Is Stripe Safe for Online Merchants? - DirectPayNet

Is Stripe Safe for Online Merchants?


Stripe has been praised as one of the most secure payment processors for online businesses. But is Stripe truly safe for all types of merchants?

The truth is, Stripe is NOT a safe long-term solution for roughly 90% of online businesses, especially those in high-risk industries. While Stripe offers convenience as an all-in-one payment platform, that convenience comes at a steep price.

Many unsuspecting e-commerce merchants have had their Stripe accounts abruptly shut down overnight, leaving them unable to process payments with no warning and no recourse. Is the ease-of-use worth the high level of risk imposes on your business?

In this post, we’ll dive into:

  • The hidden dangers of relying on Stripe as your primary payment processor.
  • What types of businesses are considered “high-risk” by Stripe.
  • Real stories of merchants who had their accounts suddenly terminated.
  • Safer, more stable alternatives to Stripe for online payments

If your livelihood depends on being able to accept credit card payments online, you can’t afford to overlook the risks of putting all your eggs in Stripe’s basket.

stripe "S" emblem, businessman looking in confusion

Should you trust Stripe? 

What is Stripe? Payment Aggregator vs. Merchant Account Provider

Before we dive into the potential risks of using Stripe, it’s important to understand exactly what Stripe is and how it differs from traditional merchant account providers.

Stripe is a third-party payment aggregator, also known as a payment service provider (PSP) or payment facilitator. This means that Stripe aggregates all its merchants under a single, large merchant account. When you process payments through Stripe, the funds are first deposited into Stripe’s master merchant account before being disbursed to your individual business account.

Other popular aggregators include PayPal, Square, WooCommerce, and Shopify Payments.

In contrast, a merchant account provider sets you up with your own dedicated merchant account that is completely separate from other small businesses. Your funds are deposited directly into your unique merchant bank account.

Some key differences between Stripe and merchant account providers include:

  • Ease of setup: Stripe has a quick, simple online application process. Merchant account providers typically have a more involved underwriting process.
  • Pricing: Stripe charges flat-rate transaction fees. Merchant account providers often have more complex pricing models with lower rates for higher volumes.
  • Fund holds: As an aggregator, Stripe has more latitude to freeze accounts and hold funds. Merchant account providers generally can’t hold your funds without cause.
  • Stability: Stripe can terminate accounts abruptly if they deem them high-risk. Merchant accounts offer more stability and are harder to lose.

Some key similarities include the ability to accept major credit and debit card networks (e.g., Visa, Mastercard, American Express, Discover), PCI compliance for the payment form and gateway, and basic invoicing features.

So, while Stripe is incredibly convenient, especially for new businesses, that convenience comes with some major trade-offs in terms of account stability and risk exposure. Stripe is great for getting up and running quickly, but it’s not an ideal long-term solution for most online merchants.

Using Stripe? We can help secure your business.

businessman holding a file labeled "high risk"

What is high risk?

What Makes a Business “High-Risk” to Stripe?

Stripe and other payment aggregators are notoriously risk-averse. They are quick to label businesses as “high-risk” and shut down accounts at the first sign of trouble. But what exactly makes a business high-risk in the eyes of Stripe?

There are several factors that can cause Stripe to categorize your business as high-risk, including:

  • Your industry or business model
  • High chargeback or fraud rates
  • Selling high-ticket items or recurring subscriptions
  • Inconsistent or sporadic processing volumes
  • Location of your business and customers
  • Lack of processing history

Some of the most common types of online businesses that Stripe considers high-risk include:

  • Dropshippers and e-commerce retailers
  • Digital goods and course sellers
  • Coaches and consultants
  • SaaS and subscription businesses
  • Ticket sellers and event organizers
  • Affiliate and network marketers
  • Adult content and services
  • Gambling and gaming sites
  • High-risk financial services
  • Nutraceuticals and supplements

Basically, if your business falls into any of these categories or has any of the risk factors mentioned above, there’s a good chance Stripe will consider you high-risk and you’ll be at greater risk of having your account shut down.

It’s worth noting that being labeled high-risk by Stripe doesn’t necessarily mean your business is actually risky or doing anything wrong. Stripe is simply trying to minimize their own risk exposure, even if that means cutting off legitimate businesses.

