It’s hard to beat the convenience of selling products over the internet.Â Not only do you not have to worry about paying the overhead costs of a brick and mortar store (unless you want to), but you can sell to customers that live far from your local market.
If your experience taking electronic payments has been limited to swapping cash with friends via Venmo, you’ve probably got a lot of questions about how to get started. In truth, it’s probably both more and less complicated than you think.
So let’s dive in and try to teach you everything you need to know about eCommerce payments.
1. There’s No One-Size-Fits-All Solution
First, some disappointing news. There isn’t one single “correct” way to handle eCommerce. The right payment processing solution will depend upon a number of factors. Take a business website, for example. Do you currently have one that you’d like to start selling products through? Or are you content to use a premade shopping cart template? If you’re a relatively technical person, you can integrate solutions into your site with software APIs or plugins. If you’re not, you’ll probably want to consider a service that provides that functionality upfront. While you can potentially save money doing it yourself, you’ll need to make sure that you’re keeping your customer’s information secure and reducing your own liability.
You’ll also want to consider the nature of the payments you’ll be accepting. Are your customers just buying a product one-off, or are they subscribing to a service that will require recurring monthly payments?
And of course, you’ll need to take stock of your budget and figure out how much you’re willing and able to spend on payment processing and any additional software services.
2. You Need A Payment Processor And A Gateway
A common point of confusion for people new to eCommerce is that there are actually two components to taking payments online. You need both a payment processor and a gateway. These services may be offered together as a package (PayPal, Square, and Stripe, for example) or separately. If you do end up going with a payment processor that doesn’t include gateway access, you’ll need to get it from a separate service like Authorize.net.
A payment processorprovides an account that allows your business to accept credit cards and receive credit card payments. It’s also used to deduct fees and processing charges associated with the transaction. After the payment gateway successfully processes a transaction, your payment processor receives the information.
AÂ payment gatewayÂ stands in for what would be your point of sale (POS) interface in a brick-and-mortar transaction. It allows you to securely process payments online by relaying the transaction information from your site to the processor, which then requests the payment from the customer’s bank before releasing funds to you. A payment gateway is also responsible for most of the security features associated with online payments as well as offering services like recurring payments and a credit card vault.
Types Of Payment Processors
Because nothing is ever simple in the world of payment processing, you won’t just need to think about getting a payment processor, but what type of payment processor you need.
The safest option is to go with the tried-and-true merchant account. Think of your merchant account as a holding area where all the busy work of receiving a credit card payment happens. Unlike, say, a business checking account, you don’t have direct access to your merchant account or the ability to directly make deposits and withdrawals to it. Instead, it automatically transfers payments to your business bank account, typically a day or two after receiving the transaction.
Merchant accounts are generally stable and you’re unlike to encounter holds, freezes, or terminations unless you have a sudden spike in chargebacks. Because of the underwriting process, merchant accounts are somewhat slow to establish–you’re probably looking at three days or so to get it up and running, though if you are negotiating or your business is particularly complex, it could take longer. The biggest drawback is that they often have minimum credit card transaction thresholds you have to meet; $5,000/month is typical but some expect you to handle at least $10,000/month in credit card sales. Pricing models with merchant accounts vary, and not all of them are great. We recommend interchange-plus pricing because it’s the most transparent and easiest to compare.
So what do you do if your new business isn’t doing that kind of sales volume?
You can turn to a third-party processor (aka payment services provider). Instead of having your own, unique merchant account, a third-party processor puts you in a pooled account with other merchants, from which fees are deducted in a similar manner to the merchant account. Signing up for a third-party processor is typically faster and easier than for a merchant account (you can start accepting payments the same day), but puts you at greater risk of account holds and terminations. Still, they provide an entry point for new businesses, or established ones that want more predictable pricing. Most third-party processors use a flat-rate pricing model where you’ll pay the same fee regardless of the card type; for eCommerce, that rate is commonly 2.9% + $0.30.
3. You Can Accept More Than Just Credit Card Payments
While credit and debit cards will probably make up the bulk of your eCommerce transactions, they aren’t the only way to make payments online.
It seems like every few years a new tech company rolls out their own digitalÂ wallet. We’re talking about services like Apple Pay, Google Wallet, PayPal, Venmo, and Cash App that allow you to link one or more payment sources to a single app account. In person, mobile wallets (a type of digital wallet that lives on your phone) allow you to make near field communication (NFC) purchases at terminals that allow tap-to-pay. In most cases, mobile wallets directly debit a linked credit or debit card while other digital wallets tend to store a balance, which can be used to make payments or be deposited into a bank account.
Many of these services can be used to make payments online as well. If your payment gateway doesn’t support mobile payments out of the box, it probably won’t be that big a deal since the customer can still just pay with the card attached to their mobile wallet. But if you want to go ahead and support mobile payments, you may have to add some code to your store.
The other type of payment you may want to think about isn’t cutting edge. In fact, it’s been around since the 70s: the automated clearing house (ACH). ACH transactions cut out the credit card company middleman and instead establish direct transfers between bank accounts. ACH payments can be one-time transactions, but if you’re using them in a retail context, you’re probably more interested in using them for recurring payments.
ACH is a bit more laborious to use at the point of sale than credit/debit cards, but it is a much less expensive way to process transactions and less prone to fraud and chargebacks. Most payment processors don’t offer ACH support by default, but a number do offer it as an add-on. Failing that, you may need a supplemental service.
Do You Want To Sell Globally? Prepare To Pay More
The internet is a miracle of the modern age, connecting people together and granting you easy access to markets abroad! Right?
While it’s true that you canÂ theoretically sell anywhere in the world, it introduces some additional complexities. For starters, there’s the matter of different currencies. Someone’s got to turn those euros into dollars! Some service providers, like Stripe, will handle currency conversions for you. Keep in mind that this service will usually come at a premium; in the case of Stripe, you’re looking at an additional 2% charge on your transaction.
And of course, you might want to convey the price of your goods to customers in their local currency. This feature usually goes hand-in-hand with automatic currency conversion, but you might need to enable this feature if you want to attract global buyers.
You’ll also need to take local taxes, customs, and duties into account, which means familiarizing yourself with foreign concepts like the value-added tax (VAT), which is used in Europe, Canada, South America, and Africa, as well as China and India. Here again, there are services that can take care of most of this complexity for you, but be prepared to pay for the privilege.
4. You Need To Be PCI Compliant
If you’re doing eCommerce, you’re going to be handling people’s money, and that means security concerns. And yes, yet another acronym.
The Payment Card Industry (PCI) has established a set of guidelines called the PCI Data Security Standard (PCI DSS) designed to minimize the risk of data being compromised by bad actors. So far so good, but PCI compliance is complicated by the fact that it’s actually a set of four different standards. The standard that applies to you is based on the number of debit and credit card transactions you process annually. Risk level four is considered the lowest risk, while risk level one is considered the highest. The fewer transactions you process, the lower risk you are unless there’s a data breach, at which point you’ll probably be considered risk level one regardless of your volume.
It gets a bit complicated, but what this means in practical terms for you is that you want to make sure your payment processor is PCI compliant and that you’re following the guidelines laid out by your PCI-compliant payment processor.
Payment Security Is Important
It can be a headache, but payment security will ultimately help protect your business and save you from costly chargebacks and account freezes. EMV chips have helped to reduce in-person credit card fraud, but unfortunately, that means online transactions are the new low-hanging fruit for fraud.
In addition to maintaining PCI compliance, security features like AVS (Address Verification Service) and CVV (Card Verification Value, that short number you’re asked for sometimes) provide extra layers of verification would-be fraudsters have to work through. Programs like Visa’s 3D Secure are also constantly evolving to make the changing payment security landscape.
How To Find An eCommerce Payment Provider
Got all that? eCommerce payment processing has a lot of moving parts that can confound even the tech-savvy. Having a sense of the functionality you need in advance will make it much easier to select a payment processor and gateway that can handle the transactions your business depends on. But you should also keep in mind how much of a budget you have for the monthly services required to keep your eCommerce setup running, what you can expect to pay for payment processing, and whether you’re going to need some technical assistance in building out your system.
If you’re ready to get started, we recommend checking out our list of the best online credit card processors. This will give you the rundown on some of the best options in the industry. If you want to learn a bit more about online payments before you get started, our article How To Choose An eCommerce Merchant Account is another great resource.
The post Everything You Need To Know About eCommerce Payments appeared first on Merchant Maverick.
So you’re looking to take advantage of everything that online commerce has to offer and enter the world of ecommerce? Good for you! Of course, this will require you to be able to accept online credit card payments. To do this, you’ll need an internet merchant account.
Sounds simple enough, right? If only! Not all merchant accounts are created equal. When choosing an internet merchant account for your ecommerce business, you’ll need to understand how a merchant account interacts with the other elements necessary for selling online, like payment gateways, payment processors, and shopping carts (not the kind you push around). Some services combine one or more of these elements, but it’s still important to distinguish these elements from one another.
Confused yet? Don’t worry — we’ll spell it all out for you!
What Is A Merchant Account?
A merchant account is a specific type of business account into which your customers’ money is deposited after they use their credit or debit card to make a purchase from you. After these payments are verified, the money is transferred to your own business bank account, which is entirely separate from your merchant account. You have no control over the merchant account — it is merely the middleman between your customers’ money and your business bank account.
So, why include this middleman at all? Wouldn’t it be easier to simply accept credit and debit card payments directly and get the funds deposited directly into your business bank account?
Unfortunately, credit card processing doesn’t work that way. When your customer pays you, the transaction ultimately still involves two other major parties: the issuing bank (which grants the customer cards and is responsible for collecting any payments from the customer) and the acquiring bank (which requests and then collects payments from the issuing bank and then releases them to the merchant). Because the payment process is so complicated — the acquiring bank has to ask for the funds from the issuing bank, which has to verify that the customer has those funds available and then transfer them — the merchant account essentially functions as a holding space or even as a sort of line of credit.
Merchant Account VS Third-Party Processor
When selecting a service to process your customers’ card payments, you’ll be choosing from between two different categories of services: direct processors (the providers of merchant accounts like the kind described above) and third-party processors (also called aggregators) like PayPal, Stripe, and Square.
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Setting up an account with a third-party processor is simpler and less time-consuming than setting up a merchant account. This is because third party processors don’t set you up with your own unique merchant account. Instead, the third-party processor aggregates all of its merchants into one enormous merchant account.
What do these differences mean for you, the merchant? For starters, the merchant accounts offered by direct processors typically provide you with a higher level of account stability. This is due to the extensive underwriting and risk assessment you have to undergo to get your merchant account. With third party processors, you are subjected to very little underwriting beforehand. Therefore, the processor scrutinizes your activities much more intensely, making it more likely that you’ll experience an account hold or termination.
The flip side of this is the cost advantage of third party processors. These services typically feature flat-rate pricing and pay-as-you-go agreements. There are few (if any) monthly or annual fees to pay, and you don’t need to meet a monthly minimum in card transactions, making it easy to start taking credit card payments with no established business history.
With direct processors, you’ll be paying monthly and potentially annual fees, you’ll need to be processing at least $5,000 to $10,000 per month in card transactions, and the pricing is not normally flat-rate — your rates may vary depending on the nature of your business model and your industry. Many merchant accounts still require you to sign a multi-year contract. (That said, many of the best processors in the industry have done away with these 3-year contracts and early termination fees in favor of month-to-month agreements, and we recommend that you not settle for a multi-year contract until you’ve explored all your options.) Still, above that $10,000/month mark, merchant accounts do offer cost savings and as your volume increases you’ll qualify for even more discounts.
For more on third-party processors and how they stack up against traditional merchant accounts, check out these articles:
The Best Online Credit Card Processing Companies
The Truth About Third-Party Payment Processing
What’s A Payment Gateway?
We’ve established what a merchant account is, so let’s move on to payment gateways.
While a merchant account is the account into which your payment processor sends your customers’ payments before they are transferred to your business bank account, a payment gateway connects your online store to your payment processor, facilitating your customers’ online transactions.
Payment gateways enable online transactions like so: the gateway integrates with your ecommerce store to securely capture the payment details for customer transactions. The gateway then routes that information to your payment processor or acquiring bank, which assumes control of the payment process. The gateway will then send an approval or decline message back to the merchant based on whether or not the processor/acquiring bank accepts the payment.
When you use a third-party processor, a payment gateway is typically included in the service. With direct merchant accounts, a gateway service may or may not be included for an additional fee. Some processors do offer gateways as part of their services, at no additional cost. Ultimately you’ll need to check with the processor to find out.
PCI Compliance With Online Merchant Accounts
What is PCI compliance, and how do you achieve it?
PCI compliance refers to a set of safety practices established by a council (the Payment Card Industry, or PCI) sponsored by the major credit card companies to ensure that a consumer’s payment information is secure when making a purchase using a credit or debit card. These standards, which apply to all businesses that accept credit and/or debit cards, are meant to standardize the securing, processing, and transmission of cardholder data.
If your merchant account provider deems you to be PCI non-compliant, you’ll be subject to a PCI non-compliance fee of around $30 per month until your account is compliant. What’s more, if your non-compliance results in a data breach, you can be fined anywhere from $5,000 to $500,000!
You’ve probably gathered by now that it’s a good idea for your business to be PCI compliant. For most small businesses, that means being Level 4 PCI compliant. Level 4 is the PCI standard that applies to businesses up to a certain size — it’s essentially the lowest bar to clear. Larger businesses must comply with higher PCI standards, with Level 1 standards applying to both the largest businesses and businesses that have suffered a data breach.
When choosing a payment processor, you’ll want to make sure your provider offers features such as PCI compliant processing hardware and software, quarterly network vulnerability scans, and assistance with completing and filing a Self-Assessment Questionnaire (SAQ).
Most third-party processors handle the entire process of PCI compliance for you, but with a merchant account, you should be expected at minimum to have to complete the SAQ.
If you’re running a brick-and-mortar business with no ecommerce component, you might think PCI compliance has nothing to do with you. However, if your business accepts credit cards, it almost certainly utilizes the internet to do so at some point in the process, so you’ll still need to be PCI compliant. It’s easier for physical-only businesses to establish PCI compliance than it is for online businesses, though.
Some PCI best practices are no-brainers. For instance, you don’t want to store your customers’ card data on your own hard drive or server, you should never use default passwords, and you’ll need to use a firewall on your network and computers. There’s more to PCI compliance than these obvious measures, however. For a detailed explanation of what PCI compliance means for your business, I highly recommend reading our comprehensive article on the subject, The Quick Guide To PCI Compliance For Small Businesses.
How Much Does An Internet Merchant Account Cost?
When choosing a merchant account, it’s important to know the different pricing models offered by payment processors:
Flat-Rate Pricing: This pricing model has the advantage of being predictable. You’ll pay a fixed rate for each transaction, making it easier to predict your processing costs. While you’ll usually pay more on a per-transaction basis than with other pricing models (and you donât know how much the processor is making off a transaction), you probably won’t have to pay monthly fees or other types of fees charged by processors offering other pricing models. Third-party processors like PayPal, Square, and Stripe use this pricing model. To learn more about flat-rate pricing, check out our flat-rate credit card processing explainer.
