripe Payment Processing Actually Works
Aggregated Payment Processing Model
Stripe operates as an aggregated payment processor, meaning many merchants process payments under Stripe’s master merchant account. This model allows for quick onboarding and broad access, but centralizes risk management—resulting in issues with one merchant having an impact on others.
How Stripe Handles Risk
Stripe’s internal risk engine uses a mix of machine learning, automated rules, and manual reviews to identify potential fraud, excessive chargebacks, or violations of its Terms of Service. This system is designed to protect Stripe, and is known to err on the side of caution.
If your business has unusual transaction patterns, fast-growing sales volume, higher refund or chargeback rates, or products that fall into “gray area” categories, you may trigger Stripe’s risk alerts. Actions can include payout holds, rolling reserves, or even full account termination—sometimes with little or no explanation.
Stripe Reserves and Payouts
Stripe often places reserves on merchant accounts as a way to mitigate risk and protect against chargebacks or refunds. A reserve is a portion of your processed funds that Stripe holds back temporarily before releasing them to your payout balance.
Reserves can be either rolling (a percentage of each transaction held for a set period) or fixed (a lump sum held for a predetermined time). While reserves help protect both Stripe and merchants from financial losses, they can significantly impact your cash flow and working capital.
What Are the Best Alternatives to Stripe?
Stripe is a dominant player in the payments space, prized for its developer-friendly tools and broad industry adoption. However, it isn’t always the best fit—especially for businesses facing high-risk classifications, scaling challenges, or complex payment needs.
Comparing popular Stripe alternatives like Shopify Payments, Square, and PayPal can help you identify the best option for your business. Each platform has distinct advantages and limitations that may align better with your specific needs.
Is Shopify Payments Better Than Stripe?
Is Shopify Payments the same as Stripe? Shopify Payments runs on Stripe’s platform infrastructure, so many of Stripe’s risk management policies and limitations carry over directly. Businesses using Shopify Payments may face similar freezes, holds, and restrictions as with Stripe.
Why choose Shopify Payments over Stripe? Shopify Payments integrates seamlessly with your Shopify store without additional transaction fees, while using Stripe or other processors on Shopify adds 0.5-2% extra fees on top of processing costs.
Key differences from Stripe:
Store-level control: Unlike Stripe alone, Shopify combines platform rules with payment policies—meaning your entire store (not just your payment account) can be suspended. This adds an extra layer of risk since Shopify controls your website and checkout experience directly.
Shopify Payments fees vs Stripe fees: Shopify Payments charges 2.5-2.9% + 30¢ depending on plan, similar to Stripe’s 2.9% + 30¢. However, using Stripe on Shopify adds 1% additional transaction fee, making Shopify Payments cheaper if you’re committed to the platform.
Limited gateway options: Shopify restricts payment gateway selection, causing merchants to depend on Shopify Payments or approved gateways. However, you can add external merchant accounts as alternative payment options.
When Shopify Payments works: Best for merchants fully committed to the Shopify ecosystem who process under $25k/month and sell low-risk products like apparel, home goods, or standard retail.
When to avoid Shopify Payments: If you’re processing over $25k/month, selling supplements/nutraceuticals/CBD, experiencing account warnings, or need payment processing flexibility independent of your ecommerce platform.
For complete details on how Shopify Payments works, fee breakdowns, account suspension triggers, and how to use alternative processors with your Shopify store, read: Shopify Payments: Complete Guide for Merchants
Square vs Stripe: Which Is Better for Small Business?
Is Square better than Stripe? Square excels for brick-and-mortar retail with integrated POS hardware, while Stripe offers superior developer tools and API flexibility for online businesses. Neither is universally “better”—the right choice depends on your business model.
Square vs Stripe fees: Square charges 2.6% + 15¢ for in-person transactions (cheaper than Stripe’s in-person rates) but 3.3% + 30¢ for online payments on the free plan (more expensive than Stripe’s 2.9% + 30¢).
Key differences from Stripe:
Hardware ecosystem: Square provides integrated POS hardware (card readers, terminals, registers) designed to work seamlessly with their software. Stripe requires third-party hardware partners.
In-person vs online focus: Square excels at retail and in-person transactions with straightforward flat-rate pricing. Stripe is more developer-focused with stronger online/API capabilities for custom integrations.
Why does Square freeze accounts? Square enforces strict compliance rules and often shuts down accounts with little warning—especially for digital products, sudden growth, or high-risk industries. Square’s payment facilitator model uses algorithmic risk detection similar to Stripe.
Square transaction limits: Square may impose transaction volume caps or rolling reserves to mitigate perceived risk. These limits can restrict growth or seasonal sales increases, particularly for ecommerce businesses.
Limited developer tools: Unlike Stripe, Square lacks advanced APIs, third-party integrations, and flexible developer tools. This creates friction for businesses needing custom checkout flows, complex subscription billing, or international expansion.
When Square works: Ideal for new small businesses under $10k/month with simple retail operations, in-person sales focus, and low-risk products like standard retail or food service.
When to avoid Square: If you’re processing over $20k/month, selling digital products or services, experiencing fund holds, need advanced integrations, or operate in Square’s restricted categories.
For a comprehensive breakdown of Square’s payment facilitator model, updated 2025 fee structure, why accounts get frozen, and when you’ve outgrown Square’s platform, read: Square Payment Processing: Complete Guide for Merchants
PayPal vs Stripe: Which Should You Choose?
Is PayPal better than Stripe? PayPal offers stronger consumer brand recognition and trust, potentially increasing conversion rates, but charges higher fees (3.49% + 49¢ vs Stripe’s 2.9% + 30¢) and provides less developer flexibility.
