How to Set up Payments on Shopify: a Complete Guide
More and more new payment providers are popping up around the world. E-commerce businesses have to react fast. People now expect to be able to use their preferred payment methods when shopping, or otherwise turn to the competitor.
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According to statistics from 2021, cart abandonment rates still average to a whopping 70%, a total of 20% are found to be due to a complicated checkout process. That is currently the top 4th reason in the list, after extra costs (high delivery fee, taxes), having to set up an account, and slow delivery times.
And you want to do everything in your power to decrease high cart abandonment rates, right? To make the checkout process of your Shopify store seamless for your customers, adding more Shopify payment methods to your store can help.
Offering a no-friction checkout can have a direct impact on abandoned cart rates. By knowing which payment methods your customers prefer, you can actively make changes.
In this post, we’ll explain how Shopify payment processing works, and go through different payment options you can add to your Shopify store checkout page. We will go into detail about pros and cons of Shopify Payment methods, differences between first-party and third-party payment providers, and how to set up payments on Shopify.
Shopify simplifies third-party payment integrations
In 2013, Shopify launched their integrated Shopify Payments, allowing easy integration of payment methods to your store. However, adding third-party payment providers hasn’t been as easy.
Great news for all the payment developers as well as store owners. At the previous year’s Shopify Unite event in July 2021, Shopify announced a new payments platform that allows much easier integration with new payment gateways. Previously, this required integration with Shopify Checkout through Active Merchant and Hosted Payment SDK.
Now there will be a better way that benefits merchants as well as payment providers. Shopify’s payments platform will allow developers to add their payment gateways as Shopify apps. With a single path to integrate with Shopify, every payment gateway will be built on the payments platform. Payment providers can use app extensions, APIs, and built-in merchant experiences.
This will add more third-party payment gateways to the list, so stores that wish to improve customer experience can add more payment options to their checkout pages.
What is Shop Pay vs Shopify Payments?
The difference is that Shop Pay is a customer-facing payment button. Shop Pay runs on payment processor Stripe. Shop Pay is a convenient checkout solution that allows customers to save their credit card information, shipping data as well as billing information for faster checkout in future purchases.
Shopify Payments are all Shopify payment processing methods that are already integrated with Shopify that you can add as a payment method for customers to check out directly through your store.
For example, Visa or Mastercard, including the Shop Pay button. Shopify Payments are the easiest options as it removes the need to set up third-party payment providers. What is more, merchants benefit from reduced fees and easy set-up, you can receive payments directly on your Shopify store.
Shopify Payments are designed to help small businesses to process money without complicated external processes with no prior coding skills. To manage all operational processes from one single platform, from shipping to order management to payments.
Direct vs Third-Party providers – what is the difference?
Shopify supports two main types of providers for payments:
- Direct providers
Are all Shopify Payments, as discussed in the previous paragraph. If you are using one of these direct providers, your customers can complete their checkout process in the store, without ever leaving the platform and without being redirected to a different site.
For example, Shop Pay, Mastercard, Visa, that are offered under Shopify Payments.
- Third-party providers
Are all payment providers that require adding to your store. For customers, this means that after reaching the checkout page in your store, they are redirected to a hosted site outside to complete the payment. For example, Amazon Pay, PayPal or payment gateways like Stripe or Square.
All the payment methods can be changed, activated & deactivated on Shopify if you go to Settings, and then to the Payments page.
Shopify Payments vs External Providers: Pros and Cons
Let’s go through Shopify Payments pros and cons, so it would be easier for you to decide whether there is a need to add more payment options to your store.
First of all, Shopify Payments are great for small and medium-sized businesses as everything from shipping, order management to payments can be managed on the same platform.
Because when adding more third-party options, you would need to keep track of all payments across each yourself. But don’t worry, free and easy-to-use accounting software solutions can solve this problem.
What is more, Shopify Payments is more affordable and doesn’t charge extra fees. You can find the pricing list below for reference.
Shopify Payments rates (depends on your chosen plan):
Shopify payments offers over 130 currencies, however, is only available for stores in select countries, a huge downside for businesses in the other regions. Even though anyone in the world can use Shopify, Shopify Payments is only available in select 17 countries including US, UK, Canada and Australia. Businesses outside these 17 countries would have to consider other payment methods.
On a positive side, Shopify payments offers several insurances like fraud protection and two-factor authentication, but unfortunately doesn’t include things like shipping insurance.