Interchange-Plus Pricing: Also known as cost-plus pricing, interchange-plus pricing is the pricing model preferred by Merchant Maverick. Why? Because it’s the most transparent model and it makes rate comparisons between processors easy. With interchange pricing, the processor passes on the interchange fees (fees charged to the merchant’s bank account and paid to the bank that issued the card) and assessments (fees paid directly to Visa or Mastercard etc.) while charging a small markup above that (often a percentage and a flat fee). Check out this article for more on how interchange-plus pricing works and why we prefer it.
Membership Pricing: This is the pricing model used by subscription-based payment processors like Fattmerchant and Payment Depot. Under this pricing model, you’re charged a single monthly subscription fee instead of the assortment of fees other pricing models feature. You’ll also likely pay a flat fee of between $0.08 and $0.15 per transaction as well as interchange fees. Higher-volume businesses can find themselves saving money under this pricing scheme.
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Tiered Pricing: Tiered pricing is an older pricing model not commonly used by modern businesses. We don’t recommend it. All transactions are grouped into two or three tiers of transactions, ranging from the lowest-priced transactions to the highest-priced transactions. Essentially, the problem with tiered pricing is that processors can categorize transactions assumed to be in a lower-priced tier as higher-priced transactions, thus charging you more and leaving you little recourse. You should avoid tiered pricing arrangements.
For most small businesses, using a third-party processor with flat-rate pricing like Square or PayPal may be more affordable than using a full-service merchant account. Of course, this entails a much greater risk of having your account frozen or terminated, which is, in itself, a very costly thing to happen to any business.
One thing that affects what your internet merchant account will charge you is the fact that CNP (card not present) transactions, including online purchases, cost more to process than do in-person transactions. This is due to the fact that the chance of chargebacks and fraud is higher with transactions where the card is not present, and this is factored into the cost of processing the payment.
Other fees you may (or may not) have to pay include PCI compliance fees, payment gateway fees, and fees for ACH acceptance if you want to offer customers the ability to pay with their bank accounts in addition to cards. To learn more about the complex and relatively opaque world of internet merchant account pricing, read through our Complete Guide To Credit Card Processing Rates & Fees.
Features To Look For In An Internet Merchant Account
Let’s go through some of the features that may be included in your internet merchant account package.
One benefit of third-party processors like Square is that a payment gateway is included as part of the service so you won’t have to go looking for one yourself. Of course, third party processors have their drawbacks as well, so you’ll be glad to know that some direct processors include a payment gateway in their services as well.
Remember, if you plan to do business online, whether it be through selling goods, offering SaaS, or what have you, you’ll need to be able to accept online credit card payments. To do that, a payment gateway is an absolute requirement.
Multiple Payment Methods
We’ve established that you’ll want to be able to accept credit and debit cards. However, there are other payment methods your customers may want to use, and you want to be able to accommodate them. From mobile wallets like Apple Pay on the web to ACH payments, the more payment methods your payment gateway (and payment processor) supports, the better.
Global Payment Support
With some merchant accounts, you can only accept payments in USD. If you expect to be able to attract any international business, that’s obviously not going to be good enough. Thankfully, many merchant account providers can set you up with a multi-currency ecommerce merchant account so you can expand your global reach. Just be aware that you’ll likely pay currency conversion fees (if they aren’t passed to your customers). PayPal and Stripe do very well in this regard, and Stripe actually supports many localized payment methods across Europe and Asia.
As an added note — some processors offer a feature usually referred to as dynamic currency conversion or localized currency displays. This means that your website will automatically convert the price from USD (or your default currency) to whatever currency is most common in the customer’s region. This can improve the shopping experience for international customers and potentially increase your sales.
Included Shopping Cart (Or Other Software)
An online shopping cart integrates with your website to facilitate ecommerce. The shopping cart enables your customers to look through your available products, select different options for each product (size, color, etc.), select the quantity of the products they want to order, and more.
Most merchant accounts can be integrated with major shopping carts, but if you can find one that includes a good shopping cart already, that’s even better, as you’ll be saving money.
Other handy features to look for include a customer credit card vault that allows you to securely store your customers’ card information while keeping it off your own equipment and subscription tools that let you create and manage customer subscriptions. Stripe is an example of a processor with built-in subscription tools and a card vault. However, you can also opt for a third-party provider to get recurring billing functions.
Processors with integrated developer tools, like Stripe, allow developers to use APIs (application programming interfaces) to integrate the payment platform using a variety of different programming languages. For the business with developer talent, integrated developer tools can help you build custom solutions for your ecommerce outfit.
Good customer service and availability is critical in an internet merchant account. Your ability to do business is reliant on all your systems working correctly 24/7, so reliability and quick response times are crucial. Do some research on merchant account providers to weigh the experiences of other merchants when dealing with any issues that pop up, and make sure that the available support channels jibe with your preferences.
How To Choose The Right Provider For You
That was a lot to take in, wasn’t it? If you’re feeling overwhelmed, don’t worry! Merchant accounts are Merchant Maverick’s original specialty, and we’re here to help you delve into the nitty-gritty of merchant account pricing, features, and provider options.
Here are some links to help you learn more about merchant account options, features, and more:
The Best Online Credit Card Payment Processing Companies
How To Choose An eCommerce Merchant Account
The Complete Guide To Online Credit Card Processing With A Payment Gateway
How To Accept Credit Cards Online
The post The Complete Guide To Finding An Internet Merchant Account appeared first on Merchant Maverick.
Photoshop. Dropbox. Microsoft Office 365. Netflix. These are just a few of the products and services Iâve used in the last few days that require a monthly or annual subscription. There are several others that Iâm paying for as well but havenât used recently. If youâre old enough, you might remember the bad old days of personal computing when software came in big, shiny boxes that held a thick manual (that no one ever read) and a stack of 3.5â disks that youâd have to feed one at a time into your computer just to install the program. A year or so later, the company would come out with a new version, and youâd have to buy it and repeat the installation process all over again — if you wanted the latest and greatest, at least.
Today, many major software applications are available over the internet at the click of a mouse, and they donât come in a box at all. Instead, theyâre offered via a monthly subscription service. For a few dollars a month, you can download the software onto your computer in minutes, and it will update automatically whenever a new version is released. Subscription-based software is very convenient, and it can seem like a real bargain to pay $9.99 per month for an expensive program such as Photoshop rather than shelling out $500 for a stand-alone product.
The subscription-based model of selling products and services has proven so successful that you can now get a subscription to just about anything. Subscription box services such as Birchbox and Loot Crate deliver random trinkets you didnât know you needed every month. Other services, such as Hello Fresh and Blue Apron, solve the âwhat do you want for dinner?â riddle by dropping pre-packaged meal kits right on your doorstep.
If youâre a merchant looking to increase sales and ensure a steady stream of revenue, you might wonder how you can enable multiple, recurring (and automatic!) payments from your customers. Thatâs where recurring billing comes in. This service allows you to set up repeating payments without your customers having to authorize each payment separately or enter their credit card information more than once.
In this article, weâll explain what recurring payments and recurring billing are and give you a rundown of the types of businesses that use them. Weâll explain the advantages and disadvantages of using recurring billing, and weâll show you important features to look for in finding a provider that supports it. Finally, weâll show you how several popular merchant services providers implement recurring billing and how much it will cost you to set up this popular feature.
Each of these companies provides excellent customer service and fair pricing.
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What Is A Recurring Payment?
Recurring payments are quite simple to understand. Instead of making a one-time purchase of goods or services, the customer signs up for a subscription where products or services are delivered on a recurring, prearranged schedule. This schedule could be monthly, weekly, annually, or whatever is appropriate under the circumstances. Monthly subscriptions are the most common, but just about any other period is also possible. For example, Amazonâs Subscribe and Save feature allows customers to reorder common household products on a recurring schedule, with the interval being determined by how often they need to replenish the product in question.
To establish a subscription, the consumer needs to provide a card on file. This is any valid payment method (e.g., credit card, debit card, or bank account number) from which all payments will be made. In establishing a card on file, the consumer agrees to authorize both the initial payment and all subsequent payments as well. Most subscriptions are open-ended, meaning that the consumer will continue to be charged indefinitely until the subscription is either canceled or the submitted card on file is no longer valid.
Because most subscription-based services require online payments, recurring billing features are usually offered as part of a providerâs payment gateway. However, retail merchants can get in on the action too, as long as they use a payment gateway or virtual terminal to process the recurring transactions. For example, almost all of the wineries in the area where I live offer a wine club membership that automatically ships several bottles of wine to participating club members according to a predetermined schedule.
What Kinds Of Businesses Use Recurring Payments?
Weâve already given several common examples of businesses that offer their products or services on a subscription basis, but there are many others as well. Software and cloud backup services use recurring billing almost exclusively, and health clubs wouldnât be able to stay in business without it. Just about any type of business could, in theory, use subscriptions and recurring billing to sell their products or services to the public.
Although most subscriptions are open-ended, recurring billing can also be used to spread a large, single bill over a more extended period. Attorneys and wedding planners, for example, could use recurring billing to allow a customer to spread a single, expensive bill over several months.
Advantages To Recurring Payments
Recurring billing offers several benefits to both consumers and merchants. For the consumer, the convenience of having recurring bills paid automatically is perhaps the primary advantage. Thereâs no need to track when the next bill is due or to have to fill out and mail a paper check on time. The âset it and forget itâ nature of recurring billing ensures that consumers donât have to worry about any interruptions to their services. At the same time, itâs all too easy to keep a subscription going long after youâve stopped using it. Gym memberships are (ahem) the most obvious example of this situation.
Recurring billing also saves time for merchants, as thereâs no need to generate and send out multiple invoices whenever a subscription payment is due. Transactions are processed automatically, requiring no action on the part of the merchant unless thereâs a problem (expired credit cards are the most common reason for a recurring authorization to fail). Subscriptions also provide a steady, predictable source of income over time. Naturally, theyâre not 100% foolproof. Youâll have to offer top-notch products or services at a fair price all the time to avoid a surge in subscription cancellations.
Disadvantages To Recurring Payments
The advantages of recurring payments generally outweigh the disadvantages, but there are a few downsides that you should be aware of in using them. Payment security, while always extremely important, is even more critical when youâre accepting multiple payments over time from the same customer. This means protecting your customerâs sensitive payment data and protecting yourself from fraud. Your provider can help you implement a strong PCI compliance program that will safeguard your customerâs data according to established industry standards. Many providers also offer fraud detection and prevention measures that can protect you from unscrupulous consumers. The impact of someone submitting a fraudulent payment method will be much higher with multiple, recurring transactions than for a single, one-time purchase.
Storing card-on-file information requires additional work on your part, but most providers offering support for recurring billing include features to automate this process. Nonetheless, you will have more paperwork to deal with if you use recurring billing.
Another minor disadvantage of recurring payments is that it can be more difficult to correct a billing error. If a customer is charged in error, youâll have to issue a refund. For this reason, we recommend that you use a recurring billing service that allows customers to change their payment information or cancel a subscription directly from your website. Otherwise, youâll have to make these changes yourself before the next automatic payment is processed.
How To Choose Recurring Billing Software
These days, just about every merchant services provider on the market offers support for recurring billing, usually as a feature of their payment gateway. However, not every business needs it, so in most cases, itâs an optional add-on to the companyâs basic payment gateway. Optional add-ons are rarely free, so you can expect to pay extra to enable recurring billing as part of your account. Each provider has a different method of charging you for recurring billing. As weâll see below, you might pay an additional monthly fee, or you might pay a higher processing rate for each recurring transaction. In some cases, you might pay both an extra fee and higher processing rates. If you need recurring billing support, itâs critically important that you understand how your provider charges you for this service. You should compare multiple providers before signing up for an account.
Features To Look For In Recurring Billing Software
Features of recurring billing services vary from one provider to another. While some are bare-bones and only offer the most basic functions, others are more robust and allow you to customize virtually every aspect of your subscription service. Here are the most important features to look for in selecting a recurring billing service:
Billing Intervals:Â Not everyone bills on a once-a-month basis. Your service should provide the ability for you to bill on whatever interval you need.
Support For Metered Billing:Â If your subscription service charges by actual use rather than a flat fee, youâll need the ability to track your customersâ usage and automatically generate a bill from that data.
Support For Free Trials:Â Many businesses offer a free trial period before the customer has to start paying for the service. Your recurring billing service should be able to support providing a free trial period of whatever length you specify. Customers should also be able to opt-out at the end of the free trial period rather than being charged automatically.
Security Features:Â Tokenization and encryption are usually standard features of payment gateways today. Theyâre even more important when you have recurring, automatic transactions.
Customer Information Vault:Â This is another feature that usually comes standard with a payment gateway. It allows you to store your customersâ payment data securely, so they donât have to re-enter it every time they shop on your site. To greatly simplify your PCI compliance requirements, this data should be stored on your providerâs server — not on your computer or your websiteâs server.
Automatic Card Updater:Â This feature automatically pulls updated card information from your customerâs issuing bank when a replacement card is issued, allowing a subscription to continue without interruption. Note that this feature wonât work if your customer switches to a different credit card altogether.
Below, weâll look at how several popular merchant services providers handle recurring billing. Some providers are significantly more affordable than others, so it pays to shop around before settling on one choice.
Read our Review
Square (see our review) offers recurring billing through its Square Invoices add-on service. Like most of Squareâs offerings, recurring billing charges on a pay-as-you-go model — there are no additional monthly fees. However, you will pay higher processing rates for recurring transactions. Recurring credit or debit card transactions are charged 2.9% + $0.30 per transaction, while card-on-file transactions will cost you 3.5% + $0.15 per transaction.
Although the higher processing rates will cost you more, Squareâs lack of monthly fees makes this a very cost-effective alternative for a small or newly-established business. Although itâs very affordable, the recurring billing feature of Square Invoices doesnât have the robust feature set found in some competitors. For example, you currently cannot integrate Squareâs recurring billing feature into an API for in-app recurring billing. However, the company is planning to introduce this feature sometime in the future.
Read our Review
Stripe Payments is a popular ecommerce-only merchant services provider that powers a lot of the webâs most well-known online retailers. Recurring billing support is available through the Stripe Billing feature. Like Square, thereâs no additional monthly fee to use this service. Recurring transactions process at a flat rate of 2.9% + $0.30 per transaction for your first $1 million in sales and then Stripe will begin adding a 0.4% transaction fee as well. Most merchants will find that Stripe is less expensive than Square, especially if you process a lot of card-on-file transactions.
Read our Review
PayPal is another payment services provider (PSP) thatâs very popular with small business owners and ecommerce merchants. The company charges the same flat rate of 2.9% + $0.30 per transaction as Stripe for recurring transactions. However, they also charge a $10 monthly fee to enable recurring billing on your account. To make matters worse, its recurring billing feature is only available if you use either PayPal Payments Pro or the PayPal Virtual Terminal. Both of these features cost an additional $30 per month. In other words, it will cost you $40 per month just to use recurring billing.
Unfortunately, PayPal is by far the most expensive option weâve found for getting access to recurring billing. Unless you have another compelling reason for using either PayPal Payments Pro or the PayPal Virtual Terminal, we canât recommend using them for this purpose.
