Selecting the Best Payment Gateway for Your Shopify Store

choosing the right payment gateway

Now that you've got your store setup and working it's time to get into the nitty gritty of making as much money as possible.  One of the easiest and most important ways to do this is to select the best payment gateway for your Shopify store. 

Why is this step so important?

Simple.  Profitability.

Since everything you sell through your store must go through a payment processor it's crucial that you select a gateway that minimizes the fees you'll be paying.  Many store owners spend a great dal of time selecting the right product, figuring out manufacturing or sourcing, fulfillment, and distribution.  They know the cost associated with every step in this process.

But they neglect to take into account the fact that they'll be paying a fee on EVERY SINGLE TRANSACTIONIf your margins are already thin, this is a serious problem.

E-Commerce Payment Gateways

accepting credit cards in your store

No matter which e-commerce solution you work with, selecting your payment gateway is a crucial step. Gateways are services which authorizes credit and direct payments for businesses which have physical locations, as well as online retailers. Banks offer payment gateways but there are also specialized financial service companies which serve as payment service providers.

The payment gateway enables a payment transaction by allowing information to be transferred from a portal (which can be a website, phone, or interactive voice response service), to a processor such as a bank.

There are literally dozens of payment gateways from which to choose.  Security (the integrity of the system is of primary consideration when handling financial information), reliability, and the costs of set-up and ongoing fees all deserve a good deal of consideration before making your final choice.

A Breakdown of Fees & Costs

Accepting credit card payments online doesn’t just entail choosing a payment gateway, you also want to factor in the costs and fees associated with your provider. The only way to have an accurate accounting of your profits is to ensure that all your costs are accounted for, even those which may be “hidden”.

Transaction Fees

bag of money

​Regardless which gateway you choose, you'll be paying a fee based on a percentage of the transaction (generally between 2.4% and 3.0%) as well as a per transaction fee of 30¢.  

However, you need to determine whether the transaction is qualified or non-qualified. Payment gateway providers usually advertise their lowest transaction fee which applies to “qualified” transactions.

Unfortunately, most of your transactions will be non-qualified. A non-qualified transaction applies to purchases made with a credit card which offers discounts, customer reward points, and other incentives. If a customer uses a business credit card, then that transaction is non-qualified as well. Other non-qualified transactions include international orders, orders which are considered high risk for any reason, and orders where the billing address is incomplete.​

Chargeback Fees

Another type of fee to be aware of are chargeback fees.  These occur when a customer disputes a charge from your business.  This can happen over a wide range of issues including:  dissatisfaction with the product, never receiving the product, or some other complaint about the product.  These fees can add up quickly so it's important to minimize disputes and chargebacks.

Monthly Service Fees

Some gateway providers also require a monthly fee for using their services.  This might be as high as $30 per month.  Be sure to read the fine print as some providers will hit you with an additional fee if you don't charge a certain amount over the course of a month.​

Statement Fees

This one is really annoying.  Many payment gateways will charge a statement fee per month.  You'll most likely be hit with this regardless of whether you actually receive paper statements or not.  I would look to avoid these gateways entirely if at all possible as they are just fee-happy and this will rear it's ugly head in other circumstances as well.

A Few Other Items

In addition to standard fees, there are a few other things you should be on the lookout for:

  • "Freebies” such as free mobile apps, free payment seals (which are just graphics), free reports, free fraud prevention tools, etc. Most reputable payment gateways will include all these things. What you need to look out for are the things which aren’t included.
  • Make sure what you're getting is an all-in-one solution.  As you can see from the above, fees can add up quickly.  You don't want a solution that requires you pay additional fees because your provider isn't handling the entire process.
  • Cancellation fees may be due if you have a contract with your provider. If you cancel your account before the term is up, there may be an early cancellation fee. Many times, the payment gateway has a no-contract clause or states that you can cancel at any time, but that doesn’t apply to the merchant account provider. Read the fine print because you may discover that you are under contract with the merchant account.

As you can see these fees are not insignificant and can make a serious impact on profitability.  Read the fine print for any gateway you're considering.  Make sure they offer an all-in-one solution so you ALWAYS know exactly how much you'll be paying per transaction.

What's the Best Payment Gateway?

