Before the Covid-19 outbreak, Shopify was growing at an almost exponential rate. Today, we know that many merchants are even more heavily reliant on the e-commerce platform. Entrepreneurs are doing what they can to keep online businesses operating in the middle of this pandemic. Moreover, Shopify recently announced that it will add $200 million to Shopify Capital. In case you’re not familiar, this is a fund launched in 2016 aimed at helping merchants through small loans.
Shopify is a beloved brand for many internet marketers and entrepreneurs. But it can always be complimented by additional payment solutions, such as a merchant account. This is especially in light of merchant restrictions regarding their payment solution, Shopify Payments. Currently, there are more than one million merchants using the platform. In 2019 on Black Friday weekend, sales processed by the platform burst through the $1 billion ceiling for the first time.
Merchants are increasingly looking for robust payment channels without sky-high processing fees. Unfair chargeback fees, frozen funds, and unwarranted account terminations are also common. This post will help you to make the shift away from the issues associated with Shopify’s in-house payment solution.
Shopify continues to grow as a done-for-you e-commerce platform
Shopify has continued to grow year after year. Culminating in an IPO in May 2015, which raised more than $131 million. The company has continued to defy experts by increasing its stock price more than ten-fold since that date.
Recently, Shopify introduced its in-house payment processing solution called Shopify Payments. This was developed in partnership with Stripe and works seamlessly with the software. Before the Coronavirus outbreak exploded, the solution was reported to have processed up to $870,000 in sales per minute.
Shopify Payments uses Stripe’s infrastructure to provide its own solution. The payment processing costs reflect the fees Shopify has to pay to use Stripe’s systems. They are non-negotiable for merchants doing high volume such as $100k in sales per month or more. For many e-commerce stores, the same (if not better) payment processing fees can be achieved without the restrictions. Also, by getting your own merchant account, you can have your own advisor and talk through any issues instead of having your account suspended or terminated if there is a few extra chargebacks in a given month.
Shopify Payments processing fees are the least of an e-commerce merchant’s worries
You may think the difference in processing fees is too small to make a switch to a merchant account. But, there are more reasons you need to consider. First of all, Stripe doesn’t process payments for a whole range of industries. They come down hard on high-risk merchants. Travel agents, nutraceuticals/supplements, telemarketing, and adult entertainment merchants are just a few of the hundreds of banned business verticals. Whole countries and jurisdictions are prohibited too. So, your geographical location might have you searching for alternatives straight away or if you generated a lot of sales from high risk countries, you may also be out of luck.
The policies of Shopify differ from Stripe’s when it comes to business types. This is confusing to merchants. Many e-commerce businesses get up and running on the platform and then get shutdown out of the blue by Stripe. This is a result of their teams finally get around to underwriting and web compliance. This sort of due diligence is best before a business is approved to accept orders. Not after the business is already in operation.
There have also been complaints that Stripe uses bots to assess websites. For example, a vendor selling products as innocuous as old vinyl records can be shutdown just for having instances of mild nudity on album covers. You may start processing and after a few weeks get a closure notice, while all your funds are frozen until the investigation is completed. It’s a tough situation to be in if it results in limited cashflow and a closed online shop.
Know the difference between low and high risk
Aside from poor enforcement of their own policies, Stripe also has strict chargeback tolerances, sometimes suspending accounts with 0.5% chargeback ratio or less. For many high-risk merchants, these are difficult to adhere to. Shopify Payments charges you a low fee of $15 for every single chargeback instance. However, you pay more in other ways. Accounts, with a high number of chargebacks will either have their funds frozen or suspended without warning. In many cases, merchants do not have the opportunity to dispute.
The low risk tolerance is due to the fact that each merchant signs up to what is effectively a large merchant account where Stripe is the master merchant and each online business owner is a sub-merchant. To mitigate the risk of grouping high-risk businesses together, they have low chargeback tolerances. This is to maintain good relationships with both acquirers and card issuers.
Individual merchant accounts are a great complement to your Shopify setup
What does this mean for you as a merchant? You are sharing your merchant services with verticals and business models more high-risk than your own. Of course, you have no control over the business practices of others. Thus, if you have a bad month on the chargeback scale, you could lose your ability to process because Stripe cannot tolerate extra chargebacks on their “master” merchant account. Control your own destiny by getting your own merchant account directly with a payment processor.
Frequently, Shopify Payments/Stripe account shutdowns come completely out of the blue. If you’re a high-risk merchant and you haven’t yet had your account shutdown, it makes sense to explore other options. By adding a merchant account, you have more control over your fraud and chargebacks ratios. Furthermore, you have an alternative payment option for which to send high-risk and volatile traffic. The merchant account can serve as a backup to receive 25% of your volume. So, if Stripe or Shopify Payments suddenly close your processing, the alternative account can be used with little to no downtime.
Thinking of using PayPal as your alternative to Shopify Payments at the checkout? Read this guide to find out why that may not be the best idea!
Best practices when adding a merchant account to your checkout options
Not all merchants want to replace Shopify Payments with a tailored merchant account solution. Some prefer to diversify their payment options. Either way, there are several considerations to make before adding a merchant account channel to your checkout funnel.
1. Do you want to switch to your own checkout page?
If you’re going to integrate a high-risk merchant account, it might also be a good time to design your own checkout page. Shopify does provide merchants with a shopping cart and checkout page. But you need to think about whether you want to stick to their infrastructure or create your own. Many merchants find that having their own checkout page increases conversions and makes for a more pleasant customer experience.
2. Shopify’s checkout doesn’t work for all business types
Shopify does provide a payments page that is PCI-compliant. But, it is fairly standard and lacks features. For example, those within the online courses niche rely on upsells and cross-promotions at checkout. Shopify does not support this kind of functionality. By creating a custom checkout page with merchant account processing, high-risk merchants can achieve this outcome. You can easily add one-click sales, upsells and other tactics to increase conversions.
3. Get a handle on your ratios with access to transaction-level data
Stripe’s infrastructure doesn’t allow online merchants to have full access to their payments data. This can cause issues with both chargebacks and fraud. It’s not unusual to get MATCH-listed or TMF’d as a result of working with payment aggregators. By designing and implementing your own checkout page, you can get more access to critical real-time payments data. Safeguarding your business’ payment processing ability.
4. Merchant accounts are a helpful workaround to restricted business types
As mentioned, Shopify and Stripe have varying rules over business categories they allow to operate on their software. While there are some overlaps, Shopify is much more liberal than Stripe when it comes to high-risk businesses. Therefore, securing a high-risk merchant account allows you to keep using a Shopify shopping cart without restricting your growth with Stripe’s policies.
Control more with a dedicated merchant account
There’s no doubt that Shopify still provides one of the best ways to set up an e-commerce business. They provide easy-to-use website templates, complete with compliant payments pages. It’s great for those unexperienced in web design and payment processing.
However, the Stripe system that underpins Shopify’s in-house payments presents a threat. Especially for merchants selling supplements, digital content on subscription, business opportunities or other high-risk niche products or services. Stripe places severe restrictions on business activities and stifles your chance to scale. There’s also little control over chargebacks and fraud. This makes high-risk merchants think twice about using them.
Merchant accounts provide beneficial payment processing solutions. Firstly, there’s greater risk tolerance for chargebacks and fraud. Secondly, they also give you access to critical real-time payments data, which can help you make critical business decisions.
This is essential so that you can flag suspicious payments straight away. Some have the functionality to block certain cards, IP addresses, and mailing addresses too. By securing your own merchant account, you no longer leave the future of your payment processing in the hands of others.