Dharma Merchant Services
Dharma Merchant Services
Read our Review
If your business needs a full-service merchant account, Dharma Merchant Services (see our review) is one of the best choices available. The company offers competitive interchange-plus pricing, low monthly account fees, and a month-to-month billing system that doesnât lock you into a long-term contract. They also offer recurring billing as an optional feature of their MX Merchant integrated payments system. While the MX Merchant system is included as a standard feature of all Dharmaâs merchant accounts, support for recurring billing is an optional add-on, and it will cost you $10 per month. However, youâll pay the same interchange-plus rates for recurring transactions as you would for one-time purchases. If you process a lot of recurring transactions, the savings on processing rates should more than make up for the additional monthly fee.
Do you need recurring payments for your business? The answer will depend on your business type and how you make your sales. Many retail-only companies will not need recurring billing at all, while online businesses that sell via a subscription model wonât be able to function without it. As weâve seen above, selling products and services via subscriptions is becoming more popular all the time. If you think your business could benefit from using a subscription model, youâll need to add a recurring billing feature to your merchant account to make it happen.
If youâve determined that you need a recurring billing service, youâll want to make sure that it includes all the features you need, without paying an additional premium for them. Features such as the ability to store cards on file, customize your subscription intervals, and support free trials are all things to look for in selecting a recurring billing service.
Because recurring billing support is offered as part of a payment gateway, youâll want to be sure to select a high-quality gateway thatâs a good overall fit for your business. To learn more about payment gateways, and how to choose a good one, check out our article The Complete Guide To Online Credit Card Processing With A Payment Gateway. For more information about specific gateway providers, our article The Top 5 Payment Gateways For Online Credit Card Processing is an excellent resource. Finally, our Payment Gateway Comparison Chart allows you to compare popular gateways side-by-side. Good luck!
If youâre a merchant and you blink, you might miss an essential detail in our ever-changing payment landscape. Thatâs because payment security, as well as general payment technology, continues to grow and evolve each year.
Merchants often say that payment security is one of the most difficult to understand (not to mention intimidating) topics. We aim to change that here at Merchant Maverick. So whether youâre looking for an easy-to-understand CVV definition or you want to understand more about how the CVV number affects the checkout process, stay with us. Weâll address all the notable points when it comes to this somewhat mysterious code on the back (and sometimes front) of nearly every credit and debit card.
Whatâs A CVV?
A CVV (or sometimes CVV2) is a three or four-digit number printed on every credit card youâll come across nowadays. This small code is not stored in the EMV chip or the magstripe, as the purpose is to ensure that anyone who makes a purchase has the card on their person. The goal in using the CVV code is to prevent unauthorized use of a credit card in any card-not-present transaction. That usually means online purchases, but it can also include manually entered transactions, too.Â
Before we go any deeper into this post, we need to address the elephant in the room â because if we donât things could get confusing. You may encounter more than one name for the CVV numbers because the payment brands didnât all agree on the same term (go figure). Depending on whom you talk to, you may hear any of the following terms, but these all refer to the same thing:
Card Verification Value (CVV or CVV2): Â Visa and Mastercard
Card Verification Code (CVC): This term refers to the CVV / CID code
Card Identification Number (CID): Discover and American Express
Visa, Mastercard, and Discover all put this numerical code at the backof their cards, near the signature space. American Express, however, chose to put its CID on the front of the card. Regardless of where you find it, the code does the same thing â it helps a merchant confirm that the owner of the card is in charge of the purchase.
Note that this code isnât transmitted when a credit card is swiped, dipped, or tapped during a card-present transaction. The CVV number is another layer of security that helps merchants prevent different types of fraud and reduce their liability. Keep reading to find out more reasons you should care â and where to go from here.
Why Do You Need A CVV Code?
As we mentioned above, if you take a payment over the phone or have an online shop, a CVV code provides an additional way to confirm that the cardholder is actually buying from you. But thatâs not the only reason you would need to have a CVV/CVV2 number during a transaction.
The major card brands began requiring merchants to submit this code in card-not-present transactions in 2018. Why did they do it? Because online fraud is increasing. LexisNexis noted in its 2018 True Cost Of Fraud report that the cost of fraud is also rising. In 2017, every dollar ($1) of fraud cost a merchant $2.77. In 2018, however, that number increased to an average of $2.94. And unfortunately, if you are in the digital space, the cost is even a bit higher.
Another big issue that a CVC code helps prevent for merchants is a chargeback. A chargeback is when a customer requests that the funds from a payment be reversed (usually because the charge wasn’t authorized). Chargebacks can happen for a variety of reasons, and while a CVV code canât protect you from all of them, it is evidence that the customer did authorize the sale because they would have had to have the card in hand to enter the code. In this way, a CVV code can protect you from âfriendly fraudâ â when a customer claims they didnât purchase from you at all, knowing full well they did!
Want to arm yourself with important insights about chargebacks? Check out The Complete Guide To Preventing And Winning Chargebacks.
CVV Checks For Merchants
To recap, only card-not-present transactions for which you donât physically swipe, dip, or tap require you to worry about a CVV code. That means that even if your customer is present, you will need to get the CVC if you manually enter the credit card data through your virtual terminal, POS system or mobile POS app.
If you take any payments online or you send and receive invoice payments, your customers will also plug the CVV code in during the checkout process. For more on card-not-present sales, check out What Is A Card-Not-Present Transaction?
Itâs important to note that merchants who process in-person payments with a card reader or terminal do not need to worry about CVV codes, nor should anyone give out their own code willy-nilly. The code is only useful to confirm a card when you donât process with the magnetic strip or EMV chip.
Letâs take a closer look at the two main scenarios when youâd need to worry about the added security of a CVV/CVV2 number.
Entering CVV Numbers For Manually Entered Transactions
If you already utilize a PCI compliant payment processing company, youâll notice that your payment form for manual entry already has a spot for a CVV code. As stated earlier, that’s because the payment companies now require it on all card-not-present purchases. All processors nowadays know the scenarios it is applicable to ask for the CVV code, and you or your customer will be automatically prompted to enter it if necessary. So remember, the CVV2 number is not needed at all if you swipe, dip or tap the card in your shop.
Hereâs a screenshot of a virtual terminal through Square with the CVV section highlighted. This is a merchant-facing screen for manual card entry. Again, CVV and CVV2 refer to the same number, but Square is just covering its bases by using both terms.Â
Itâs important to note that no merchant should ever store the CVV code on their servers or record them in any way. In fact, the Payment Card Industry-Data Security Standard (PCI-DSS) regulations prohibit storing of this number at all. While collecting a CVC at the moment of purchase and not storing it is not a perfectly airtight security measure, itâs additional protection for merchants to authenticate online and over-the-phone purchases when you canât visually check identification.
CVC Code Entry For eCommerce
For those of you who have an eCommerce presence, a CVC code is also required by the major payment companies during processing. Of course, any online sale is considered a card-not-present transaction, and as such, you should be aware of the risks. Fraudsters often target small businesses looking for vulnerabilities, so itâs important to have a PCI compliant processor and payment gateway.
An excellent feature to look for if you take payment via your online shop is AVS (Address Verification System). As the name suggests, the processor authenticates your customers address during checkout. Whether this feature costs you extra or not depends on the processing company you choose. Many processors do include the feature automatically with their flat or tiered pricing plan. Even if you do pay a bit extra, however, keep in mind that AVS significantly reduces your risk of fraud. Transactions processed with AVS likely have downgraded risk factors and may even save you money, so keep that in mind as well. For more about AVS, check out What Is AVS For Credit Card Processing?
We also couldnât talk about online security without mentioning 3D Secure technology. With 3D Secure technology, the card brands step in to provide an extra authentication step during checkout. The actual process varies by card network and by issuing bank, but for business owners, once you’ve implemented this step, you don’t need to do anything else specific. Ask your payment processor if 3D security is a built-in feature or if not, how you can add it to your site. For more information, check out our post, What Are Verified by Visa and 3D Secure?
Payment Security Is Essential For Businesses Â
This post aimed to clear up any confusion regarding why and how a CVV (Or CVV2, or CVC or CID) number is vital for your small business. Hopefully weâve made the airtight case that the CVV code is an essential piece of information any time you process a card-not-present transaction, but otherwise, donât fret over it at all.
Because payment companies mandate all merchants to collect the CVV during online or manual card entry, youâll need to find a payment processing company thatâs up-to-date with the latest policies. Keep in mind that merchants canât store the CVV data to be PCI compliant, so never write it down. Even with card-on-file transactions, merchants shouldnât store the CVV code; if you do, you could be liable in a data breach.
In addition to CVV, we also introduced you to some other important tools that can help keep your payment landscape safer for you and your customers. If youâre shopping around for your online shop, look for a processor that specializes in online payments and gives you the right tools, including AVS checks or 3D Secure technology. Check out our Merchant Account Comparisons to find out more about features, fees, and support.
The post The Merchantâs Guide To CVV2 And CVV Checks appeared first on Merchant Maverick.
When you are ready to start selling online, Square (read our review) offers a wide variety of options depending on your skill level and needs. For example, if time is of the essence or you donât want to fuss with code, build a free online store from Squareâs templates and get up and running by the end of the day.
Already have a site? Choose a plugin integration from the Square Dashboard that solves your problem â without the need for code.
But those aren’t all of your options. If you do have developer expertise, you can build your checkout flow with Square Transactions API and start accepting all major credit cards with digital wallet support, too.Â Â Square Checkout is yet another developer option that requires less coding with a pre-built payment form and digital wallet support.
In this post, we’ll explore each path so that you can get the facts and navigate to the choices right for you. Before you know it, youâll have launched your own online storeÂ and can move on to more exciting business matters.
Note: If youâre also curious about in-store payments, check out our related post, How To Use Square To Accept Credit Cards In Person.
Build Your Webstore Quickly & Easily
Integrate With Popular eCommerce Software
Developer-Friendly Tools For Customization
No coding required
Free personalized URL
Premade customizable themes
No hosting fees
Manage from your Dashboard
Integrate with your in-person store
API for custom solutions
Card reader SDK
Customer management solutions
PCI and EMV compliance
Instant Account Setup
No Monthly Fees
2.90% + $0.30 for online sales
Instant Account Setup
No Monthly Fees
2.90% + $0.30 for online sales
Instant Account Setup
No Monthly Fees
2.90% + $0.30 for online sales
How Much Does Square Charge For Online Payments?
The cost question can be a very loaded one when it comes to payment processing. The great news is that Square offers a transparent pricing model.
To process credit cards online with Square, you’ll pay 2.9% + $0.30 per transaction. The significant thing to note is that this flat fee encompasses much more than is typical with traditional merchant accounts. For instance, you donât need to worry about a payment gateway (and the expenses that go with it) when you process through Square. Read on below to learn the differences between Square and a traditional merchant account â and why they matter.
Traditional Merchant Account Vs. Square
Squareâs hardware and services encompass an end-to-end processing system that captures payment information and encrypts it through the payment chain with no need for a separate payment gateway.
What this means for you is cost-savings compared to a traditional merchant account. You wonâtbe paying initial set-up fees, PCI compliance fees, monthly account fees, batch fees, or higher rates for processing cards like American Express. Square also doesn’t assess any chargeback fees and offers merchants up to $250/month in chargeback protection. All of this is a pretty big deal because Square spares business owners from the laundry list of itemized charges that can come with traditional merchant accounts.
So if Square isnât a traditional merchant account, what is it? Square is a third party processor. This means that instead of opening a merchant account directly, you are basically a sub-user on Square’s giant merchant account, along with all of Square’s other customers. Square acts as a payment processor and also assumes the financial risk associated with your business to do so. The whole premise behind Square is that it makes setting up a shop very easy for the busy entrepreneur. In fact, you can get an account set up and running to take payment the very same day. The Square sign-up process doesnât even require a credit check!
While you donât need to jump through a lot of hoops to open up an account with Square (as you would working directly with a bank), Square is more apt to terminate or put a hold on an account if certain red flags are raised. While the overwhelming majority of businesses will never have a problem with an account hold, it can be disconcerting if it happens to you. Check out our post How to Avoid Merchant Account Holds, Freezes, and Terminations to find out more. Again, most merchants will likely never have to face this issue, but it helps to cover your bases.
Now that we have covered Square Payments as a third party processor and the cost of processing, letâs dig into Squareâs offerings when it comes to going live and selling online.
Option 1: Build A Free Square Online Store
As I said in the introduction, you can get a free Square store up and running today with no technical expertise needed. This whole process is powered by Square Payments andÂ Weebly (read our review). After creating a Square account, you can go back into your dashboard and select âOnline Storeâ in the menu. Then, Square leads you through the process of selecting the categories that most closely apply to your business. You’ll get a suggested template, but you can choose a different one if you fancy another one better. You can also add your logo, choose from limited fonts, and have some color choices, but overall the design freedom here is limited to the template itself.
Again, for being free, there isnât much to complain about. A Square store is the simplest solution to get your shop up and running. All you need to do is add your products — your eCommerce shop syncs with Square POS and all of the other Square software and tools. Your inventory automatically updates when you sell an item, too.
One potential drawback to the freemium option, however, is that you are bound to the Weebly logo in your domain name and the footer of your website, and your shipping options are minimal. The screenshot below shows the shipping options available when setting up the free Square store with Weebly. Note that you must upgrade your Weebly plan to calculate real-time shipping rates:
If you want a bit more customization and dynamic shipping calculations (among other upgrades), you can purchase a domain and upgrade to a professional or premium account through Weebly.
Square Online Store Upgrade Options
The free online store option, although robust in its own way, limits you a bit. As you can see from above, for example, if your company relies heavily on shipping items with large size or weight ranges, it may be worth it to you to go to the Premium eCommerce plan for the real-time shipping rate calculator and accurate rates for UPS, FedEx, or other third party carriers.
The free store also has a 500 MB storage space limit, which could limit the number of photos on your site. The paid tiers give you a considerable upgrade with unlimited space, along with website analytics and insights.
As far as accepting payment goes, you can accept all major credit cards. Digital wallets like Apple Pay are not supported at this time, but I suspect they will be soon. For more about the pros and cons of this solution, check out our Square Online Store and eCommerce Review.
Option 2: Connect Square To An eCommerce Platform
Whether you already have your site up and running or you are building your site from the ground up (or somewhere in between), you can probably find what you need in the Square App Marketplace. Square integrates with many eCommerce platforms, including:
3dcart (read our review)
Wix (read our review)
BigCommerce (read our review)
WooCommerce (read our review)
Ecwid (read our review)
And of course — let’s not forget that Square also integrates with Weebly, as well asÂ WordPress and WP EasyCart.
On the topic of app integrations and Square, itâs worth noting that Square can easily integrate with a range of different types of apps that you can shop for right from your dashboard. You can find everything from accounting to invoicing, employee management, loyalty and rewards, and marketing, to name a few. Pricing depends entirely on the apps themselves, but the Square App Marketplace is set up to compare costs easily.
All of Squareâs basic eCommerce features integrate with these apps, so youâll be able to enjoy the same payment processing rates, security protection, and inventory updates as you sell. Of course, each app platform has specific features and benefits, so the finished product (and look) varies depending on the integrated solution you choose. Check out The Best eCommerce Integrations That Work With Square Payments for our top picks!
