August 19, 2016
Shopify Simplifies Credit-Card Acceptance for E-Commerce Merchants
By D.J. Murphy, Editor-in-Chief
Since its inception as an e-commerce platform in 2006, Shopify’s goal has been to make the experience of selling online simpler for its merchants. On Monday, the Canadian company launched Shopify Payments, which integrates credit-card acceptance directly into the platform. So, a merchant that builds its online store using Shopify no longer has to outsource the payment function to a third party. Tightly integrating payments into its e-commerce platform has been a goal of Shopify’s for some time, according to Louis Kearns, director of payments at Shopify.
“It was always something that our founders and executive team had in the back of their mind to provide a better overall payment experience to our customers,” Kearns tells CardNotPresent.com. “As Shopify grew, we were trying to make commerce simpler and better across the board. Payments is just one of those things our customers expect to be taken care of for them when they create a Shopify account.”
To accomplish the integration and ease the headache for their merchants of applying for merchant accounts or setting up their own gateways, Shopify had to become a Payment Service Provider (PSP) with its own banking and processing relationships. As a PSP, what used to be an onerous process for the merchant has become simpler.
Plain and Simple
For merchants, Kearns explains, the simplicity manifests itself in three main ways: onboarding, tracking and pricing.
He points out that for Shopify, one of the historic conversion drop-off points for new merchants has been the process of getting payments up and running, especially for small merchants that have never sold online before.
“Getting a merchant account set up, getting your gateway credentials, figuring out how to plug them into your e-commerce platform was complicated,” he says. “A lot of the time it requires a call to customer service and many don’t attempt it at all.”
Retailers that use Shopify to set up their online stores now are instantly approved and can begin accepting credit-card payments immediately.
Also, having payment transaction data linked to the same system that tracks sales and inventory makes it much easier for merchants to reconcile the payment to the order that generated it. By integrating the two functions, payments are automatically synced with their corresponding orders, with all the information available in one place. In the case of chargebacks, that can make a real difference for the retailer, Kearns says.
“When a chargeback came in, merchants had to figure out the order that corresponded to the payment, then dispute the chargeback on the third-party site by collecting data that was already in their e-commerce platform,” he says. “That’s just cumbersome and we saw that it didn’t need to work like that.”
The third leg of the simplicity stool concerns pricing. In a traditional processing relationship with numerous interchange categories and other fees, pricing can get very complicated. Kearns says it was important for merchants used to Shopify’s streamlined approach to avoid that. So, the company devised three different prices for payment acceptance that correspond to its traditional monthly plans for the flagship e-commerce service.
At the basic level, which starts at $14 per month, payment acceptance costs 2.9 percent plus $.30 per transaction. Under Shopify’s more comprehensive Professional and Unlimited plans, credit-card acceptance is reduced to 2.5 percent plus $.30 per transaction and 2.25 percent plus $.30 per transaction, respectively. There are no added fees for accepting American Express or international cards or for PCI compliance, Kearns adds.
He also indicates that transaction fees, which Shopify traditionally charged merchants that belonged to its lower-tier plans, have been eliminated for customers that use Shopify Payments.
E-commerce can be a risky proposition for merchants and for payments providers. As a newly minted PSP, Shopify is now more formally engaged in the battle to reduce that risk, due both to the nature of running a payments company and on behalf of merchants for whom they are now processing payments. But, Kearns notes, Shopify’s approach even before integrating payments was risk-management friendly.
A characteristic of the PSP model is that while there is less up-front underwriting of merchants involved for the payment provider, ongoing risk management is more regulated and, therefore, more burdensome. But, the wealth of information available on the business practices of Shopify clients makes risk management less complicated for the company, Kearns says.
“We’re in a much greater position than the majority of PSPs because we already know everything about the merchant’s business and what they’re going to be selling online,” he explains. “It’s no longer just trolling a Website to see what you can find. We already have all their product information, all their business information just from setting up their Shopify account. That gives us an upper hand on the risk-management side.”
On the merchant side, Shopify had already been engaged in helping their customers battle card-not-present fraud. Kearns says the company’s API-driven culture resulted in an ecosystem that encourages companies and individuals to write applications that link directly into Shopify. The company already offers merchants several external tools from well-known antifraud providers—including CNP Expo alumni Riskified, Signifyd and Subuno—and is in the process of expanding its own internally built system to sniff out payment-card fraud.
Shopify currently powers the online stores of more than 60,000 merchants. While Shopify Payments will be the default payment acceptance platform for all new customers, Kearns says it is committed to supporting the more than 80 gateways and processors used by its current customers and they will continue to make new partnerships with payment providers its merchants wish to use.
And, at least initially, Shopify Payments is available only to U.S. merchants that want to accept credit-card payments. Kearns says other payment types and other countries will follow, starting with Canada in September and rolling out to other geographies “as we establish and finalize banking relationships in those places.”