PayPal vs Stripe for small business: PayPal works better for occasional sellers under $10k/month who benefit from brand trust, while Stripe serves developers and scaling businesses needing API control and lower fees.
Key differences from Stripe:
Consumer trust advantage: PayPal benefits from decades of brand recognition. Many customers prefer PayPal checkout, which can increase conversion rates by 10-30% for certain demographics.
Why does PayPal freeze accounts? PayPal can freeze your account and lock your funds without warning—sometimes for weeks or months. Unlike simple payout delays, this is a full account lockdown, often with limited communication or support. Common triggers include sudden volume increases, high-risk products, and customer disputes.
Higher PayPal fees: PayPal’s standard rates (3.49% + 49¢) are notably higher than Stripe’s 2.9% + 30¢ pricing, particularly impacting high-volume merchants.
PayPal reserves and holds: PayPal enforces strict industry restrictions and frequently applies rolling reserves to businesses it classifies as high risk—including supplements, coaching, and some digital services. These reserves can tie up revenue for 21-180 days.
Limited developer tools: PayPal’s APIs and customization options are less robust than Stripe’s developer-friendly infrastructure, making complex integrations more difficult.
When PayPal works: Best for occasional sellers under $10k/month, businesses benefiting from PayPal’s brand trust, or merchants needing quick setup without technical integration.
When to avoid PayPal: If you’re processing over $20k/month, selling restricted products, experiencing account limitations, need predictable cash flow without arbitrary holds, or require advanced subscription billing features.
For detailed analysis of PayPal’s payment aggregator model, complete fee breakdown including hidden costs, why accounts get frozen, fund hold timelines, and the PYUSD stablecoin, read: PayPal Payment Processing: Complete Guide for Merchants
Should I Get a Dedicated Merchant Account Instead of Stripe?
In contrast to Stripe, Square, PayPal, and Shopify Payments’ aggregated processing models, a dedicated merchant account gives your business its own Merchant ID (MID), custom underwriting, and direct control over payment terms. This structure offers more stability, fewer surprises, and better long-term scalability.
How Dedicated Merchant Accounts Differ
Individual merchant identification: You receive your own unique MID rather than sharing a pooled account with thousands of other merchants. This means your account standing isn’t affected by other merchants’ activities.
Tailored risk management: Risk policies are customized to your specific business model—not dictated by generic algorithms. This means fewer unexpected holds, shutdowns, or account disruptions.
Predictable payouts and terms: Unlike plug-and-play platforms that set reserves and payout schedules automatically, dedicated MIDs offer negotiable terms. You can align processing conditions with your cash flow needs.
Negotiable rates: Processing fees decrease as volume increases. Unlike aggregators’ fixed flat-rate pricing, you have leverage to negotiate better terms as your business grows.
Direct banking relationships: You work directly with acquiring banks rather than through intermediary platforms. This provides better resolution channels when issues arise.
True international flexibility: Access to global banking partners, multi-currency settlements, and compliance support tailored to your region or industry—especially critical if you’re high-risk or operating across borders.
Stronger compliance from day one: The application process is more rigorous, requiring upfront documentation and underwriting. While this takes longer than instant aggregator signup, it ensures your account is properly vetted, helping you avoid future compliance issues and service interruptions.
When Dedicated Merchant Accounts Make Sense
Processing volume exceeds $25k/month: At this threshold, negotiated merchant account rates typically become more competitive than aggregator flat-rate pricing.
High-risk or restricted industries: If you sell supplements, nutraceuticals, CBD, adult products, subscription services, or digital goods that aggregators flag as risky.
Need for payment stability: Businesses that can’t afford frozen funds or surprise account closures benefit from contractual protections and human account management.
Rapid growth patterns: Scaling 50%+ month-over-month triggers velocity alerts on aggregators. Dedicated accounts underwrite for your growth trajectory.
International operations: Businesses with significant cross-border transactions, multi-currency needs, or global expansion plans.
Experienced aggregator limitations: If you’ve been shut down by Stripe, Square, PayPal, or Shopify Payments, or received warnings about account standing.
Which Stripe Alternative Is Right for Your Business?
Stripe isn’t inherently bad—it serves millions of businesses successfully. However, it’s not the right fit for everyone, and limitations become more pronounced as businesses grow, operate in restricted industries, or need greater payment flexibility.
When Stripe Works Best
- Tech startups and SaaS companies under $50k/month
- Developers needing robust APIs and customization
- Low-risk industries with standard products
- Businesses prioritizing fast setup over cost optimization
- Companies comfortable with aggregator model limitations
When to Explore Stripe Alternatives
- Processing over $50k/month (better rates often available)
- Selling restricted products (supplements, CBD, adult, digital goods)
- Experiencing account warnings, holds, or documentation requests
- Growing rapidly (50%+ month-over-month)
- Operating internationally with multi-currency needs
- Need guaranteed fund access without arbitrary holds
- Previously terminated by Stripe or other aggregators
Choosing Your Alternative
For Shopify store owners: Shopify Payments integrates seamlessly but carries Stripe’s same limitations. Consider dedicated merchant accounts if processing over $25k/month or selling restricted products.
For retail/in-person businesses: Square excels at POS integration but shares similar aggregator risks. Works well under $20k/month for standard retail.
For brand trust priority: PayPal’s consumer recognition can boost conversions but comes with higher fees and aggressive account freezes.
For growing or high-risk businesses: Dedicated merchant accounts provide stability, negotiable terms, and human support that aggregators can’t match.
The right choice depends on your specific business model, transaction volume, industry, and growth trajectory. Understanding each platform’s strengths and weaknesses helps you make an informed decision that supports long-term success.
Ready to explore your options? Connect with payment processing specialists who can match you with the right solution for your business needs.