So, what can you do if Stripe considers your business high-risk? The best solution is to seek out a high-risk merchant account provider that specializes in working with businesses in your industry. These providers are much more tolerant of risk and will work with you to find a stable, long-term processing solution.

High Risk Businesses NEED High Risk Processing

row of businesses on a street with a "closed" sign

Closed, closed, closed.

Real Businesses Impacted by Stripe Account Termination

To understand the real-world consequences of having your Stripe account suddenly shut down, let’s look at a few examples of businesses that have experienced this firsthand.

Case Study 1: Ecommerce Store Selling Survival Gear

An online retailer selling survival gear and equipment had been using Stripe for payment processing for over a year without any issues. One day, without warning, they received an email from Stripe stating that their account had been terminated effective immediately due to being classified as a high-risk business.

The merchant was left scrambling to find an alternative payment processor while their website was unable to accept orders. It took them several weeks to get set up with a high-risk merchant account provider, during which time they estimate they lost over $20,000 in potential sales.

Case Study 2: Subscription Box Service

A subscription box company delivering monthly packages of niche products had been happily using Stripe for recurring billing. After one of their boxes experienced higher than normal chargeback rates due to a product quality issue, Stripe abruptly terminated their account.

Not only did the company lose the ability to process payments, but Stripe also withheld several months’ worth of funds to cover potential chargebacks. This created a major cash flow crisis for the business, forcing them to take out loans to cover operating expenses until they could access their funds and transition to a new payment processor.

Case Study 3: Online Course Creator

An entrepreneur selling online courses on personal development had their Stripe account terminated after being deemed high-risk, despite having a low chargeback rate and no history of customer complaints.

The termination came at the launch of their biggest course of the year, disrupting their marketing and launch plans. They had to quickly implement a new payment gateway and lost sales momentum as a result of the last-minute switch.

These are just a few examples, but there are countless stories of businesses, large and small, that have had their operations disrupted by sudden Stripe account terminations. The financial and operational impact can be devastating, especially for businesses that rely heavily on online payments.

The key takeaway is that no business is immune to the risk of having their Stripe account shut down, often without warning or clear explanation. It’s crucial to have contingency plans in place and to carefully consider the long-term sustainability of relying on Stripe as your primary payment processor.

Alternatives to Stripe for High-Risk Businesses

If your business has been classified as high-risk by Stripe or you’re looking for a more stable, long-term payment processing solution, there are several key factors to consider:

  • Industry expertise: Look for a provider with experience in your specific high-risk industry.
  • Pricing and fees: Compare pricing models and watch for hidden fees like annual fees or early termination fees.
  • Contract terms: Avoid long-term, locked-in contracts. Month-to-month or flexible terms are preferable.
  • Customer support: Make sure the provider offers responsive, knowledgeable support when you need it.
  • Chargeback management: Look for tools and services to help prevent and dispute chargebacks.
  • Stability: Research the provider’s track record of working with high-risk businesses long-term.
  • Security: Protect your business and your customers’ credit card numbers with a PCI-compliant DSS payment gateway at checkout as well as SSL and TLS security measures.
  • Features: Ensure the provider you choose offers the features you need, like international payments with currency conversion, digital wallets like Apple Pay, ACH, a flexible API, and more.

Ultimately, the right high-risk payment processor for your business will depend on your unique needs and risk factors. Don’t be afraid to reach out to multiple providers, ask detailed questions, and carefully review contracts before signing up.

While high-risk merchant accounts may have higher fees and more stringent requirements than traditional processors like Stripe, they offer much more stability and support for businesses that need it. By partnering with a provider that understands your industry and risk level, you can secure reliable payment processing for the long haul.

DirectPayNet is one such partner, specializing in providing merchant accounts to high-risk businesses. With years of experience working with high-risk business owners, our team can easily prove their expertise and set you up with a processor and gateway that will truly support you.


About the author

As President of DirectPayNet, I make it my mission to help merchants find the best payment solutions for their online business, especially if they are categorized as high-risk merchants. I help setup localized payments modes and have tons of other tricks to increase sales! Prior to starting DirectPayNet, I was a Director at MANSEF Inc. (now known as MindGeek), where I led a team dedicated to managing merchant accounts for hundreds of product lines as well as customer service and secondary revenue sources. I am an avid traveler, conference speaker and love to attend any event that allows me to learn about technology. I am fascinated by anything related to digital currency especially Bitcoin and the Blockchain.