Option 3: Build Your Own Checkout With Square APIs
If you already have your own site and you have developer expertise, then you have two more options thanks to Square API: Square Checkout and Transactions API. The most significant difference between the two is that Square Checkout is much closer to an out-of-the-box solution. With Square Checkout, Square is actually hosting the payment form, and the UI is already done for you. If you want more freedom in the checkout and payment UI and you want to host the payment form on your site with customized branding, you can opt for Square Transactions API.
Here is a handy side-by-side comparison chart to give you an overview of what you can expect with each solution. Note: All Square APIs and SDKs are free to use. As always, you pay only the payment processing fees.
Square Transactions API
Requires Developer Support
No (You host)
Store Customer Data
Yes (With integration)
Card on File & Recurring Payments
Yes (With integration)
Yes (Customer data & itemization)
Detailed Dashboard Reports
No (Transaction amount only)
Recommended, not required
Yes, with separate integration
Eligible for Chargeback Protection
Yes (with conditions)
PCI Compliance Included
Yes, with Orders API
Dynamic Shipping Calculations
Accept Google Pay
Accept Apple Pay
Accept All Major Credit Cards
Yes, with Inventory API
The choice between Square API and Transactions API largely depends on your particular needs and what you find most important in the customer journey.
Other Ways To Accept Online Payments With Square
Though we have explored several options in Square payments, there are yet a few more to keep in mind. Before we go on, itâs worth mentioning that you canât add an embeddable âBuy Nowâ button to any site like you can with PayPal or even Shopify. However, there are still ways to take payments online — even without a website! Letâs check out the last two ways you can take payments via Square from your customer online â through invoices and in-app payments.
You donât need an online store to send and collect payment from your customers if you use invoices. Square allows you to send one-off invoices for single orders, or to set up recurring invoices for subscriptions or even installments.Â Itâs easy to track the status of invoices and follow up right from your Square Dashboard, too. Want more info on invoices? Check out How To Use Square Invoices To Ensure You Get Paid On Time so you can leverage this option for your business.
With all the cash being exchanged through in-app purchases, it was only a matter of time before Square decided to join the party. Thatâs right; now Square offers in-app payment support with a few lines of code! You can update elements to match your appâs style and have the freedom to customize the look and feel however you want. It’s all in Square’s Transaction APIs and completely free for you to use with your Square account.
Is Square Online Payments Right For You?
Square offers solutions for both the tech-savvy and those who want something ready to run out of the box. With that being said, the more appropriate question is, âWhich of Square Online Payment solutions are right for you?â And that answer comes down to your needs. From a quick-to-set up Square Store to Transaction APIs that are customizable and free to us, or plug-ins apps that add eCommerce to your existing site, there are many solutions to choose.
Keep in mind that you can add or subtract Squareâs services and other integrations to scale up or down with you as needed, so you donât have to make a final decision today. Setting up a Square account is the first step to get the ball rolling and see the options along the way. With no sign-up fees, binding contracts, or credit checks, Square is one of the least intimating companies to deal with if you are just checking things out.
The post How to Accept Online Payments With Square appeared first on Merchant Maverick.
Keeping all of the terms straight when it comes to processing payments can be a bit tricky. And there are so many entities involved in payment processing. So we’re going to start with one of the most important terms and players in credit card processing: the acquiring bank. We’ll start with a general definition of an acquiring bank, and then we are going to explore what it means for your business:
What Is An Acquiring Bank?
The acquiring bank is a financial institution that plays a crucial role for the merchant by creating and managing the bank account. Also referred to as an acquirer or a merchant bank, this financial institution is a licensed member of the card networks, including Visa and MasterCard. When you process a payment with a debit or credit card, the acquiring bank plays a role in approving the sale. The bank makes this determination based on the cardholderâs data (made available at the time of the sale from the issuing bank and the card network). Note that the issuing bank is the bank that provided customerâs credit card.
For instance, let’s say your customer pays you with a Visa card and taps their card to pay. Their cardâs issuing bank makes information available about their credit card account to your merchant bank (acquiring bank). If there are enough funds on the card and everything else is copacetic, the acquiring bank approves the purchase and puts the funds in your account.
Now keep in mind that the term âacquiring bankâ primarily refers to the specific role it plays in the whole credit card processing interchange. A merchantâs acquiring bank can be an actual bank, or it can be another type of financial organization. A large acquiring bank may also issue credit and debit cards to its customers, thus also acting as an âissuing bankâ when a consumer pays with the card (this is the case with Bank of America). An acquiring bank is also sometimes referred to as a payment processor, and it might contract directly with merchants to provide merchants services. That said,Â not all payment processors are acquiring banks.Â
There’s a lot to keep straight, but keep reading as we further de-mystify these terms and give you the tools to understand how money moves from your customer to you.
The Acquiring Bankâs Role In Payment Processing
The acquiring bank plays a pivotal role in processing credit card payments for merchants. When a merchant processes a payment, the acquirerâs purpose is to authorize the card transaction and connect with the issuing bank (the consumerâs bank) on behalf of the merchant.
In a nutshell, the acquiring bank acts as a go-between with the customerâs financial organization to ensure funds are transferred. In doing so, the acquiring bank assumes some financial risk (thatâs where the acquiring bank fees come in.) Weâll talk more about security, disputes, and more in an upcoming section.
Want to know what happens to your funds in a transaction? Here is an overview to help you wrap your mind around the process itself:
1st Step: A cardholder receives a credit card from their issuing bank and visits your shop. When they are ready to buy, they present you with their card to pay for your wares.
2nd Step: The transaction information and the card information passes between the payment processor to the card network, and then to the issuing bank.
3rd Step: The issuing bank charges your customer for the amount of the purchase.
4th Step: The issuing bank transfers the amount to the acquiring bank.
5th Step: The acquiring bank deposits the funds into your account.
Keep in mind that your payment processor may not be the acquiring bank. Read on to find out more about the difference in the roles and how you can find the right solution for your business needs.
Payment Processor VS Acquiring Bank: Whatâs The Difference?
When someone discusses payment transactions, the words payment processor and acquiring bank are sometimes used interchangeably. Some acquirers are themselves also payment processors and you can sign up for a merchant account with them directly. However, not all processors are acquiring banks. In this case, they contract with an acquiring bank to provide services. While they may or may not be two separate entities, the acquirer and payment processor roles are unique.
The payment processor plays more of a direct role with the merchant, as they are obtaining and processing the credit or debit card information during the transaction. Your payment processor handles the lion’s share of the data security as the card information moves from your customer to you. Processors are also the source of the hardware or software you may use. They provide connection to the payment gateway and thus are also integral to the authorization as well.
The acquiring bank is more of a go-between among the card networks, including the issuing bank and the merchant. For example, the acquiring bank essentially mediates any disputed transaction from the issuing bank. When an issuing bank reviews a dispute brought up by a customer, the card network passes the dispute to the acquiring bank, which then conveys the issue to the merchant. The merchantâs response gets passed back to the acquiring bank and so forth. This example is simplified but illustrates where the acquiring bank sits as it relates to you and your customer.
As mentioned earlier, though the role of an acquirer and a payment processor may be unique, sometimes the same organization fulfills both duties. In other cases, payment processors and acquiring banks have contract agreements with one another to perform their separate roles.
Why Does An Acquiring Bank Charge Fees?
As weâve shown, the acquiring bank is the financial institution thatâs involved in each sale and also assumes some financial risk when it comes to funds transfer during credit card processing. The other thing to keep in mind is that just like your payment processor, your acquiring bank is dealing with sensitive customer data and has to follow strict payment security standards. For these reasons, the acquiring bank also charges a fee to cover its own risks and financial investment in the whole process.
For more information on the different types of costs you may incur with processing credit cards, check out What Are Interchange Fees For Credit Card Processing?
How Do Acquiring Banks Affect Merchant Services?
Acquiring banks are essential players in the whole credit card processing landscape. As a merchant, itâs important to at least generally understand who the players are and how they may affect your business. Itâs not always obvious who your acquiring bank is, as some processors and acquiring banks are separate entities, while sometimes youâre dealing with the same organization.
On a similar note, smaller processors that contract with acquiring banks often bring better customer service because of their specialization. They also may have different pricing and contract terms, such as month-to-month agreements. Keep the whole picture in mind when you are shopping around for a merchant account so that you can make the best decision for your business.
Wondering what companies are out there and which one is right for your business? You are in the right place here at Merchant Maverick. If you havenât yet, visit our Merchant Account Comparison page and peruse ourÂ small business resources that cover the gamut when it comes to payment processing and you.
The post What Is An Acquiring Bank? appeared first on Merchant Maverick.
There are over 55 million freelancers in the US. With perks like being your own boss, setting your own schedule, and the flexibility to work from anywhere, it’s easy to see why freelancing is becoming such a popular choice.Â Whether you are self-employed full-time or are freelancing on the side to earn some extra income, there are key software tools that can help you run a more effective and profitable business — the most important being accounting software.
As a freelancer, it’s easy to focus on growing your business, finding new clients, creating marketing campaigns —Â anythingÂ but accounting. However, having a strong accounting process and being in control of your business’s finances is the key to running a successful business.
Luckily, there are plenty of easy to use, affordable accounting solutions that will help you manage your freelance finances and taxes quickly so you can get back to doing what you love.
In this post, we’ll share the top accounting software for freelancers. We’ll also share some other great freelance tools that you should know about to help your business succeed, including everything from email marketing software to website builders to mobile payment apps and more. We’ve spent hours researching and testing software so that you can find the perfect software solutions to run your freelance business.
$10 – $17/month
$0 – $18/month
Size of Business
Ease of Use
Number of Users
Number of Integrations
Cloud-Based or Installed
iOS & Android
iOS & Android
iOS & Android
Characteristics Of Good Freelance Accounting Software
In terms of accounting software, freelancers have very specific needs. Most traditional small business accounting software simply won’t fit the bill. Freelancers need an easy-to-use financial management solution designed specifically for the self-employed. Here are some of the key characteristics a good freelance accounting software should have:
Affordable:Â For freelancers, every penny counts. With a slim or nonexistent accounting budget, freelancers need a solution that is free or offers affordable, low monthly payments.
Easy To Use: Good accounting software should be easy to use as most freelancers don’t have time to spend hours balancing the books. Many also may have little to no previous accounting experience so they need something that is easy to learn and understand.
Time-Saving Automations:Â All accounting software should feature automations, but freelancers are in particular need of any way to save time. Standard automationsÂ include automatic receipt uploading, mileage tracking, and live bank feeds.
Manage Personal & Business Finances: While freelancers should open a separate business banking account to safeguard against tax audits, this simply isn’t the reality for many self-employed individuals. Because of this, many freelancers need to be able to separate their personal expenses from their business expenses using their accounting software
Good Organization: As a freelancer, it’s easy to put finances on the back burner, but knowing your exact income and expenses is key to running a successful business. Accounting software should help you stay organized, run key financial statements, and make more informed business decisions.
Tax Support: With estimated quarterly taxes and ever-changing deductions, freelance taxes can be overwhelming.Â The best freelance accounting software will include tax support to help you manage your self-employed taxes.
Support Resources:Â Good accounting software will also provide you with ample learning materials to help you better your business.
We weighed all of these factors when selecting the best accounting software for freelancers. Each of the top three accounting options displays many, if not all, of the features listed above to help make managing your freelance finances as simple as possible.
1) QuickBooks Self-Employed
Overall freelance accounting and tax support. Ideal for filing directly with Turbo Tax.
Created in 2014, QuickBooks Self-Employed was designed specifically to help freelancers manage their finances and file their taxes easily. QuickBooks Self-Employed is incredibly easy to use, offers great mobile apps, and has the best tax support of all three programs on this list. The software helps you calculate your estimated quarterly taxes, track your mileage, find other deductions like the home office deduction, and even has a Turbo Tax integration for easy filing. On top of tax support, QBSE also helps freelancers keep track of their income and expenses.
The software is ideal for freelancers looking for tax support, a way to separate personal and business expenses, and basic expense tracking.
Suited for freelancers
Limited invoice features
Calculates estimated quarterly taxes
No state tax support
Easy to use
Turbo Tax integration
QuickBooks Self-Employed offers two pricing plans ranging from $10 – $17/month. The difference between the two is that the larger plan includes a built-in Turbo Tax integration and the ability to pay estimated quarterly taxes online.
QuickBooks Self-Employed supports a good amount of features, especially where taxes are concerned. Here’s an idea of what QuickBooks Self-Employed has to offer:
Track income and expenses
Separate personal and business expenses
Record tax deductions
Fixed asset management
Calculate estimated quarterly taxes
Ease Of Use
QuickBooks Self-Employed is incredibly easy to use. It has a modern, well-organized UI that takes very little time to learn and offers strong mobile apps that are also easy to navigate.
QuickBooks Self-Employed’s customer support has its pros and cons. There’s no phone support, but there is a live chat feature if you want to get in touch with a representative directly. The good news is that QBSE provides a great selection of learning resources for freelancers including a comprehensive help center and a small business center chock full of business advice.
QuickBooks Self-Employed is one of the best accounting and tax support solutions out there for the self-employed. The software offers the most advanced level of tax support on the market, and while this isn’t a full-fledged accounting app, it allows freelancers to manage their income and expenses.
Read our full QuickBooks Self-Employed review to find out if this software is right for your business.
2) AND CO
Freelancers looking for strong accounting, good customer support, and the ability to create and send contracts to clients.
Founded in 2015, AND CO is an up-and-coming freelance accounting software that was recently acquired by Fiverr, one of the leading freelance marketplaces. The software is easy to use, offers great customer support, and provides traditional accounting features like time tracking and project management. While the software does not offer tax support, it does have a one-of-a-kind contract feature that allows you to create legal contracts for projects that are compliant with the Freelancers Union. This allows you to dictate who retains rights to your work and accept signatures directly from clients.
AND CO is ideal for freelancers who don’t need the extra tax support of QuickBooks Self-Employed and would rather have more traditional accounting features, contracts, and better customer support.
Suited for freelancers
No tax support
Easy to use
Unsuited for product-based businesses
Good customer support
Strong mobile apps
AND CO has a free plan for freelancers with a single client and a paid plan which costs $18/month. The larger plan includes unlimited reports and more advanced proposals and contracts.
While AND CO may be lacking in tax support, the software has a lot of great features going for it. Here are some of the features AND CO has to offer:
Ease Of Use
AND CO is incredibly easy to use. The software was originally designed solely as an iPhone app so the mobile apps are also easy to navigate.
AND CO offers great customer support. Representatives are generally kind and quick to respond to questions. The company also offers great business tools and support resources for freelancers, as well as all of Fiverr’s extensive freelance resources.
AND CO is a great accounting and finance management tool for freelancers. The main drawback is that there is no tax support. However, you won’t find such developed proposal and contract features anywhere else.
Read our complete AND CO review to see if this freelance tool is right for you.
Freelancers looking for a complete accounting solution for free.
Wave is a free accounting software solution that offers an incredible number of features for $0/month. While the software wasn’t designed specifically for freelancers like QuickBooks Self-Employed and AND CO, Wave is one of the best accounting programs to fit the needs of freelancers. It’s affordable, easy to use, and allows business owners to separate personal and business accounting.
The software is ideal for self-employed individuals looking for a full accounting solution or those who need an affordable way to manage their freelance finances.
Easy to use
Poor customer support
Good feature set
Limited mobile apps
Positive customer reviews
Wave only offers one accounting package and it’s completely free. There are no user limits or feature limits. You get all of the great features of Wave for $0/month. The only extra costs are payment processing, payroll, and professional bookkeeping services.