What's the best payment gateway for your Shopify store? Before making your choice you need to consider each of the following:

  • Security - Security is non-negotiable for obvious reasons. Does the provider comply with Payment Card Industry Data Security Standard (PCI DSS) protocols? These standards ensure that payment information is protected by third parties and is stored independently of the payment gateway provider. Do they offer measures to detect and prevent fraud? Have they had any recent security breaches?
  • Reputation – Does the company have a good reputation? Check online reviews and discuss your options with people who are already using this payment gateway provider. What is the company’s response time and are they helpful?
  • Costs & Fees – Make sure you understand all costs and look out for any hidden fees. Run the numbers to see which company offers you the best deal.
  • Product risk - certain payment processors will not work with businesses that sell higher-risk products.  These include drug paraphernalia, event tickets, government services, prepaid phone cards, mulit-level marketing, pharmaceuticals or pseudo-pharmaceuticals, and a great many more.

Shopify Payments

shopify's built in payment gateway

Shopify offers its own all-in-one payment gateway /merchant account solution (which is powered by Shopify Stripe). The main advantage is that when you use their gateway, they waive their usual shopping cart transaction fees. But, it also has the benefit of being an in-house solution which works seamlessly with the Shopify system.

Shopify Payments bases your processing fees on your Shopify plan. They range from an online rate of 2.9% + $0.30 for online purchases with the Basic Shopify plan to an online rate of 2.4% + $0.30 with the Advanced Shopify plan. These rates are competitive with other major payment gateways and in some cases even lower. It also offers fraud analysis and allows you to manage your chargebacks.

fee structure breakdown for Shopify payments

When it comes to security, Shopify Payments is certified at Level 1 in PCI DSS compliance. In fact, Shopify meets all 6 of the PCI’s standards.

Unfortunately, not everyone is eligible for Shopify Payments. This option is only available in some countries (The United States, Canada, Hong Kong, the United Kingdom, Ireland, Australia, New Zealand, and Singapore). It is not available in U.S. territories, other than Puerto Rico. There is also an extensive list of businesses which are considered “high-risk”, which will not be approved for a Shopify Payments account.

All is not lost If you’re turned down by Shopify Payments. In cases like these, you just need to find a third-party payment gateway.

Third-Party Payment Gateways

​Before you start down the road of an external or 3rd party gateway it's important to know that Shopify is going to charge you an ADDITIONAL fee for using anything other than the Shopify Payments gateway.  Depending on your plan this will range from .5% to 2%.  

Third party payment gateways allow you to accept online payments without having to set up your own merchant account. They let you use their merchant account provided you comply with their terms of service. Shopify third party payment gateways include Stripe, PayPal, and 2checkout.com. In fact, there are over 100 third-party payment gateways which integrate with Shopify.

Shopify external payment gateways are payment providers which require your customer to leave your store’s checkout to complete their transaction on the provider’s website. An example would be 2checkout.com or PayPal. If you want your customers to stay in your store’s shopping cart, then you need to use a direct provider like Authorize.net or Stripe.

If you have your own payment gateway, then you can create a Shopify custom payment gateway which will redirect your customer to your server. This option is available using Shopify’s Hosted Payment SDK solution and you can find instructions on how to use your gateway with Shopify.

Here is a list of all the gateways currently offered and supported by Shopify.​

Conclusion

Choosing the best payment processor for your Shopify store is one of the most important decisions you'll make.  The right solution ensures that the payment process is seamless for your customers, affordable for your business, and operates reliably and with a high level of security.

If Shopify Payments is an option based on the products you sell it's a no-brainer as the best solution.  It offers an attractive fee structure, no shopping cart fees, and it seamlessly integrates with the Shopify platform. The level of security is excellent as they comply with the Payment Card Industry Data Security Standard (PCI DSS) which covers the protection of cardholder data, the regular monitoring and testing of networks, and maintaining a secure network.

If you don't qualify for Shopify Payments you can either select one of Shopify's pre-approved providers or work with a broker to help you find a solution that works.  

About the Author Jason

Jason is a work from home dad who has a passion for DIY projects, yard work, and SEC Football. His background is IT, but he's always fancied himself as a part-time ship welder, landscaper, and short order cook. During the week he can be found on his laptop 10 hours-a-day, but on the weekends he escapes to the local DIY Cave to play with REAL toys.