Shopify gives you the flexibility to choose the payment gateway to use in your dropshipping business but charges transaction fees.
Most dropshippers use the eCommerce platform Shopify for their dropshipping business. Considered to be the leading platform for eCommerce businesses worldwide, Shopify offers many advantages that support dropshipping. However, creating a dropshipping website with Shopify requires payment of monthly plan fees. There are three types of plans to choose from depending on your budget and needs, Basic Shopify ($29/month), Shopify ($79/month), and Advanced Shopify ($299/month).
The Shopify plan, however, does not include the use of a payment gateway which is important in running a dropshipping business. A payment gateway is a merchant service that allows you to accept credit cards and direct payments for dropshipping products ordered by customers. As Shopify gives you the freedom to select the payment gateway for your business, you may activate its gateway Shopify Payments or integrate a third-party payment gateway.
Yet, if you choose to use a third-party payment gateway like Stripe or PayPal, Shopify will charge you for transaction fees on top of your monthly plan fees. Of course, the payment gateway provider will also charge you for service fees and transaction fees for using their service.
Why does Shopify charge transaction fees?
Newbie dropshippers might complain about Shopify transaction fees out of concern on its effect on their profits. As they are still starting with dropshipping, most of them are working on a very tight budget and will not pay more fees unless it is necessary. For me, it’s just a common reaction by someone who does not understand how transaction fees work. If you are a newbie yourself looking for an explanation on why you need to pay transaction fees for third-party gateways, read on the rest of this article.
Shopify charges a transaction fee for every purchase made in your dropshipping store based on your subscribed plan. It will be 2% for Basic Shopify, 1% for Shopify, and 0.5% for Advanced Shopify. Shopify powers your website to make sure that it does not crash when shoppers visit and browse around. As it takes resources for Shopify to maintain the operation of your store at optimal levels regardless of the number of visitors you’ll have, the transaction fees help them take care of the costs that come with it.
If you’re wondering what your monthly plan fee is for, it’s mainly for providing you access to the platform and the selling tools needed to publish your store and get it working. The Shopify transaction fees, however, power your store continually and will only be applied when someone buys your product.
Are other eCommerce platforms charge transaction fees too?
Yes, they all do. They may not charge it separately as a transaction fee yet they appear in different forms depending on the platform. Shopify’s closest competition, BigCommerce, does not charge transaction fees for each sale but there are turnover limitations in their plans. If you exceed the sales limit of your plan in the last 12 months, you need to upgrade to a higher plan. Shopify however, will not force you to upgrade regardless of the number of sales you get per month.
Is there a way to avoid Shopify transaction fees?
Yes, there is. If you use Shopify’s gateway, the Shopify Payments, there will be no transaction fees. Yet, credit card fees will be applied.
As Shopify will help you collect money from customers and deposit them to your account, they will get the credit card fees. These are the same fees that a third-party payment gateway provider charges you for using their service but with Shopify Payments, the rate might be lower depending on your Shopify plan. There will be no monthly fees and international fees with Shopify Payments.
Here’s a comparison of how fees are applied for every customer purchase in Shopify.
As you see, Shopify Payments will let you save money than using third-party payment gateways.
Is the Shopify Payments available in all countries?
Unfortunately, Shopify Payments is only available to dropshipping stores in the following countries and regions:
- Hong Kong SAR China
- The Netherlands
- New Zealand
- United Kingdom
- United States: Shopify Payments is not available to US territories except Puerto Rico.
Yet, not all dropshipping businesses in these places are permitted to use Shopify Payments. If you’re located in any of the listed countries and regions, make sure that you check the list of prohibited business types to know if you’re qualified to use it. However, if it’s not an option for you, then you have no choice but to use third-party payment providers in your country that are recognized by Shopify.
Is the use of other payment providers possible when using Shopify Payments?
Yes. You can set Shopify Payments as a primary payment gateway and use a third-party payment gateway like PayPal as a back-up. Some customers might want to pay using PayPal rather than their credit cards. The more payment options you have, the more likelihood of increasing your sales.
Shopify transaction fees for third-party payment gateways are being charged to keep your store running at optimal levels 24/7. It is waived when you use Shopify Payments but it is replaced by credit card fees that Shopify collects for helping you get customer payment and deposit in your account. Shopify uses the credit card fees for a similar purpose like the transaction fee, and that’s to keep your store powered continually no matter how many visitors you have.
If you are qualified to use Shopify Payments for your dropshipping business, then use it so you can save on transaction fees. Yet, if this is not an available option for you, using a third-party payment provider is the only solution to collect payments from your customers. Now that you know why transaction fees are being charged by Shopify, you can focus on another important aspect in your business, and that’s acquiring more customers for more profits!
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