Of all three options on this list, Wave offers the most features. While you won’t find tax support, Wave does offer strong accounting and is full-fledged accounting software. Because of Wave is actual accounting software, it’s the only program on this list that will allow you to actually balance the books. Here are the features you’ll find with Wave:
Ease Of Use
Wave is well-organized and its modern UI is easy to navigate.
Wave offers many great support resources; however, getting in touch with an actual representative is difficult. There is no phone support and response times are slow.
Wave is an affordable accounting program that gives you strong accounting and tons of features without breaking the bank. The software does not offer tax support, but it does offer payroll, making it a scalable solution if you plan on growing your freelancing business. The professional bookkeeping services are also great for freelancers who aren’t comfortable doing their own accounting or simply don’t have the time.
Read our full Wave review to see if this accounting software is right for you.
Other Great Freelance Tools
Your freelancing business is your baby, and as it takes a village to raise a child, it can also take an army of integrations to run a business. There are tons of great freelancing tools that can help you manage and grow specific areas of your business, like email marketing, invoicing, ecommerce, and more. Here are some of the top freelance software tools we recommend.
The Best Invoicing Software For Freelancers
If your freelance business reliesÂ heavily on invoicing and isn’t quite ready for all of the other features included with accounting software, invoicing software could be a simpler alternative to meet your business needs.
Zoho Invoice is an easy to use, cloud-based invoicing program with incredible invoicing features. With over 15 invoice templates to choose from and international invoicing options, Zoho Invoice has a lot to offer. Read our complete Zoho Invoice review to learn everything this software is capable of.
Invoicera is also a could-based program with a good feature set and attractive invoice templates. A forever free plan and over 35 payment gateway integrations are just a few of the perks of this invoicing option. Read our complete Invoicera review to learn if this software is right for you.
Visit our invoicing software reviews for more options or compare our top favorite invoicing solutions for small businesses.
The Best Receipt Management Software For Freelancers
Business owners are all too familiar with the dreadedÂ receipt shoebox. Receipt management software or expense tracking softwareÂ can help freelancers get organized and handle reimbursements with ease.
Expensify is a cloud-based expense management solution with mobile receipt scanning, expense approval workflows, and next-day expense reimbursements. The software also integrates with key accounting programs for a seamless expense tracking experience.
Shoeboxed is also a cloud-based expense management solution with receiptÂ scanning, mileage tracking, expense reports, basic CRM, and even tax prep. Shoeboxed also integrates with key accounting programs.
The Best Payment Processing Software For Freelancers
Need to accept mobile payments from your customers? Mobile payment apps allow freelancers to accept payments anywhere — whether that be at a home show, a small storefront, or even a client meeting at Starbucks. If your freelance business could benefit from accepting payments on the go, mobile payment processing is a must.
Square is one of the most popular mobile payment apps. It offers affordable flat rate pricing and free tools for selling online, making it easy to accept payments from your customers in multiple ways. Read our complete Square review to learn how Square could benefit your business.
Take a look at our other mobile payment processing reviews or compare our top five payment processing solutions for businesses.
The Best Website Builders For Freelancers
A website is key for many freelancers who sell goods online or who need a professional online portfolio to showcase their work to clients. Luckily, there are plentyÂ of affordable, easy to use website builders that can give yourÂ freelance business the edge.
Wix is an easy to use website builder that is ideal for ecommerce and blogging. Wix offers a compelling free version with unlimited pages and hundreds of customizable templates to choose from. Read ourÂ complete Wix review to learn more about this affordable website solution.
Squarespace is a website builder that is perfect for ecommerce and blogs While there’s no free plan, the software offers amazing templates with a huge degree of customizability. Read our complete Squarespace review to see if this website builder is right for you.
Read our other website builder reviews and ecommerce reviews to find the perfect solution for your business.
The Best Email Marketing Software For Freelancers
One of the most challenging parts of freelancing is finding clients. Email marketing software can be a great way to market your services and target clients so you can grow your business.
MailChimp is an easy to use email marketing software with affordable payments. The software offers email campaigns, email automations, and even analytics and reporting. Read our complete MailChimp review to learn how this software could help your business.
Benchmark is another great email marketing option that is easy to use and offers good customer support. The software has hundreds of templates to choose from and the unique ability to send video emails and online surveys. Read our complete Benchmark review to see if this software is right for your business.
Read our other email marketing software reviews or compare the best email marketing solutionsÂ to find the right option for your business.
Picking The Perfect Freelance Accounting Software
Running a freelance business can be difficult, but with the right tools, you can set your business up for success. With accounting solutions like QuickBooks Self-Employed, AND CO, and Wave, you can manage your finances and gain valuable insight into your business’s income and expenses.
QuickBooks Self-Employed is ideal for freelancers in need of tax support; AND CO is ideal for legal, professional contracts; and Wave is ideal for the complete accounting package. Identifying your freelance needs and examining your current financial process can help you decide which program is the perfect fit for your business.
Then ask yourself, what other tools could benefit my business?
Email marketing software could help you grow your clientele. A website builder could help you create a professional brand. A payment processing app could help you increase your sales. Here at Merchant Maverick, our goal is to help you find the best software to help your business succeed. We have hundreds of reviews across multiple software industries so you can find the perfect software combo. Check out our comprehensive reviews and our other freelance resources as well.
Top 10 Tax Deductions For Freelancers
Loans For Freelance Businesses: Your 13 Best Options
$10 – $17/month
$0 – $18/month
Size of Business
Ease of Use
Number of Users
Number of Integrations
Cloud-Based or Installed
iOS & Android
iOS & Android
iOS & Android
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If you’ve arrived at our comparison of Shopify and Etsy, I’m guessing you’re an online seller (or an aspiring one) of the “artsy” or “craftsy” variety. Perhaps even “artsy-craftsy.” Whichever identifier you prefer, you’ll be pleased to know that both Shopify and Etsy can help you sell all sorts of unique, handcrafted, and/or vintage items.
I’ll admit that in some respects, it’s a little unfair to compare Shopify and Etsy head-to-head. Shopify is a shopping cart platform/website builder you can use to create and manage your own, standalone ecommerce store. The Shopify brand itself operates almost completely in the background from your shoppers’ point of view. (If you build your store correctly, no one will know that it’s really powered by Shopify.)
By contrast, Etsy is an online marketplace that allows youÂ to set up shop directly alongside other ecommerce vendors, all with a similar artsy and/or craftsy vibe. All the while, Etsy’s involvement in the whole operation is directly front and center for your shoppers.
You could also argue that a direct comparison between Shopify and Etsy is quite fair and appropriate. People often wonder 1) which of the two software platforms provides the best starting place to sell online, 2) under what circumstances it makes sense to use one or the other (or both), and 3) at what point a seller might need to transition from Etsy to Shopify.
Plus, the introduction of Pattern by Etsy a few years ago made the comparison between Shopify and Etsy even more apropos. For a monthly fee, Pattern makes it possible for Etsy sellers to maintain a standalone, inventory-synced site of their own. Sites built with Pattern can even offer additional products and services that don’t meet the handmade/vintage/craft supply restrictions of normal Etsy shops.
Pattern aside, a huge draw of Etsy in its original form is the built-in traffic and existing customer base from which you can directly benefit as a seller. (You don’t get that with a standalone Pattern site.) The downside, of course, is that you must share your customers with similar stores.
So, with Pattern thrown in, can Etsy compete directly with Shopify? Does the magic combination of Etsy and Pattern render Shopify completely unnecessary for some Etsy-type sellers? You can already tell from our chart at the top of this article that we are still fans of Shopify, but we think all sellers should understand precisely how these two services stack up on all the important dimensions. Ultimately, the right fit is up to you.
Shopify’s eCommerce Options
Mobile App + Free Card Reader
Point of Sale
Social Media Selling
Low-cost POS for iOS and Android with free hardware
All-purpose POS integrated with all sales channels
Build a store or integrate with your current website
Sell on Facebook and other platforms
Starts at $9/month
Starts at $29/month
Starts at $29/month
Starts at $9/month
Despite some overlap, there’s no getting around the fact that Shopify and Etsy have very different pricing structures. The differences are significant enough that we can’t call a clear winner for cost.
Here’s a very generalized way to compare the two:
Sellers who are just getting started, are very concerned about cash-flow, and simply can’t afford a monthly subscription fee will find an initially cheaper option in Etsy.
Once you have a moderate and fairly predictable stream of transactions and need a full website for your store, Shopify starts to become more cost-effective.
That’s the condensed version of our pricing comparison. For the full breakdown, strap in and keep reading!
When comparing these two platforms, you should first wrap your mind around the main categories of fees involved. It will also help to keep the following overarching difference in mind: Shopify’s main charge is a monthly fee for using the service, while the main component of Etsy’s cost is a fixed 5% transaction fee charged on every sale that occurs on the platform.
Here are the different categories of costs you should keep in mind when comparing Shopify and Etsy:
Monthly Fee: Subscription fee for using the platform.
Listing Fee: Cost of listing a product (or group of products that make up one listing) in your shop.
Transaction Fee:Â Percentage commission per sale charged by Etsy or Shopify itself.
Payment Processing Fee:Â Not the same as a transaction fee!Â This is a per-sale fee (usually a percentage and a dollar amount) charged by your credit card processor/payment gateway. While this entity is usually a third-party company, it turns out both Etsy and Shopify have an in-house, pre-integrated option that most sellers use (Etsy Payments and Shopify Payments, respectively).
Standalone Website:Â Cost of having your own, hosted website with a customizable theme template.
Let’s take a close look at the numbers, shall we? All prices will be shown in USD.
Shopify plans have a monthly fee, no listing fee, and a variable transaction fee that only comes into play if you do not use Shopify Payments as your credit card processor. Starting at the $29/month level, you get your own store website. This involves choosing a free Shopify template or purchasing a premium template from the Shopify theme store. As you look through Shopify’s five pricing plans, remember that you can completely avoid Shopify’s extra transaction fee if you use Shopify Payments as your credit card processor.
Shopify Lite PlanÂ
Monthly Fee: $9/mo.
If Using Shopify Payments: None
If Using External Gateway: 2.0%
Payment Processing Fee (Online)
Shopify Payments: 2.9% + $0.30
External Gateway:Â Varies
Standalone Website: Unavailable. Sell on an existing website, Facebook, or in-person only.
Basic Shopify Plan
Monthly Fee: $29/mo.
If Using Shopify Payments: None
If Using External Gateway: 2.0%
Payment Processing Fee (Online):
Shopify Payments: 2.9% + $0.30
External Gateway:Â Varies
Standalone Website: Included. Templates are $0-$180/ea.
Monthly Fee: $79/mo.
If Using Shopify Payments: None
If Using External Gateway: 1.0%
Payment Processing Fee (Online):
Shopify Payments: 2.6% + $0.30
External Gateway:Â Varies
Standalone Website: Included. Templates are $0-$180/ea.
Advanced Shopify Plan
Monthly fee: $299/mo.
If Using Shopify Payments: None
If Using External Gateway: 0.5%
Payment Processing Fee (Online):
Shopify Payments: 2.4% + $0.30
External Gateway:Â Varies
Standalone Website: Included. Templates are $0-$180/ea.
Shopify Plus:Â Custom pricing.Â Reserved for enterprise-level customers.
With each bump in subscription level, Shopify sellers have access to additional features, as well as more staff accounts for their stores. Check out our full Shopify review, or our quick guide to Shopify pricing, for a more complete breakdown of features by plan.
Same as above
Same as above
Same as above
Etsy has two main plans — Standard and Plus — and a Premium plan that will launch sometime in 2019. Most Etsy sellers use the Standard plan with no monthly fee, whereas the Plus plan is $10/month. Other components of Etsy’s cost include a fixed listing fee, as well as 5% transaction fee on every sale. There is no avoiding this 5% fee, even when you use Etsy Payments as your credit card processor.
Also, keep in mind that your only web presence is your shop page within the Etsy marketplace. If you’d like your own store website separate from (but synced to) your Etsy shop, you can create and maintain a Pattern site for an additional $15/month.
Here are the plans:
Listing Fee: $0.20/ea.
Lasts 4 months
Charged when listing is first published or when renewed
Standalone Website: None, or $15/month with Pattern. Pattern site templates are free.
Monthly Fee: $10/mo.
Other Costs Same As Above
A monthly budget of credits for listings and Promoted listings ads
Access to a discount on a custom web address for your Etsy shop
Restock requests for shoppers interested in your items that have sold out
Advanced shop customization options
Access to discounts on custom packaging and promotional material like boxes, business cards, and signage
Will include premium customer support and advanced management tools for businesses with employees
One final note about pricing before we sum up this section: if you want a standalone site built on Pattern, you’ll also need to purchase and/or connect a domain name. The annual cost varies, but should be comparable to purchasing a domain for a Shopify store. Of course, if you stick to just selling on Etsy and not on Pattern, you don’t need your own domain URL.
Again, this is one of those comparisons you’ll have to decide the winner of for yourself. You can see that once you have a steady flow of significantly-sized transactions, avoiding that 5% Etsy fee on every sale and ponying up $29/month for Shopify instead (and using Shopify Payments to have the Shopify transaction fee waived) starts to make more sense.
Shopify and Etsy stores are both fully-hosted solutions based in the cloud. You don’t need to download or install anything to use either. If you create an Etsy-connected website using Pattern, your site’s hosting is covered by your $15/month Pattern subscription. Similarly, Shopify store hosting is covered by the monthly fee.
Specific Size Of Business
Shopify deserves the win in this category for accommodating a much wider range of business sizes. For just $9/month, you can start selling on Facebook with no additional transaction fees (beyond payment processing itself) if you use Shopify Payments. From there, Shopify scales all the way up to enterprise-level merchants. Etsy, on the other hand, is better geared toward small to mid-sized operations and doesn’t scale nearly as well. That said, for those who just want to test the ecommerce waters and dabble in selling a few handmade or vintage products, Etsy is ideal.
Hardware & Software Requirements
No special hardware or software is required to open and manage a shop on either platform. You do have the option to add hardware (like card readers) if you wish to sell in-person.
Ease Of Use
Shopify usually earns our top rating for ease of use in the ecommerce software category, and with good reason. In this case, however, I’m awarding Etsy the narrow win. As a marketplace with a uniform structure across all web shops on the platform, the whole Etsy setup process is much less open-ended, so it’s easier to start selling right away. Once you fully dive into the admin dashboard and start manipulating individual features, however, I think the two platforms are equally easy to use.
Let’s peek inside the setup process and backend structure of each system, so you can see what I mean.
Shopify offers a two-week free trial of the platform — all you need is an email address. You’re free to test the software to your heart’s content, short of making actual sales.
Once you’ve started a trial account, you’ll gain immediate access to your store’s admin panel. The Shopify dashboard is quite streamlined, with daily operation menus contained in the left sidebar. There are even a few tips to get started setting up your store in the center area:
Shopify — Add A Product
Listing your first product is typically one of the first tasks inside Shopify, but it doesn’t have to be. Adding a product involves completing a simple interface:
In addition to configuring products and setting up the rest of the backend of your store, you can work on customizing your online storefront at the same time. We’ll have more on this process in the Web Design section.
