Stripe vs Merchant Account & Payment Gateway
If you’re looking to accept payments online, you’ll normally need a payment gateway and a merchant account.
PayPal, established in 1998 is one of the leading, if not the leading providers of card processing services, used by millions of people worldwide. Its an extremely easy service to use once you have an account setup. As a business owner using Paypal has many advantages as it allows your customers to pay with ease using either its express checkout service or its e-wallet service. But, depending on your level of turnover going through the Paypal account, it can work out expensive, as much as 3.4% + 20p per transaction.
There is another similar service, which combines both payment gateway and merchant account under one roof, which has proved to be very popular also. One of those services, Stripe, launched in 2010, amid promises to overhaul the online payment industry and provide a simpler alternative for merchants.
Here we’ll look at how Stripe works, what it charges and whether it stacks up against more established competitors.
Simple, straightforward (and expensive) pricing
Because Stripe provides both the payment gateway and the merchant account, it quotes one simple charge that covers everything:
If someone bin the UK buys an item online for £200 using a Visa debit card, Stripe charges £2.80 plus an additional 20p, making for a total payment processing charge of £3.
How does Stripe compare against PayPal Pro.
| Charge | Stripe | PayPal Pro |
|---|---|---|
| Monthly Fees | Free | £20 |
| Transaction Fees | 1.4% + 20p | 1.9% + 20p |
| Example £10 Transaction | £0.34 | £0.39 |
| Example £100 Transaction | £1.60 | £0.96 |
How does Stripe compare to other payment processing options?
Another very popular option is to setup a merchant account with a merchant bank and a payment gateway from a specialist gateway provider, so in effect, you’ll be dealing with two separate providers. However, most merchant banks nowadays do offer their own payment gateway service.
Payment Gateway
Payment gateway providers, usually charge a monthly fee for a certain number of transactions. For example, £20 for 350 transactions, which works out at 5.7p per transaction.
Merchant Account
Merchant account providers will charge a percentage of the transaction value. This fee is usually broken down by payment type. From as low as 0.6%–1.2% for credit card payments and 0.25–0.6% for debit card payments.
A lot of providers will advertise a blended pricing option (a combination rate that includes payment gateway fees and merchant account fees) but this is rarely the best deal for merchants. Always ask for separate fees (interchange + or ++) to get the best deal.
Lets see how these options compare:
| Charge | Stripe | Combo |
|---|---|---|
| Payment Gateway Fee | Included | 5.7p per transaction* |
| Merchant Account Fee | Included | 0.3% for debit, 0.9% for credit† |
| Total Transaction Fees | 1.4% + 20p | 0.3%–0.9% + 5.7p |
| Example £100 Debit Card Transaction | £1.60 | £0.36 |
| Example £100 Credit Card Transaction | £1.60 | £0.96 |
* Based on a monthly charge of £20 for 350 transactions.
† Based on average merchant account fees.
As you can see, the combo approach comes in 77 percent lower than Stripe’s costs. When you multiply that saving across an entire business for years or decades, it represents a substantial saving!
Is Stripe any good then?
We’ve covered what Stripe is, we’ve explained how much it costs and we’ve compared the payment option to both integrated and combo alternatives.
Now it’s time for the big question: Is Stripe any good? It depends.
Like all integrated options, Stripe offers a small convenience (one product over two and a simpler pricing structure) for an inflated price. So if you’re a new starter online business then yes Stripe would be a great option but as soon as you start looking at all the nitty gritty bits of your business in order to save money where you can then you will be looking to move away from Stripe unless your card turnover is relatively low.
Stripe can take as long as as up to 10 days, but usually 7 days to settle your customers funds into your bank account, whereas using a merchant account and payment gateway (combo) can be as quick as next day.
Please be aware that Stripe (also PayPal) are notorious for suspending customers accounts for no apparent reason and without warning, which for obvious reasons would be disastrous for any business. This normally happens if you start receiving too many chargebacks or you have a spike in sales. You can be rest assured that you would not have such a problem with the combo option.
We Tranxact Ltd are an award winning professional payments consultancy and brokerage business with links into every merchant bank in the UK. If you need any help with your card processing needs then feel free to contact us www.wetranxact.co.uk