However, as with most aspects of running an e-commerce business, Shopify does have a separate solution for shipping insurance.
Shopify Payments’ downside is that perhaps you want to add popular local payment methods, for example, local payment solutions preferred by shoppers in Spain. So if you want to serve your local customers, you need to consider alternative payment methods.
Step-by-step guide to adding payment methods on Shopify:
If you are wondering how to set up payments on Shopify, first you have to go to Settings, and then click on Set up payments, then go to Payment providers:
- Shopify Payments
Shopify Payments are all payment options that are directly accepted and integrated with Shopify and can be easily added to the checkout page. Essentially, this means that the customer pays using Apple Pay, but through Shopify Payments.
Currently, Shopify Payments allows below payment options:
- American Express
- Apple Pay
- Google Pay
- Facebook Pay
- Shop Pay (Shopify’s own payment button)
Shop Pay is an accelerated checkout option. Customers can check out faster, as their payment and shipping information is already automatically saved in the system.
Checkout through the Shop Pay button within the Shopify platform is 70% faster than a typical checkout, with a 1.72x higher conversion rate, which in turn means fewer abandoned carts and increased conversion.
2. Third-party check-outs
Two third-party Shopify payment processing methods can be easily added to your store. If you want to add a button that enables customers to check out through these providers, where their payment, as well as shipping information, is already stored, you can add integrated third-party payment providers:
When adding these two, you have to click activate Amazon Pay or Activate PayPal express, create an account on their page, and it will be added to your checkout page. Your customers would be redirected to the providers to process the payment.
Essentially, this means that the customer pays through Amazon Pay or PayPal, and the payments are also processed through them. This is where Amazon Pay and PayPal differ from Shopify Payment methods, they are processed as third-party payments.
3. Third-party providers
Shopify third-party payments include online payment technology providers and offer payment processing software and application programming interfaces (APIs) for e-commerce websites and mobile applications. They enable you to integrate any other payment methods, like Klarna or country-specific payment methods to your Shopify store.
Payments would come at a set rate provided by the third party. An additional fee will be applied by Shopify to all new orders, depending on the plan you have chosen.
This would include options like:
For example, Stripe is a payment processor that powers the Shop Pay payment gateway to be added to the store. PayPal, however, has their own payment gateway called PayFlow, therefore doesn’t need a payment processor.
So, if you want to integrate a payment method that isn’t offered by Shopify Payments, you can use one of the gateway providers to add the payment method you need. For example, payment processor Square offers Visa, MasterCard, Amex, Discover, JCB, or UnionPay credit cards. Their newest addition Afterpay, a Buy Now, Pay Later (BNPL) service provider is now also available from August 2021.
If you want to add third-party services you can then click “Choose third-party provider” and choose between several providers that are available in your region.
4. Alternative payment methods
These are any external methods that can be used in addition to third-party providers or Shopify Payments. You can also set up other alternative payment options to allow your customers to pay for their products other than credit or debit cards.
This means that they can pay for example in cryptocurrency, currently, a popular payment method that allows customers not to go through a bank to pay.
5. Manual payment methods
You can still add any payment methods that aren’t available in the above options. But this has to be done manually and processed outside your e-commerce store. Once your customers have purchased something, you have to approve their payment each time before fulfilling the order. Therefore, there is more work involved and the process becomes more time-consuming.
For example, in case of manual payments, the status has to be changed individually to “paid” after the customer has made the transfer. The problem here is that customers might forget to do the transfer.
Here, a simple SMS notification can help. On Shopify, there are integrated apps you can download to send out automated SMS messages in case of a pending transaction.
So, even though it might be more time-consuming, it is worth adding that specific payment method preferred by your target audience in order to guide your customers through the sales funnel and optimize your sales.
Personalize your Shopify store customer experience with added payment options
If you are already running your Shopify store, or whether you are just starting out, it is important to consider your customers’ needs. And this includes the checkout experience. As previously discussed, bad checkout experience counts for 20% of abandoned carts.
And which payment options to add, largely depends on your target audience. For example which country you are operating in and which payment methods are preferred in that country.
If you are a small or medium-sized business, it makes sense to start out with Shopify Payments. They can be easily added, come with fewer charges, provide an all-in-one solution and offer fraud protection.
If you are a growing business, operating in niche markets, or have already acquired a wider customer base, it perhaps makes sense to consider alternative payment options and go through third-party providers to accommodate each customer, despite higher fees and more complicated set-up processes.