Do You Need a 3rd Party Merchant Account for Your Shopify Store?

Shopify Merchant Accounts and Your Store

Shopify is a Canadian eCommerce company headquartered in Ottawa, Ontario. The company was founded in 2006 and is one of the world’s leading hosted eCommerce platforms. The Shopify platform hosts over 600,000 active stores, driving $82 Billion worth of sales across many different industries. Shopify is one of the largest and best platforms available to build an online store for small business owners.

When setting up your Shopify account, it’s to you to configure your payment processing to get your business rolling.  However, there’s not always a lot of thought given to payment processing on Shopify since they have a default option out of the box. From Shopify.com:

“Shopify Payments comes with your account; all you need to do is turn it on. However, if you’re not using Shopify Payments and you want to accept credit cards, you can choose from over 100 credit card payment providers for your Shopify store.

Shopify supports two different types of credit card payment providers: direct providers and external providers. If you’re using a direct provider, your customers can complete their purchases directly on your online store without having to pay at a third-party checkout. If you’re using an external provider, your customers must complete their purchases on a checkout page that’s hosted outside of your online store.”

So why would someone want or need to use a third-party payment provider on Shopify?

That’s not an easy answer, but it could be because products on your site may be considered high-risk by Shopify’s standards. If your Shopify eCommerce store sells some products within industries that Shopify categorizes as “high risk,” third party payment options are the only way to go for your business. This categorization is up to Shopify’s discretion (and may change over time), but in general, a “high risk” categorization may encompass industries such as supplements & nutraceuticals, vape products, travel, etc.

Another possible reason your Shopify account needs third-party payment processing is that it has received multiple chargebacks within a relatively small sample size of orders. Depending on your Shopify store order volume, even two or three chargebacks within a month could trigger an automated or manual review of your merchant account, which may cause Shopify to put a hold on your money, payment processing, or even your entire account.

Examples of typical high-risk businesses that run Shopify stores:

• CBD
• Nutraceutical products
• Firearms
• Subscription and Recurring Billing
• eCommerce
• Anything adult-oriented
• Tobacco
• Gambling
• Financial services

However, even if you’re not in one of these industries, Shopify may classify you as high-risk based on several factors, including:

• How long you’ve been in business
• The number of chargebacks you’ve had in a period of time
• Frequent fraudulent charges
• Lots of returns or refunds over a period of time
• Previous security issues (website or otherwise)

What is a Dedicated High-Risk Merchant Account, like Shopify, and how does that affect you?

There are generally two different types of merchant processors: Dedicated Merchant Accounts and Aggregate Merchant Account when it comes to payment processing for large sites. This is important to remember because Shopify’s default payment option is an aggregate account, which means an individual business has far less control over their money than if they were using a separate dedicated merchant account (from a third party).

A dedicated high-risk merchant account is an account where the business has its own merchant ID. In contrast, an aggregate account shares its ID with all the other companies in its respective portfolio. The main difference between an aggregate account and a dedicated account is that the merchant does not share a high-risk merchant account with several other companies. Aggregate high-risk accounts, like ones established through Shopify, use one merchant account for an entire portfolio. A business has no control over an aggregate high-risk merchant account with Shopify while having a degree of control with a dedicated high-risk merchant account. With a dedicated high-risk merchant account, transactions between the merchant and the customer are deposited directly into their bank account. With an aggregate high-risk merchant account, the funds from a transaction are sent to the account provider, like Shopify, and then they’re deposited into the merchant’s bank account. That step gives Shopify the ability to put a hold on your money if they see a problem with your transactions. Shopify also has the option to make any changes they deem necessary without your consent.

From the perspective of a business owner, Shopify’s default payment option may not be for you because:

• It limits what you can sell in your store.
• It means that Shopify “controls” your funds at certain points in the process.
• Using a 3rd party payments provider on your own secure checkout page avoids using Shopify’s payment portal/process, adding a degree of security and control which can be in your hands.

Shopify won’t allow your account, froze your account, or dropped your account. What’s your next step?

When a giant platform freezes or drops your account, it can be confusing what your next steps should be. The good news is you’re not alone, and this isn’t the end of the line for your business.

This type of situation happens far more than you might think and your new path to profits needs to include using a third-party payment processor outside of Shopify to manage your transactions. You’ll need to set up an account with a dedicated merchant provider that can set you up as a high-risk merchant. Dedicated high-risk merchant account providers have a range of industry specializations, giving you the processor you need while mitigating your risk of being dropped again.

By using a third-party provider that’s established in working with high-risk merchants, you’ll gain their experience, security, and service as they’ve worked with others in the same situation as you for many years. Platforms like Shopify don’t have experience working with high-risk businesses, and they don’t have plans to work with them in the near future. WizoPay can help take the guesswork out of what your next steps should be when applying for a high-risk merchant account.