While Shopify is easy to use, you are ultimately responsible for locating and configuring all the settings (shipping, tax, billing, etc.) to get your store going.
The cookie-cutter look of Etsy shops is no accident — it’s achieved through a simple, highly-controlled system behind the scenes. In fact, Etsy guides your hand to such a strong extent that by the time you’re taken through the basic setup process, you already have a store that’s up and running.
Unfortunately, there is no free trial of Etsy. Instead, you must enter a product, your bank account routing number, your credit card info, and other personal/business details before you can even enter the admin dashboard. Coming from the land of ecommerce software where no-credit-card-required free trials abound, I find this system annoying. However, I can’t deny that it is also very effective.
From my personal Etsy account, I’ve used to make Etsy purchases in the past, I simply clicked “Sell on Etsy.” I was then taken through a very detailed setup wizard, all the way from setting my country, to listing my first product, to inputting my billing and payment methods. As you can see from the dots across the top of the wizard interface, it’s a five-step process:
When you finally make it to the main admin panel (called Store Manager), you’ll find it’s actually fairly similar to Shopify. In my own testing, I could find all the menus and features I was looking for in the left sidebar:
Etsy — Add A Product
The most detailed piece of the store setup wizard is step three: adding products (a.k.a, listings). As I mentioned, you’re forced to list at least one item before you can even complete the Etsy signup process and see your main dashboard. Below is the third screen from the setup wizard. Yep, it’s long. Click it to enlarge, if you dare.
This may seem like a lot of work, and it kind of is. Mercifully, Etsy makes it all extremely straightforward. You just need a touch of patience. As part of this process, you’re actually also setting up a shipping profile that can then be reapplied to other products. And, once you choose the type of product you’re selling, Etsy is very good about predicting the type of attributes and variations you might need for that product. I walked away from the processing thinking, “Wow, Etsy knows its sellers and their products really well.”
Side note: Once you finally make it to your dashboard, you can load additional products with a similar interface:
As soon as I was (finally)Â done with the initial setup wizard, my shop was online and ready to sell. I received so much guidance steering me directly to the goal that I almost felt like I was tricked into suddenly having an active store. In a good way, I guess!
I’ve focused on getting a store up and running in this section as an illustrative example — there are lots of other components of each platform to consider. As you’ll see in our Feature section below, though, Etsy has fewer features than Shopify overall. This makes it easier to quickly get a handle on the entire software platform’s capabilities and scores Etsy another point for user-friendliness. Still, the ease of going from zero to ready-to-sell is what really puts Etsy on top.
Let’s acknowledge right away that comparing the features of Etsy and Shopify is hardly an apples-to-apples endeavor. One is an online marketplace including multiple sellers, while the other is a platform on which to build a website that you ultimately own. Etsy has a specific target market of crafters, vintage resellers, and the like, while Shopify’s merchant pool is much wider. The feature sets of each platform work really well for sellers within their specific contexts. Once we add Etsy’s Pattern to the mix, the comparison gets a little closer, but it’s still slightly unfair to both systems.
I do think the best “features” of Etsy have already been highlighted — it’s very easy to get started selling, and you’ve already got a built-in traffic base. Beyond these important advantages, there’s not a lot you can do on the back or front end of your Etsy and/or Pattern shop that you can’t do with Shopify. And, if the core Shopify platform doesn’t have a specific tool you’re looking for, I can almost guarantee you’ll find a solution in the immense app store (more on that later).
All in all, I’m giving Shopify the win because I think it’s a more advanced system for ecommerce. Shopify adds several features that Etsy and Pattern are missing, like checkout on your own domain (customers are redirected back to Etsy if they purchase through your Pattern site), manual order creation, a built-in POS system, and bulk product import/export/editing. In addition, many of the features the two platforms share in common are more robust or flexible with Shopify (I’m thinking of their respective discount engines, abandoned cart recovery systems, SEO tools, etc.).
Despite their core differences, Shopify and Etsy/Pattern still have a lot of great things in common. Thus, I’d like to end this section with aÂ list of someÂ features both platforms share:
Sell unlimited products
Sell physical or digital products
Free SSL certificate (with Pattern)
Built-in blog (with Pattern)
Social media sharing
Automatically calculate shipping & tax
Purchase/print shipping labels
Inventory & order management
Create discounts & coupons
Abandoned cart recovery
Analytics & reports
Mobile store management app
Shopify easily wins this category, even after you throw Etsy’s Pattern software into the mix. Shopify’s frontend template options have Pattern’s beat on all counts — the sheer number of options, the variety of styles, and the overall quality of designs. Not to mention that once you’ve chosen a theme, Shopify gives you much more flexibility to perform further customizations. Allow me to illustrate!
Shopify offers 70 templates, most with 2-4 style variations. Ten themes are free and supported by Shopify developers, while the remaining third-party themes are offered at $140-$180 as one-time purchases.
I think most of the free themes from Shopify outshine Pattern themes, but we’ll get to Pattern in a moment. For now, you should know that Shopify has tools to adjust fonts and colors (via the Theme Editor), and to drag-and-drop page elements up and down your layout (via the “Sections” tool) — all without touching any code. You can also make further adjustments with code if you have those skills, but this is not necessary for the average user.
Here’s a quick screen-grab of Shopify’s visual, non-coding editor:
For more information on how these tools work, check out our full Shopify Review.
Your Etsy shop comes with just one design template that’s the same as everyone else’s on the marketplace. You already saw the default store layout that popped up when I initially created my store. In the backend admin panel, you can customize your homepage by adding a banner image, your logo, a featured area to highlight products, an About section, and a few other basic elements. Each piece is fixed in place, though — no drag-and-drop tool to be found. Anywhere there is a little “+”, you can add a specific element:
With the $10/month plan, you have a bit more flexibility in your design. For example, you can insert a rotating image carousel in lieu of a fixed banner image across the top. And yet, there’s still no dragging nor dropping allowed.
If you decide to create a standalone website with the Pattern feature (remember, that’s another $15/month), you can choose from 10 possible templates. Pattern will recommend an option for your shop depending on your current Etsy store, but you can easily swap it out later:
Once you’ve chosen a theme, you have the option to customize your colors, fonts, text, and images — but again, all with pre-defined placement: Here’s the interface after I added a logo and header:
You can also add a few select pages to your site, like an About or Contact page. You just have to be okay with your layout being completely fixed for each page. Even if you wanted to try tweaking the template code, it’s just not an option.
Sorry, Etsy. Shopify has some of the best designs and editing tools of all shopping cart platforms on the market, so I’m not surprised that Etsy is completely overshadowed in this area. Pattern is only ideal for the most basic of websites. Fortunately, it does offer a 30-day free trial of a live site (once you’re already signed up for Etsy) if you’d like to test the site builder for yourself.
Integrations & Add-Ons
Etsy and Shopify each offer a collection of free and paid add-ons to integrate with your shop. The big difference is in the quantity. Etsy’s selection of a couple dozen apps just can’t compete with Shopify’s approximately 2500 offerings. If you’re worried about the quality of these Shopify add-ons, you have access to thousands of user reviews in the app store. You’re likely to find anything and everything you need to expand your store beyond the core Shopify platform.
A large selection is certainly great, but with the important caveat that the vastness of it all could end up becoming too overwhelming, costly, and unnecessary for small sellers. I was happy to see that Etsy at least offers a few well-known accounting and tax integrations (e.g., Quickbooks, Wave, TaxJar, TaxCloud) and email marketing apps (e.g. AWeber, or MailChimp if you use Pattern). You’ll need to decide if you will ultimately need the store expansion capability that Shopify provides, or can settle for Etsy’s offerings. If you set up a Pattern store, you’ll definitely want to add a good SEO integration.
Payment processing is a complicated and nuanced topic, so we’ll just cover some basic comparisons. Your mileage on this verdict in favor of Shopify will vary depending on your location, currencies, risk level, etc.
We’ve already mentioned that Shopify and Etsy both have their own self-branded payment gateways. Do note that Shopify Payments is actually built on Stripe’s infrastructure, while Etsy Payments is largely powered by Adyen, another big payment gateway company.
At any rate, most sellers on either platform end up using these pre-integrated options. Why? Well, even though you have over 100 processor options with Shopify, recall that you’re penalized with a separate transaction fee (usually 2%) if you don’t pick Shopify Payments. Meanwhile, Etsy Payments (formerly Etsy Direct Checkout) is essentially your only credit card processor option with Etsy. The only reason you wouldn’t use Etsy Payments is if it’s not yet available in your location. If you’re not operating from one of the approximately three dozen approved countries, you can only accept PayPal or manual payment methods (like check or money order) that you arrange separately with your buyers.
Etsy Payments allows you to accept credit and debit cards, Etsy gifts cards and credit, PayPal (pre-integrated), a few bank transfer services, Apple Pay, and Google Pay. Shopify Payments offers similar options but adds Amazon Pay and Shopify Pay to the mix. Meanwhile, Etsy Payments does allow you to accept a few more currencies than Shopify Payments (Danish or Norwegian krone, anyone?).
Below is a quick look at the processing fees for Shopify Payments versus Etsy Payments (shown in USD). As you’ll see, Shopify Payments it the better processing deal, especially as you climb the subscription ladder. Of course, you need to factor this into the larger picture of costs we discussed earlier.
$9 Lite Plan
2.9% + $0.30 Online (including manual entry)
$29 Basic Plan
2.9% + $0.30 Online
$79 Shopify Plan
2.6% + $0.30 Online
$299 Advanced Plan
2.4% + $0.30 Online
3% + $0.25 Online
In-Person (with Square integration only):
3.5% + $0.15 for manually-entered online transactions
+ $0.20 for any Square product not synced with your Etsy store
An “in-house” payment processor can really streamline this aspect of your business, so it’s nice that both platforms offer one. Neither is a 100% perfect processor for everyone, as you’ll see when we discuss user reviews later. Nevertheless, Shopify Payments comes out ahead because it offers better rates, more payment methods for shoppers, and a native system for in-person transactions. Plus, if Shopify Payments doesn’t work for you, you’ve got plenty of other gateways from which to choose. Not so with Etsy.
Customer Service & Technical Support
This particular contest was closer than I expected. Both platforms offer 24/7 email and phone support, but Shopify adds a third contact channel via 24/7 live chat. That’s really the main reason for Shopify’s win here. I know a lot of online sellers prefer this option over email and phone, since it works like a nice blend of the two. Etsy does offer a callback option when waiting on hold, which is very handy. On the flip side, I’d like to see Etsy’s contact number and ticket system more easily accessed from the help center page — it’s much too buried for my taste at the moment.
While both platforms also offer great self-help resources such as blogs, forums, knowledgebase articles, and videos, the information for Etsy sellers is mixed in with support resources for Etsy shoppers. This can feel a bit cluttered and confusing at times.
I will say that Etsy does go beyond the support of a typical ecommerce platform in a unique and specific way. As a marketplace that gathers lots of merchants together in one place, sellers are automatically part of a built-in community. There’s even an opportunity to join Etsy Teams — groups of sellers in the same location, selling the same types of products, or with other unifying aspects to their stores. Some teams even meet up in real life or organize special events together. While Shopify users can tap into the strong community of developers and merchants offering mutual support in forums, the overall camaraderie can’t compete with Etsy’s community vibe.
You also may have more access to seller protections as part of a marketplace, but this can heavily depend on the specific situation. Etsy aims to look out for its shoppers as well!
Because Etsy is a marketplace full of buyers as well as sellers, buyer complaints abound. When something goes wrong with a sale, it’s more accessible and more public for a shopper to point a finger at Etsy than the actual seller, even when the seller was primarily at fault. Shopify mostly operates behind the scenes from a shopper’s point of view, so it’s easier to isolate feedback about the platform that’s specifically from store owners.
For these reasons, Etsy’s reputation on review sites can be skewed quite negatively, so I can’t make a truly fair comparison with Shopify. Nevertheless, I’ve teased out some seller-specific feedback, just so you can get an idea of the common threads that appear.
First, the good. Not surprisingly, Etsy sellers like how easy it is to set up shop. They enjoy access to an existing customer base and the effective site search tools that make it easy for shoppers to find their products. Some users have mentioned their positive experiences with Etsy’s customer service, and the help they’ve received resolving disputes with customers (or even other sellers).
Of course, some Etsy sellers mention bad experiences with customer service, saying the marketplace isn’t taking enough responsibility for regulating seller behavior. I found several complaints that Etsy gets away with being a “neutral” party, shifting blame to its users on either end of transactions. At the very least, people are confused about Etsy’s role.
Other Etsy shop owners contend that the marketplace is too saturated with similar sellers, and that competition is simply too tough to sustain their shops. Still others have issues with payments or chargebacksÂ or claim their shops were suddenly closed without warning. I’ve also seen plenty of sellers lament the increase in Etsy transaction fee from 3.5% to 5% in mid-2018 — that wasn’t so popular.
On the Shopify side, the top accolade is typically its ease of use. Sellers also like the opportunity to add functionality and scale their stores using add-ons from the app store. Shopify’s web design is highly praised, especially among those who appreciate the ability to easily customize their sites without code.
Like with EtsyÂ — and many other large software companies — Shopify’s customer support receives mixed reviews. Other common Shopify complaints include the added cost of integrations and the extra transaction fees if you can’t use Shopify Payments. Sellers do sometimes have problems with the payment system itself as well — their funds were held, or their Shopify Payments accounts were terminated due to various factors.
If that all sounds a bit scary, understand that a lot of the problems that pop up for Etsy and Shopify are common across the ecommerce world. The good news is that the research you’re doing now will help protect you against some of the more avoidable issues!
Etsy and Shopify are both PCI complaint systems, offering site-wide SSL certificates for data encryption. If that all sounded like nonsense and jargon, don’t worry. You should know, however, that part of the reason Pattern websites meet security requirements set out by the data regulatory folks is that your shoppers are directed back over to Etsy checkout pages to complete their transactions. This kind of ruins the illusion that your site was actually your own site, but it does at least help with security. With Shopify, your customers can check out directly on your site with the same level of security in place.
Shopify won this battle handily, coming out ahead in most of our individual comparison categories. And yet, I’ll be the first to admit that the one-sidedness of our comparison does not do the key selling points of Etsy justice. The main advantages to Etsy — the ability to get a shop up and running quickly on a shoestring budget, and built-in access to the traffic of an entire online marketplace — are absolutely huge for beginning sellers. If you’re not ready to go whole-hog into selling online and would prefer to test the waters first, Etsy is definitely the way to start. For first time sellers, it’s akin to setting up your craft booth at an established craft fair, versus plopping your stall on a street corner in the middle of nowhere.
This is all to say that Shopify only really wins if you’re ready to take responsibility for maintaining and drawing traffic to your own website. You’ll need to learn and implement an effective SEO and marketing strategy, for example. This is no small feat for the budding online seller and should not be taken lightly. If done well, however, any customers you obtain are your own, and this is the big reward that accompanies your efforts with Shopify. Your sales and growth will not be limited by super-direct competition with other sellers within a marketplace. You’ll completely sidestep this major downside to Etsy.
