Stripe has been praised by many as the safest way to accept online payments. But is Stripe really safe? If you run an online business, Stripe is not for you—not for long-term payment information processing.
As an all-in-one payments solution for retailers, Stripe is convenient. It’s quick to get started. It’s got built-in security features. But that doesn’t mean it’s safe. Have you seen how many people get shut down by Stripe out of the blue? Their terms and conditions are strict, constricting e-commerce businesses to an inch of their life (and sometimes more).
What Is Stripe? It’s NOT a Merchant Account.
Between online businesses, there is a lot of confusion over what Stripe does. Even the merchants who currently use Stripe.com are unclear on exactly what it does or how it works. And in some cases, even those who have been using Stripe for years don’t understand its role in their small business.
Part of this is Stripe’s strategy. The details don’t matter, it’s a service that simply works. You’re a business that needs to accept credit cards and customers need a way to pay. That’s where Stripe comes in. But things aren’t that simple.
So, let’s clear something up right away:
Stripe is not a merchant account.
Some people think of Stripe as a kind of “payment processor.” But that isn’t the case, either. It’s more of a mix between payment platform and service provider.
Stripe is actually a payment facilitator (payfac), also known as an aggregator. It’s like PayPal and Square in this regard. It falls into this category because it processes transactions (Visa, MasterCard, American Express, ACH) through its checkout on behalf of businesses and shares the responsibility with them to be compliant with card network rules and regulations.
Yet, Stripe does provide you with a sub-merchant account which lives underneath their own merchant account. Remember, Stripe is a business, too. So when you use their service, you are really nestling your startup underneath theirs and they give you a bit of the processing power granted to them by their partners.
That sounds strange, we know. That’s probably why Stripe hides details like this, otherwise merchants would get confused and find another solution.
It’s also why it’s impossible to negotiate terms, transaction fees, monthly fees, and rates with Stripe. They operate on flat rate pricing only.
And yes, Shopify Payments is the same thing as white-label Stripe, so don’t go flocking over there just yet.
Is Stripe Safe?
There are two ways to process payments:
- Payment aggregator
- Merchant account
Stripe is an example of the first option. That makes them an intermediary for your business, not a standalone payment processing solution. They give you a payment gateway with PCI compliance, SSL/TLS,
Stripe processes your transactions, but the money isn’t deposited directly into your bank account (business account, not personal). It’s sent to a third-party processor who has their own policies and protocols regarding high-risk transactions (like online gambling or dropshipping).
Since they’re a middleman, not a merchant account provider, Stripe can refuse or terminate service at any time if they feel that you’re violating their terms of service.
While their terms are available for you to sift through freely, they don’t hint at what is and isn’t possible during the onboarding process. A lot of businesses sign up quickly only to get shut down in a month or two—right when sales are picking up—because they violated terms they didn’t know existed.
Who would want to deal with all the hassle? You shouldn’t have to worry about that when you’re just trying to run a business.
Why Does Stripe Shut Down Accounts?
Your business could be shut down for any number of reasons. For example, if you are in a high-risk industry or your business model doesn’t fit Stripe’s preferences, you’re more likely to get shut down. Even if you’re running a legitimate business, Stripe can shut you down and take your funds while they investigate whether or not they want to do business with you.
Here are the biggest reasons why Stripe shuts down accounts:
- High-risk industry
- Too many chargebacks
- Too many return requests
- Significant increase in sales volume
It sounds a bit ridiculous to get your online store shut down because you had an increase in sales. Isn’t that a goal for every business owner? And this is exactly why we say “no” when asked if Stripe is safe.
Two Main Reasons Stripe Isn’t Safe for Your Online Business.
To begin with, there are two main reasons why Stripe isn’t safe, and both are related to businesses being considered high risk.
This happens when a customer of your business disputes an online transaction, which may result in them getting their money back and you losing out. This is affected by your volume of sales. If you conduct a large amount of business in a short period, the credit card processor will assume you’re high-risk because it’s taking on more risk to process your payments.
Stripe, in this case, needs to protect itself. It needs to be able to cover the funds of a disputed transaction. Higher ticket transactions means more funds, and that can be a breaking point for the Stripe payment aggregator.
Chargebacks suck for both you and Stripe. Getting your business shut down because of a heightened risk (but no proof) feels extreme, though.
Online businesses also have one major factor that sets them apart from other types of businesses: card-not-present transactions (CNP). When your customers are buying products or services from you online or over the phone (and not face-to-face using physical debit cards or credit cards), then these transactions get flagged as CNP and make it harder for you to get approved by most banks and payment processors like Stripe.
Why? Because merchants who process CNP transactions are considered to be significantly higher risk than those who do card-present transactions. The reasoning is that anyone could have taken those card details. It’s a way of limiting fraud, and we can get behind that. Neither customers nor merchants want to deal with stolen credit card numbers.
But calling a business “high risk” because it accepts online payments? Now that seems archaic.
How to Avoid Being Shut Down
Here are the best ways to avoid being shut down:
Get a Merchant Account
If you run an online business, then you need a merchant account.
Doesn’t matter if you’re high-risk, low-risk, or medium-risk. You need a merchant account that matches your business. This is the only way to operate without worry.
Keep Chargebacks Low
In order to avoid getting your account shut down by Stripe, keep your chargeback rates low, maintain strong customer service and provide accurate information when registering your business with Stripe.
Chargebacks might sound impossible to manage, but they totally are and there are companies that can help. Up the ante with your customer support and entice customers to make returns instead. That’s one of the best ways to mitigate chargebacks.
Follow Payment Processor Rules
A lot of first-time business owners think that once they get their Stripe or merchant account set up, they can start selling whatever they want. Not true. This is another reason why Stripe is unsafe.
You need a separate merchant account for every business you have. Or if you continue running on Stripe, then you need a new Stripe account for each business. You can’t share capabilities between the two.
However, you can have multiple merchant accounts on a single business. So you can have a Stripe account open as well as your own merchant account and swap between the two.
If you run an online business, you’re better off getting a real merchant account. DirectPayNet can help.
Your business depends on customer confidence and trust. When you lose those, you lose everything.
So, what are your options?
As a business owner, you need a way to accept credit card payments that’s reliable and trustworthy. The good news is that there’s a better option than Stripe: get a high-risk merchant account with a PCI-compliant payment gateway with customizable APIs and a compatible payment processor.