STRIPE AND THE HIGH-RISK SHAKE-UP

The Rundown

Stripe is making a change. In recent weeks, the processing giant has amended its previous strictures on high-risk merchants, now offering services to the CBD, dating and gambling markets. Prior to the second quarter of the year, Stripe was not approving businesses selling products like these. To steepen competition with stricter processors, they’ve now thrown their hat in the ring.

At first glance, this surprising turn is attractive, especially for those in volatile markets. But there are caveats. Stripe is notorious for approving a multitude of new merchants without underwriting or investigating the customer satisfaction data of each new client. So once evidence of chargebacks, misleading advertising or billing spikes occurs, they’ll hold funds or shut down the account entirely. This is not likely to change, so these expectations will be just as tight, if not tighter moving forward. Ultimately, Stripe is fixing to dip its toes into a long-unexplored market, and it will shake things up.

Digging Deeper

Stripe collects 2.9% of each transaction on top of a $0.30 cent fixed fee. This remains a reasonably low commission, especially because Stripe does not charge for new accounts or long-term subscriptions. Merchants will only be charged if they make a sale. This wouldn’t change with the consistently low-risk clientele Stripe represented. Now that CBD, dating and gambling have entered the playing field, they’ll hold strong. Same rate across the board. Effective processing is paramount for any merchant, as chargebacks result in a staggering $15 additional charge. Not to mention foreign exchange and international cards adding 1%,  lessening the rate of return depending on the nature of the online sale.

By comparison, high-risk heavy-hitter processors charge proportionately more for the same service, but that’s largely due to the risk of their service with these volatile goods. You’re looking at a base 4-8% processing fee, similar per-transaction add-ons, and much steeper penalties for issues like chargebacks, as high as $50 dollars. Subscriptions and setup fees are also likely to buffer your risk. And now with Stripe in the mix, these niche market players may need to reassess.

Head-to-Head

The thing to distinguish in this new development is that Stripe may always appear like the cheapest processing approach, especially to beginners, but while high-risk processors are pricier, they’re also more tolerant of the contingencies mentioned above. 

The financial line in the sand muddies a bit when risk increases. Account instability after onboarding paired with reserves, payment losses or altogether shutdowns make Stripe far more comparable to their pricier competition than they appear on the surface. 

The 5% Rule

Here’s where things get logistical. If too large a percentage of transactions online are disputed; specifically 5%+, Stripe may give you trouble. But many of these merchants sell at or around this rate with their existing processors. So is there competition to be had?

Many risky industry benchmarks actually land significantly higher than the teetering 5% threshold, as high as 15-20% in terms of refunds for things like supplements and adult materials. With this in mind, it’s important to anticipate what comes after, and that starts with monitoring flags, troubleshooting potential shutdowns and assessing reviews as you scale your business. Remember, approval does not equal stability. Reputation is everything to these processors, so that should be your top priority. 

Merchants, Listen Up!

Stripe has leveled the playing field. The chips are down, and new opportunities in pricing and access are here. But many things remain the same, and it can’t be emphasized enough how much pressure for compliance is still applied by these processors, including Stripe. They don’t mess around with fraud risk or unreliable sellers. If your product is a heavy risk to the consumer, have a backup processor ready to go. You’ll need that fallback sooner than you think in this evolving e-Commerce market. 

Stripe is certainly not the end-all as a long-term processor. If anything, it’s a good "Level One". Let it be part of your stack. It is not your solution to standalone models or a funnel for your high-risk digital products. Consider how deeply you vet your processor before diving in.

Consult a Compaytence representative to guide you to the right processor today at the link below!

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