As an e-commerce business, you need to be able to accept credit and debit card transactions. You have several options, including Stripe, a third-party type of account, or a Direct Merchant Account (DMA). There are many benefits to processing credit cards, in addition to risks and costs. Let’s look at how Stripe stacks up against a DMA.
DMAs are dedicated accounts that are set-up by payment processors on your behalf. They act as a holding area for funds processed via a consumer’s credit or debit card. DMAs offer you the opportunity to grow your business by partnering with a trusted payment services provider (PSP). If your company is new or sells certain items, you may be considered high risk. This label can make it harder to work directly with a bank. High-risk merchants include subscription services, Card Not Present transactions, and government regulated products.
Instead, find a processor that has specific models for high-risk businesses. You can also benefit from a processor’s ability to manage chargebacks and mitigate fraud, all while keeping you compliant. By using a DMA, you’ll pay an interchange fee and a processing fee for each transaction.
Using Stripe to process card payments is different than DMAs. They are called a processing aggregator, which means it pools many merchants into one joint merchant account. Using Stripe means you do not have to apply for and establish a DMA. There is no initial charge to sign-up, so it may seem like the simplest model. However, there are many differences between DMAs and Stripe, which you should understand before you make a final decision.
With Stripe and other aggregators, it’s a one-to-many structure, whereas DMAs offer a one-to-one structure.
If you solely need a payment processor for e-commerce, then you won’t have limitations with Stripe. Stripe does not allow for cards to be swiped at a point of sale terminal. Because you’re only using it for online purchases, Stripe sees this as a higher risk, which means transaction fees will be higher.
DMAs are typically able to accept forms of payment through any channel—in-store, online, or mobile. As you scale your business, this difference can be critical.
The cost of these two options is different, as well. Stripe provides a standard pricing model. You’ll pay 2.9% plus 30 cents for every transaction. It’s a fixed rate that doesn’t change even if your volume increases. While this may sound inviting to start-up businesses, that 2.9% charge will continue to chip away at profits as you sell more.
Most DMAs have a tiered pricing model. Thus, as your volume increases, you’ll actually pay less. This could save you substantially. If your business is pulling in over $10,000 a month via credit cards, you’ll find that a DMA allows you to keep more of that versus Stripe.
You may initially be able to create a Stripe account and begin taking payments, but Stripe could soon see you as a high risk if you fall into any categories mentioned above. Stripe’s way to manage this risk—when they begin to see chargebacks—is to freeze, suspend, or close accounts. That’s not a situation you ever want to experience.
While Stripe has some appealing features, setting up a DMA doesn’t have to be difficult when you partner with the right PSP, especially if you’re high risk. Those PSPs that specialize in these kinds of accounts have the expertise needed to ensure that you retain more of your money while also providing the structure you need to combat fraud and manage chargebacks.