When we start talking about actual ecommerce features and web design, Shopify is a more powerful ecommerce tool. Specifically, we’ve seen that Etsy’s Pattern software can’t compete with the standalone storefront-building capabilities of Shopify. For most sellers who are ready to launch their own websites, I’d suggest skipping over Pattern and heading for Shopify. Yes, a Pattern subscription is cheaper than Shopify, but it seems like too much of an intermediate, half-way step that won’t get you fully where you want to go. Besides, there’s no reason you can’t keep your Etsy shop open in the meantime as you grow your Shopify-based store — and, you could ultimately connect an app to sync up your inventory between the two. Etsy could then become one marketing channel of many for your main online store’s top products. Something to consider!
I think if you’ve made it this far, you’re probably ready to at least test the capability of Shopify with a free 14-day trial. Of course, if you’re already an Etsy seller, you can also play around with Pattern’s tools for free before even connecting a domain and going live with your site. Since you’ve got nothing to lose with either platform in that respect, why not set up your own mini-showdown between Pattern and Shopify?
Let us know how it goes in the comments. Happy artsy, craftsy, or artsy-craftsy selling!
Shopify’s eCommerce Options
Mobile App + Free Card Reader
Point of Sale
Social Media Selling
Low-cost POS for iOS and Android with free hardware
All-purpose POS integrated with all sales channels
Build a store or integrate with your current website
Sell on Facebook and other platforms
Starts at $9/month
Starts at $29/month
Starts at $29/month
Starts at $9/month
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WooCommerce and Shopify are both wildly popular software systems that can help you build a thriving online store. Behind-the-scenes, however, the two platforms work quite differently from one another. Before we jump into comparing these juggernauts of the ecommerce software realm, let’s quickly get oriented on the basics of each.
At its core, Shopify (read our review) is a SaaS (software as a service) online shopping cart platform. Starting at just $9/month, you can upload products to an online catalog and sell them on Facebook, or post them on an existing website of your own via embeddable “buy” buttons. You can even sell your products in-person with the Shopify POS app. Then, beginning at $29/month, Shopify facilitates the creation and hosting of a fully-fledged ecommerce website.
By contrast, WooCommerce (read our review), is a free and open-source ecommerce shopping cart plugin that was created specifically for installation inside the WordPress dashboard. The WooCommerce plugin turns a WordPress website or blog into an ecommerce storefront. In other words, WooCommerce has no actual website-building capabilities of its own — WordPress handles that part.
To understand WooCommerce and how it works, you need a little familiarity with WordPress itself. To put it simply, WordPress is a website builder/CMS (content management system) that exists in two forms: WordPress.org and WordPress.com. WordPress.org is the self-hosted version, whereas WordPress.com uses the same basic software as WordPress.org, but provides web hosting for your site as part of its services. Either WordPress version can actually be combined with WooCommerce, but each setup has different implications for cost, site maintenance, etc.
For the purposes of our Shopify versus WooCommerce comparison, we’ll focus on combining WooCommerce with WordPress.org, the self-hosted option. Most ecommerce sellers are attracted to WooCommerce because they already use WordPress.org for their websites, and/or they like the WooCommerce plugin’s “free” price tag in conjunction with WordPress.org. While the WooCommerce plugin itself is always free, you can only add plugins to the dot-com version of WordPress if you’re on the $25/month WordPress.com subscription.
Now that you know the basics, we’ll break down the two platforms into their various components — usability, features, comprehensive cost, and more. It’s basically the same old compare-and-contrast essay we were all forced to write in middle school. The stakes are a bit higher with this particular essay, however. By the time we’re done, you’ll hopefully have a good sense of which ecommerce platform (if either) is best for your online business.
You might be tempted to think WooCommerce immediately takes this category without contest. After all, both the WooCommerce plugin and the WordPress.org software download are free, whereas Shopify automatically involves a monthly subscription. In reality, you need to invest in a few services (e.g., web hosting) to get a WooCommerce + WordPress.org ecommerce store off the ground. The bottom line is, WooCommerce may be a bit cheaper at the outset, but it’s not 100% free. Just wanted to clear that up first!
Before we run a more detailed cost comparison of the two platforms, here’s a quick look at why WooCommerce wins this category:
You can launch an online storefront up for well under $29/month, which is the starting price for a full online store with Shopify.
All WooCommerce features are included with the free plugin. You don’t automatically need to jump to higher subscription levels for additional features or staff accounts (you just may need some add-ons as time goes on). In other words, you pay only for exactly what you need.
Neither WordPress nor WooCommerce charge any additional transaction fees per sale, beyond those charged by your credit card processor. Shopify only waives its extra transaction fees (that start at 2%) if you use Shopify Payments as your credit card processor, and not everyone is eligible for Shopify Payments.
WooCommerce is the budget option of the two, but only if you have the skills to run your own website and don’t need to hire extra help for web development, site maintenance, security, backups, etc. If you do need lots of extra help, you could still end up paying more with WooCommerce + WordPress in the long run. Fair warning.
That’s the summary explanation. Now, here’s a more detailed pricing breakdown if you’re interested:
Monthly Subscription Fee: $9 (no standalone storefront), $29, $79 or $299/month.
Domain: Unless you want your store URLs to end in “myshopify.com” (and you probably don’t), you’ll need to purchase or connect a custom domain. Domains from Shopify start at $11/year, or there are lots of third-party options.
Web Hosting: Included
SSL/TLS Certificate: Included
Additional Transaction Fees:Â 0.5%-2.0% depending on your Shopify subscription — unless you use the in-house payment processor (Shopify Payments), in which case these extra fees are waived. Note: these transaction fees are on top of regular credit card processing fees you must pay per sale with any processor.
Additional Cost:Â Primarily add-ons from the marketplace, and perhaps a one-time purchase of a premium theme.
WooCommerce + WordPress.org Pricing
Monthly SubscriptionÂ Fee: None if you set up a free WordPress.org site. The WooCommerce plugin itself is always free.
Domain:Â Varies, but can start at less than a dollar per month from third-parties.
Web Hosting:Â Rock-bottom hosting can cost as low as around $3/month, but most people end up paying at least $10 per month, depending on the size and traffic levels of their stores.
SSL/TLS Certificate:Â Often included with your hosting or domain provider, but may need to be purchased separately. Basic certificates cost just a few dollars per month.
Additional Transaction Fees:Â None. Neither WooCommerce or WordPress charge a commission per sale.
Additional Cost: Add-ons, themes, and any web development and ongoing site maintenance if you’re not taking care of all that yourself.
Sample WooCommerce + WordPress.org hosting
Cloud-Based Or Locally-Installed
As we’ve mentioned, a major difference between Shopify and WooCommerce is that your Shopify subscription includes web hosting. No downloads or installations are required. To use WooCommerce, however, you first must download the WordPress.org software and install it on a web hosting server. Then, you add the WooCommerce plugin to that setup. Some web hosts do offer preloaded WordPress + WooCommerce packagesÂ or “one-click” installations.
Is the Shopify or WooCommerce method better? This one really comes down to personal preference and ability. The self-hosted setup of WooCommerce requires more hands-on involvement and skill from the user, but you may be just fine with that.
Specific Size Of Business
Both WooCommerce and Shopify are scalable, working for small to enterprise-level businesses.
Shopify has predetermined subscription brackets. While none of these put hard limits on your revenue, number of products, bandwidth, or storage, the implication is that you’ll increase your subscription as your store grows. The exception is the jump to Shopify Plus, which is required if your revenue reaches over $1 million per year. These plans cost a couple thousand a month to start, but it can be worth the investment in return for a service that’s tailored specifically for enterprise-level merchants.
You will also need to change your Shopify subscription as you add more staff accounts to your store. For example, the $29/month plan accommodates two admin seats in addition to the owner’s account, while the $299/month plan gives you 15 spots.
WooCommerce also has the potentialÂ to grow with your store, but the system is much more fluid. You have 100% flexibility to expand your operation (and perhaps employ more help with your site) in a piecemeal fashion, exactly when and how you see fit. As your site traffic increases, for example, you’ll want to adjust your hosting service accordingly to accommodate more bandwidth.
Hardware & Software Requirements
As a fully-hosted, SaaS platform, Shopify takes care of nearly all technology requirements on your behalf. All you really need is an internet connection and an up-to-date web browser.
With WooCommerce and WordPress.org, most of the hardware and software requirements are functions of your hosting environment. Your server needs to support specific versions of PHP and MYSQL, for example. You’re responsible for staying on top of the evolving requirements for both WooCommerce and WordPress.org when you set up a WooCommerce store. This includes installing updates of both the Worpress.org and WooCommerce software as they are released. Plugins are available to help automate some of these steps for you, but you’re still ultimately responsible for finding and updating those plugins!
Because dealing with hardware and software issues with WooCommerce is more nuanced and requires more vigilance from the user than Shopify’s arrangement, we award Shopify the win.
Ease Of Use
It should be noted, however, that WooCommerce actually isn’t all that bad when it comes to ease of use, especially compared with most open-source solutions. For starters, many folks are already somewhat familiar with WordPress, which gives them aÂ head start in navigating WooCommerce. (Keep in mind that the reverse will apply if you’re not already familiar with WordPress — you’ll be learning two systems at once.)Â Once you get everything installed and up and running, day-to-day operations and manipulation of features are all pretty straightforward with WooCommerce.
WooCommerce offers to install some additional free plugins (like Jetpack and WooCommerce Services) from theÂ get-go that help bring the system more in line with a fully-hosted solution like Shopify, but you still end up with a sort of cobbled-together setup that is more difficult to manage than an all-inclusive platform.
Have a look at our full Shopify and WooCommerce reviews if you’d like more information on the topic of ease-of-use, but I’ve included just a quick peek at the dashboards of each platform, as well as what it’s like to add a product.
After signing up for a free 14-day trial, you’re taken to a clean and easy-to-navigate dashboard, with all your major functions in the left menu, and a few tips to get started in the center:
Shopify — Add A Product:
Shopify has a super-simple product interface. All fields are completed simply by scrolling down the page.
Below I’ve shown a WordPress dashboard with WooCommerce already installed. If you look closely at the left menu, you’ll see that WooCommerce is just one item of many. I haven’t even expanded its own menu yet, nor the “Products” menu right below. In the center of the dashboard, I’m faced with additional suggested configurations and plugin choices. Do I need them all? Should I set them up now? Just “Dismiss?” It’s certainly all doable, but I find it bit cluttered and overwhelming to get started. Plus, this is all after I completed the setup wizard.
WooCommerce — Add A Product:
Once you scroll past the plugin suggestions, adding a product is quite straightforward with WooCommerce. If you’ve ever used WordPress, it’s a lot like creating a blog post. You’ll just need to configure ecommerce settings like price and inventory levels.
Another aspect to consider is that you won’t be able to test WooCommerce (like you can test Shopify with its free trial) unless you have a host and server already set up to install WordPress.org. Ease of use is always a bit subjective, and it’s hard to get a good feel for usability without testing the software yourself.
Although one is software-as-a-service and the other is open-source, both Shopify and WooCommerce actually take a similar approach to features. The basic components to get a store launched and managed on a day-to-day basis are included with the software, but you’re expected to add a few extensions and integrations to either platform in order to tailor your store to your exact specifications.
With Shopify, this occasionally even means bumping up your subscription level, whereas with WooCommerce, features are always expanded through separate add-ons. WooCommerce has also been known to test new features by treating them as extensions first, and then eventually incorporating the features into the core offering once all the kinks are worked out by users. It’s really a community effort with Woo.
However you slice it, a common complaint about both platforms is that extra plugins can cause extra cost and extra headaches. Each system is kept as simple (yet functional) as can be from the outset, so that new users are not immediately overwhelmed by all that’s ultimately possible with these powerful software programs.
Let’s do a couple of quick sample feature comparisons. WooCommerce lets you add unlimited product variations, sell digital products, and incorporate product reviews without separate extensions, while Shopify requires (free) add-ons for each of these functions. Meanwhile, Shopify already includes abandoned cart recovery, invoice creation, and pre-integrated shipping software (Shopify Shipping). You’ll need extensions for these features in WooCommerce.
I’m tempted to give Shopify the win because I feel it comes with a slightly more well-rounded ecommerce feature set out-of-the-box without any plugins. And yet I also don’t want to overlook the enormous capability that comes with an entire WordPress.org ecosystem at your fingertips, nor dismiss the potential to customize each feature to your liking in an open-source environment. There are just too many factors at play to declare a clear winner here. The best advice I can give is to check for the features you need, as well as how they are obtained with each platform.
I know this makes our compare-and-contrast essay less exciting, but it’s difficult to call a winner in this category as well. Each platform has advantages and disadvantages, and your own perception of what actually qualifies as anÂ advantage or disadvantage will differ depending on your situation.
Below is a quick summary of each system’s approach to the design and customization of your storefront, along with some screenshots to help illustrate.
67 total templates, most with 2-4 style variations
10 templates are free and supported by Shopify developers
Remaining third-party themes cost $140-$180
Built-in theme editor with drag-and-drop capability
Additional customization available with HTML, CSS, and Shopify’s own theme coding language (Liquid)
Shopify Theme Marketplace:
Shopify Theme Editor:
The Shopify theme editor consists of two elements: “Theme Settings” (for changing fonts, colors, etc.) and “Sections” (for dragging and dropping widget blocks up and down your pages).
Access to thousands of free and commercial/supported WordPress.org themes (over 900 show up when filtering for “ecommerce” in the marketplace)
WooCommerce recommends its free “Storefront” theme for foolproof compatibility and web ticket support
14 Storefront “child” themes available (two free, premium are $39 each)
Theme editor allows color changes and placement of widgets (but without drag-and-drop)
Storefront expansion bundle ($69) allows further customization without coding
Theme modification also possible with HTML and CSS (no proprietary coding language involved)
Add a free plugin (such as Elementor) for drag-and-drop design editing of WordPress.org pages without code
WordPress.org’s new Gutenberg editor provides additional non-coding customization for your overall WordPress site
WooCommerce Storefront Themes:
WooCommerce Theme Editor:
Below, I’ve shown the portion of the built-in theme editor where you can choose widget blocks for various spots within your pages.
So, how do WooCommerce and Shopify stack up when it comes to web design? Does Shopify win for having a drag-and-drop theme editor and font tweaking built-in, or does it lose for making you learn a proprietary coding language if you want to do further template customizations? The new Gutenberg block editor for WordPress enhances your theme editing capabilities without code, and lets you easily place WooCommerce products wherever you’d like within your larger WordPress site — so that’s another factor to consider going forward. It’s issues like these that make this category a toss-up depending on your point of view.
Integrations & Add-Ons
Even though I’ve already spoiled the winner of this category, we need to highlight the fact that Shopify also has an amazing app marketplace with around 2500 integrations at your disposal. With Shopify, you have the opportunity to connect with many of the most popular third-party software platforms associated with ecommerce (think shipping, marketing, accounting, and the like). Thousands of developers have invested in creations for the Shopify extension ecosystem. In most ecommerce software battles, Shopify easily wins this category.
All that said, open-source systems like WooCommerce + WordPress.org typically offer more integration possibilities than even the most well-connected SaaS platforms. The whole point of an open-source platform is for users at large to jump head-on into the codebase to customize and build connections. In the open-source world, WordPress has a particularly enormous and active community of developers extending the platform. As a WooCommerce user, not only do you benefit from hundreds of WooCommerce-specific extensions, but also from the over 50,000 plugins available in the WordPress.org marketplace. Even Shopify can’t fully compete.
