Shopify Payments 101: What, How, and Benefits

When it comes to the payments page of your e-commerce store, buyers don’t want a limited menu with slim pickings; they want a buffet with a variety of easy payment options they can choose from. 

In fact, up to 10% of US shoppers abandon their carts due to a lack of payment options. Obviously, you don’t want your customers to be part of this statistic. So, how do you offer a plethora of payment options on your Shopify store without integrating too many third-party apps?

The answer: Shopify Payments. Here, we explore what Shopify Payments is, how it works, and how it benefits you. 

What is Shopify Payments?

Shopify Payments is Shopify’s very own built-in payment gateway service. It’s an integration that makes it super easy for Shopify stores such as yours to accept payments from your customers.

If you want to get technical about it, Shopify Payment captures your customer’s payment details, encrypts it, and sends it to the payment processor working behind the scenes. The payment processor contacts the customer’s bank to verify the details and then accepts or rejects the payment. 

Shopify Payments essentially works as the middleman between you and the payment processor, taking care of all the technical stuff in the background to make it hassle-free for you to receive payments.

With Shopify Payments, you won’t have to rely on third-party payment providers as it accepts all major payment methods. 

This includes:

• Debit and credit cards: Visa, American Express, Discover, Mastercard
• Digital wallets: Apple Pay, Google Pay, Shop Pay
• Cash on delivery 
• Local payment methods: Klarna, BLIK, Swish, etc.
• Cryptocurrency: USDC

📋 If you have a physical store as well, you can accept payments via Shopify Payments even for in-store POS transactions!

In short, it makes the checkout process faster and smoother for your customer, reducing cart abandonment rates. 

Who can use Shopify Payments?

To be eligible to use Shopify Payments, you should:

• Have a Shopify store (obviously)
• Sell products or services that aren’t prohibited by Shopify. This includes counterfeit, illegal, gambling, or pseudo pharmaceutical products, as well as financial services (such as a 1F cash advance)
• Comply with all of Shopify Payment’s terms and conditions
• Live in one of the supported countries, which includes the US, UK, Canada, Singapore, New Zealand, Mexico, Japan, Hong Kong SAR, and several European countries. For the full list, click here. 

What if you aren’t eligible for Shopify Payments? How do you receive payments from your customers, then? You’ll have to add a third-party payment provider. Luckily, you can take your pick from over 100 payment providers. 

What is Shop Pay?

Shop Pay is an express checkout option that Shopify includes as part of Shopify Payments. It basically lets customers save their details during their first purchase with you so that they can checkout with a single tap in the future. 

If you have Shop Pay activated on your store, any customer who enters an email address will be asked if they want to save their information. If they choose yes, their shipping and billing information is captured, encrypted, and stored securely. 

The next time they buy from your store, they can complete the purchase within seconds as they won’t have to enter their information again!

All transactions through Shop Pay incur the same fees as Shopify Payments.

What are the fees associated with Shopify Payments?

The biggest benefit of using Shopify Payments is that it saves you from certain types of fees. You have to pay zero third-party transaction fees for any payments processed through the following methods:

• Shopify Payments
• Shop Pay
• Shop Pay Installments
• PayPal Express

Your transaction fees for traditional methods such as cash, cash on delivery, and bank transfers are also waived. 

📋 If you’re on the Shopify Plus plan and you use Shopify Payments as your primary payment gateway, then you don’t have to pay transaction fees for any payment methods!

However, you’ll incur the following fees:

Card processing fees

When a customer pays with a card, you’ll have to incur the payment processing fees. This varies depending on the type of card used (i.e. Visa vs. Mastercard), whether it was a domestic card or an international card, and your Shopify plan. 

Typically, card processing fees range from 2.9% + $0.30 to 2.5% + $0.30. Shopify’s higher tier plans incur lower fees. 

Currency conversion fees

When you accept payments from buyers in other countries, Shopify Payments will automatically convert it into your local currency. However, you need to pay a currency conversion fee for this. 

Here’s the fee breakdown by country:

• US: 1.5%
• Other countries: 2%

Third-party transaction fees

If you enable any payment methods that aren’t supported by Shopify Payments (including store credit and gift cards), you’ll be charged a third-party transaction fee. 

Chargebacks

If you receive a chargeback enquiry, you may be responsible for paying the chargeback or dispute fee. Although this varies by country, for US sellers, this typically comes out to $15.

How to activate Shopify Payments on your Shopify store

Since Shopify Payments is Shopify’s in-house payment gateway, activating it is quite simple. You don’t have to go through a lengthy process. 

Before activating your Shopify Payments, though, you need to switch on two-factor authentication for your store. This prevents you from being exposed to cyber attacks and getting your payment information stolen. 

Once this is set up, follow these steps to activate Shopify Payments:

Step 1: Head to Settings → Payments.

Step 2: Find the Shopify Payments section and click on Activate Shopify Payments.

Step 3: Enter all the information requested. This includes personal info, address, and info about your identification. Select Next.

Step 4: Enter info about your business (such as business type, store details, etc.) as well as your contact number. 

Step 5: Review the info and click on Confirm. Finally, select Submit for verification.

Now, wait for Shopify to go through the info you provided and verify your Shopify Payments account. 

📋 Once you activate your Shopify Payments account, Shopify will automatically let you know which local payment methods are approved for you to activate. 

How to connect a payout bank account to Shopify Payments

Once your info has been verified, you can connect your bank account. All the payments you receive through Shopify Payments will be paid out to this account. 

Step 1: Head to Settings → Payments.

Step 2: Under the Shopify Payments section, select Connect a bank account.

Step 3: Enter your bank account information and hit the Save button. You’re all done!

📋 Depending on where you live, Shopify may ask additional information (including documents and proof of liveness) before verifying your Shopify Payments account. This is to verify that all the information you provided is correct. 

How to activate Shop Pay

If you want to make your customers’ lives easier and get more orders, using Shop Pay is a no-brainer. Here’s how to activate it:

Step 1: Head to Settings → Payments.

Step 2: Go to the Shopify Payments section and click on Manage.

Step 3: Scroll down to the Shop Pay section and check the Shop Pay option. Click on Save. 

Why use Shopify Payments? Benefits

If Shopify Payments is available in your country, you should be using it. Here’s why:

• Easy setup: Since Shopify Payments is integrated with your Shopify store, you can activate it in just a few clicks. So, even if your account is new, you don’t have to wait for a long time to be able to start selling. 
• Reduced fees: For payments made through all the payment providers that Shopify Payments supports, you won’t incur any transaction fees. In the long run, this will end up saving you quite a bit of money.
• Several payment options: Your buyers will have the option of choosing the payment method they’re most comfortable with. More payment options = happier customers. 
• Comes with Shop Pay: For faster checkouts.
• Fraud protection: Shopify Payments uses AVS (address verification system) and CVV (card verification number, aka the digits at the back of debit and credit cards) as fraud filters. This makes sure the address and card belongs to the customer, preventing fraudulent transactions. 
• Analytics: Shopify Payments gives you real-time payment tracking and payment analytics to help you see your store performance. 

All in all, it’s a wonderful option designed to make the lives of customers and sellers easier.