Shopify Launches Payments Service To Ease Online Sales for Small Sellers

Shopify Inc. hopes to lure small online sellers by the thousands to its e-commerce platform by making the typically vexatious business of taking payments as easy as possible.

On Monday, the Ottawa-based company announced Shopify Payments, a service that lets Web merchants sign up to accept a broad range of cards without setting up a gateway processor and a merchant account. The company says client merchants can select “Shopify Payments” on the administration page for their account and begin accepting payments immediately.

Once they turn on the service, merchants can track transactions on the Shopify platform, where they create and manage their online stores. “The number-one priority was to make it as simple as possible,” Louis Kearns, director of payments for Shopify, tells Digital Transactions News. “This is something our merchants expected. People create Shopify accounts all the time. To have to wait a couple of days to get approval [for payments] was frustrating for everyone.”

Founded in 2005, Shopify has 60,000 merchants worldwide on its platform, 35,000 of them in the United States. The new payments service is being offered only in the U.S. for now, though more countries will follow shortly, probably starting with Canada, Kearns says.

Pricing is set at three tiers, depending on the “plan” the merchant has selected to manage its site. The tiers are 2.9%, 2.5%. and 2.25%. all plus 30 cents, for Visa, MasterCard, American Express, Discover, and JCB, with no upcharge for the typically more expensive AmEx transactions. Transaction processing is handled by Stripe, the San Francisco-based startup that launched as an online processor for developers. “We’re not setting payments up to make a lot of money from payments,” Kearns says.

Shopify is following an aggregation model, says Kearns, acting as a payment service provider and independent sales organization for Wells Fargo & Co. In aggregation, ISOs or other acquirers sign small merchants that typically come to the acquirer without merchant accounts. The merchants can begin accepting payments almost immediately by piggybacking on the acquirer’s account.

The tradeoff for the convenience can be long waiting times for settlement. Indeed, with Stripe, waiting times are as long as seven days, though Kearns says Shopify can shorten that period for merchants whose transactions it has followed and knows to be low-risk.”We know what our merchants are selling,” he says. “We know who they are.”

George Peabody, a senior analyst at Menlo Park, Calif.-based payments consultancy Glenbrook Partners, says Shopify’s pricing starts “a little high” at the top end but “goes in the right direction.”  The absence of a premium for AmEx transactions doesn’t surprise him. “Since AmEx is a small portion of e-commerce, I can see where they’d be comfortable blending it [in the rate],” he says.

Before Shopify Payments, merchants on the platform had to come with existing gateway and merchant-account relationships or establish them. To track their payments, they also had to leave Shopify’s site to go to a third-party portal. Now, says Kearns, none of that is necessary. The aggregation model, Peabody adds, “makes it a lot easier for a service provider like Shopify to add payments.”

Peabody says the new service will appeal to emerging merchants that don’t want to bother with setting up payments acceptance. “It brings in the long tail of merchants because it’s a pain in the neck to have to do [payments] yourself,” he notes.

But Kearns expects the new payments service may well attract veteran sellers with existing merchant accounts, as well. He also expects to see more effort in the payments industry generally to get small merchants enabled for payment acceptance more quickly. “There’s going to be a lot more focus on getting people up and running as fast as possible,” he says.