Some argue that because many WooCommerce integrations are one-time installations, it works out cheaper in the long run, or point out that more WooCommerce plugins are free. In truth, integrations can add to your monthly cost with either Shopify or WooCommerce — especially if your integrations are to third-party software platforms with their own monthly subscription fees (and not just one-off feature installs). Be cognizant of the potential for ballooning add-on costs with either system.
The complete freedom WooCommerce offers to choose a payment processor and associated pricing model that best suits your particular store’s needs is the reason we award the open-source plugin the win in this category.
While Shopify technically offers more pre-built payment integrations than WooCommerce in its respective marketplace, you are actually penalized with an extra 0.5% to 2.0% Shopify commission on every sale if you don’t select the in-house Shopify Payments option. This percentage — 2% for most merchants starting out — is applied on top of the fees charged by your payment gateway itself. Trust me, that extra 2% adds up fast.
Shopify Payments has its own advantages and disadvantages, but for starters, some merchants don’t even qualify to use this processor in the first place. While Shopify Payments definitely works well when it works, a lot of merchants end up stuck in no-man’s land when it comes to payment processing with Shopify. Caught between an extra fee and a hard place, as it were. (Insert your own, better metaphor here.)
While you may need to pay a one-time fee to integrate your favorite processor with WooCommerce (Stripe and PayPal come as free, built-in options), you can ultimately select an option that fits perfectly with your risk level, sales volume, and transaction size. You can also select for any customer support and feature requirements you may have for your payments system.
Customer Service & Technical Support
Winner: ShopifyÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â
Both WooCommerce and WordPress have produced a plethora of self-help resources and documentation. Moreover, both boast thriving communities of developers and merchants working with the software who readily share problem-solving advice via forums. This is all very good and helpful.
WooCommerce can’t compete with Shopify when it comes to personalized support, however. A “help desk” is offered with WooCommerce from which you can submit a web ticket for specific purchased items, but a personal response is not always guaranteed.
Meanwhile, along with great self-help resources and community forums of its own, Shopify offers 24/7 phone, email, and chat avenues for contacting live representatives in real time. This is part of the all-inclusive nature of the Shopify platform, and part of the reason you pay that monthly subscription fee.
Now, this is not to say you couldn’t potentially receive personalized assistance from your hosting provider if your site goes down, for example. The quality and availability of this sort of third-party tech support will vary widely by company, though. Not to mention, things can get complicated very quickly regarding exactly who holds responsibility for whatever’s gone horribly wrong with your online store in the middle of the night. Once again, our point is that neither WooCommerce nor WordPress.org has a team of service reps standing by waiting for your distress call. You’re largely on your own.
Shopify and WooCommerce each have devoted followings of satisfied users, and both platforms tend to score very highly on user review websites. Shopify merchants love the user-friendliness of a powerful SaaS platform where most things are taken care of for you, while WooCommerce devotees appreciate that most things are not taken care of for you — it gives these users the flexibility and control they desire.
Of course, neither ecommerce platform is perfect. Here are a few of the complaints that arise most often:
Extra transaction fees when not using Shopify Payments
I’m still calling this one a draw. One platform does not dramatically outshine the other when it comes to real user feedback.
Shopify wins this category because all Shopify stores are automatically PCI compliant out-of-the-box and come with a built-in SSL certificate. With WooCommerce, your store’s security falls more directly upon your own shoulders. You’re ultimately responsible for choosing a secure and PCI-compliant web host and payment gateway, obtaining an SSL certificate, performing Woodpress.org and WooCommerce plugin updates, and staying on top of the latest security patches. As WooCommerce reminds you in its own documentation, “a given WooCommerce site is overall exactly as secure as the WordPress installation itself.”
There’s no doubt that a WooCommerce storeÂ can be just as secure in as a Shopify store, as long as all the right pieces are in place and carefully managed. There’s just a higher chance for site security to go (horribly) awry due to mismanagement or innocent mistakes.
This was a tight race, folks. Shopify and WooCommerce have both earned their popularity in the ecommerce world, even if for different reasons and for different segments of online sellers. Based on our experience, as well as our sense of the needs of our Merchant Maverick readership overall, we’re still more likely to recommend Shopify over WooCommerce.
The majority of online sellers will have an easier time with Shopify right out-of-the-box. Shopify is much more “foolproof” and all-inclusive than WooCommerce, with technical aspects like installation, hosting, updates, and security all handled on your behalf. This allows you to expand your focus beyond just building and maintaining your store, even as an absolute web-beginner. The opportunity for 24/7 personalized customer support with Shopify is also a huge factor in our verdict.
All Shopify gushing aside, we firmly maintain that this SaaS platform is not a magic bullet solution for all online merchants, and WooCommerce may be just the alternative you seek. As an open-source software plugin combined with WordPress.org’s vast ecosystem, WooCommerce offers a degree of ownership, control, and flexibility that isn’t possible with Shopify. It’s the perfect platform for the technically-inclined among us who have the time and skill to tinker with code, updates, and integrations to customize their stores at a finely-tuned pace. The freedom to select your own web host, as well as a payment processor that works best for your specific country and risk level without financial penalty (hello, Shopify’s extra transaction fees) is also a big draw for a lot of business owners using WooCommerce. The power truly is in your hands if you go this route.
As the old adage goes, however: with great power comes great responsibility. If you choose an open-source platform like WooCommerce, you should definitely heed this nugget of graphic novel-based wisdom.
Have you worked with Shopify or WooCommerce? Let us know if the comments — particularly if you have experience with both!
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Like it or not (and you wonât like it), credit card processing comes with a bewildering variety of small, nickel-and-dime fees that add to your costs in ways you might not even be aware of. One fee that you might have seen on your credit card processing statement is the AVS Fee. If youâre an ecommerce merchant, you probably already know what this is, but if youâre in retail, you most likely donât see it very often and may not understand how it works. Well, weâre here to help. In this article, weâll explain what AVS is, how to use it, and how much it might cost you in additional processing charges.
AVS is an acronym for the Address Verification Service, a feature thatâs used to compare the address given to you by your customer and the billing address on file with the cardholderâs issuing bank. AVS serves two primary functions: (1) to deter fraud by confirming that the customer is the legitimate cardholder, and (2) to help prevent chargebacks by giving you additional information to verify your customerâs identity. AVS is provided by MasterCard, but is used by all major credit card brands in the United States, Canada, and the United Kingdom.
As youâre probably already aware, card-not-present fraud is a growing problem in todayâs ecommerce-driven world, and it can come in many forms. Using AVS wonât eliminate CNP fraud, but it will lower the chances of it happening to you. Likewise, chargebacks are also becoming more common. If the address the customer provided and the address on file with the issuing bank matched when you processed the transaction, this provides additional evidence to improve your chances of successfully defending against the chargeback. Better yet, effective use of AVS can lower the chances of a chargeback occurring in the first place.
How Address Verification Works
Use of the Address Verification System isnât necessary for all credit/debit card transactions. In fact, the only time youâll need to use AVS is for card-not-present transactions and situations where you need to key in a customerâs card information manually. This can happen if for some reason your credit card terminal is unable to read the customerâs magstripe or EMV chip. Note that while itâs fairly common for the magstripe on an old card to wear down over time and eventually become unreliable, the chance of this happening with an EMV card is very small.
If your business is retail-only, youâll only rarely need to use AVS, and the impact on your processing costs will be minimal. On the other hand, ecommerce-only, mail order, and telephone order businesses will need to use AVS for every transaction. If youâre in one of these types of businesses, the cost of using AVS can be very substantial, depending on how (and whether) your credit card processor charges you for using it. If you process a lot of B2B transactions, you should also be aware that some processors require the use of AVS to process Level II and III credit card data.
Using AVS is actually very simple. In addition to their credit card information, your customer also provides a billing address. This information is submitted to your credit card processor, which queries the AVS system to determine whether the customer-provided address matches the billing address on file with the credit cardâs issuing bank. AVS can be set up to run automatically through a payment gateway or virtual terminal, or you can manually query the system through your credit card terminal. The Address Verification System will compare the submitted billing address with the one on file with the issuing bank, and return a code that tells you how closely the two addresses match. Hereâs an overview of the most common codes returned by the AVS, and what they mean:
Common AVS Codes (for Visa, MasterCard, and Discover)
No address information submitted, AVS check could not be performed
AVS data provided is invalid (or AVS is not allowed for the card type submitted)
AVS unavailable at the time transaction was submitted. Retry transaction
Credit card issuing bank is of non-U.S. origin and does not support AVS
Address information is not available for the customer’s credit card
U.S. card issuing bank does not support AVS
Neither street address nor 5-digit ZIP code matches address and ZIP code on file for card
Street address matches, but 5-digit ZIP code does not
First 5 digits of ZIP code matches, but street address does not
9-digit ZIP code matches, but street address does not
Street address and first 5 digits of the ZIP code match perfectly
Note that there are additional codes that you might see. However, theyâre far less common than the codes listed in the table above.
Okay, so youâve got a code from the AVS system. Do you approve the transaction or not? In some cases, your credit card processor will automatically decline a transaction if certain AVS mismatch codes are returned. If this happens, your only recourse is to ask the customer for an alternative billing address and try again. There are legitimate reasons why a customer might inadvertently supply an incorrect billing address. For example, your customer might have recently moved, but hasnât updated their new billing address with their credit card company. Or perhaps the customer simply doesnât remember their address correctly. However, if the customer doesnât provide the correct address on the second try, thereâs a very good chance that itâs because the card is stolen, and the customer has no idea where the actual cardholder lives. In this case, you should decline the transaction.
In a retail setting, a merchant will have to decide whether to accept a transaction if the Address Verification System returns a code indicating something other than a perfect match. Different AVS codes present varying levels of risk in accepting the transaction, as summarized here:
AVS Risk of Transaction Approval
Transaction Approved If:
ZIP code or street address do or do not match
Street address matches
B, N and Z
5-digit ZIP code matches
B, N and A
Either 5-digit ZIP code or street address match
B and N
Both 5-digit ZIP code and street address match
B, N, A and Z
Both 9-digit ZIP code and street address match
B, N, A, Z, W and Y
Again, retail merchants will have to make a decision based on the level of risk if a partial mismatch occurs. We recommend that you set specific policies regarding which AVS codes will be approved and which will be declined, and that you ensure your employees are trained to recognize AVS codes that will require them to reject a customerâs card. Mail order and telephone order businesses will also have to set similar policies to ensure consistency in accepting or declining transactions.
For ecommerce businesses, things are a little easier. In most cases, you can set up your payment gateway to automatically accept or reject transactions based on the returned AVS code. Popular gateways such as Authorize.Net (see our review) allow you to configure your gateway to automatically accept only transactions where specified AVS codes are returned. Youâll want to exercise extreme caution in selecting which codes to approve based on the overall level of risk. Accepting too many partial mismatch codes can leave you vulnerable to fraud and chargebacks. At the same time, you might lose a lot of sales if your AVS code acceptance policies are too restrictive. Although youâll obviously want your gateway to be able to process transactions automatically 24/7 without input from you, we suggest that you set up a system to automatically email a customer notifying them that their transaction was declined due to an AVS mismatch. This gives the customer a chance to either correct the billing address information or submit an alternate payment method, and keeps you from losing a sale.
Address Verification Fees
Regardless of how frequently you use the Address Verification Service, youâre almost always going to have to pay for it one way or another. For starters, MasterCard charges an automatic AVS assessment fee whenever AVS is used, regardless of the circumstances. This fee is currently $0.01 for card-not-present transactions and $0.005 for card-present transactions. Your processor has to pay this fee to MasterCard when they process your transaction, and theyâll usually pass it on to you in one form or another.
If you use Square (see our review) or a similar payment service provider and are on a flat-rate pricing plan, you wonât pay a separate AVS fee. Instead, Square incorporates this fee into their processing rates, so youâll never see it. Note that Square, along with almost all other providers, charges a higher rate for ecommerce and keyed-in transactions. While a lot of this increased rate reflects the higher risk associated with card-not-present transactions in general, use of the AVS service is also included.
If your processor uses a tiered pricing plan, you may or may not be charged a separate AVS fee for each transaction where the Address Verification Service was used, depending on your processor. However, using AVS for a card-not-present transaction is usually a requirement for placing that transaction in the qualified tier. Conversely, failure to use AVS will often result in the transaction being downgraded to nonqualified, and youâll pay a much higher fee for processing it. Because the nonqualified rate will cost you up to two or even three times the qualified rate, youâll save money using AVS â even if you have to pay a fee for it.
Merchants on an interchange-plus pricing plan may or may not be charged a separate AVS fee, but use of AVS will give you a lower interchange rate, thus reducing the cost of processing your transaction. Again, in most cases, the savings from the lower interchange rate will more than offset the cost of the AVS fee.
Subscription-based pricing works the same way as interchange-plus, with the exception that you usually donât pay a percentage markup on your transactions. Once again, youâll save money overall by using AVS for your card-not-present transactions. Note that most providers offering subscription pricing usually donât tack on extra fees like the AVS fee, as youâre already paying a monthly subscription fee thatâs intended to combine these and other costs associated with maintaining your merchant account.
To find out how your provider handles the AVS fee, youâll have to wade through the fine print in your contract. Although some of the more transparent providers disclose this information on their website, most do not. Most providers that impose a discrete AVS fee will charge anywhere from $0.01 to $0.25 per transaction where AVS is used. These fees can add up quickly, especially if you process a high number of small-ticket transactions. Other providers might simply include this extra cost in their rates for card-not-present transactions, as you will be using AVS for 100% of these types of transactions.
Because of the potential for AVS fees to add significantly to your processing costs, some providers will permanently waive the fee if your business is ecommerce-only. Businesses with both a retail and an online presence probably wonât be so lucky.
The Address Verification Service provides valuable protection for your business from both fraud and the possibility of a chargeback. While it isnât foolproof, itâs far better to use it rather than simply accepting all transactions without it. In this sense, AVS is worth paying a little extra forÂ and is in no way a âjunkâ fee.
At the same time, youâll want to make sure that your provider isnât ripping you off by charging an AVS fee thatâs much higher than what they have to pay to MasterCard for the use of the service. Your best defense is to discuss the AVS fee with your sales representative when negotiating the terms of your merchant account. And, by all means, read your contract documents thoroughly before signing to ensure that what your sales representative told you is reflected in your legally-binding contract.
eCommerce merchants are particularly vulnerable to overpaying for the Address Verification Service, and youâll want to choose a provider that will either waive the AVS fee entirely or merely charge you the pass-through cost. Paying significantly more than this will add up quickly if youâre assessed an AVS fee on every single transaction that your business processes.
We also recommend that ecommerce merchants set the automatic rejection policies on their payment gateways to balance the risk of fraud against the possibility of lost sales from legitimate customers. Your provider can help you select automatic rejection policies that will meet this goal.
Each provider treats AVS fees differently, so youâll want to research this issue before considering a particular provider for your business. For example, one of our highest-rated providers, Dharma Merchant Services (see our review) charges a flat $0.05 per transaction to use AVS. However, they disclose this fee on their website, and they also point out that the lower interchange costs from using AVS will still, in most cases, result in a lower overall cost to process the transaction.
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