Stripe, Square & PayPal: Are PayFacs Safe for High-Risk Merchants in 2025?

Did you know that Stripe, Square, and PayPal are popular payment solutions, but they might not be the best fit for every business? In this episode, we dive into the pros and cons of these household names in the finance world. Join us as we discuss whether these platforms are the ideal solution for your business, exploring their benefits and potential pitfalls. You'll learn about the nature of payment facilitators, the risks involved, and why it's essential to consider diverse payment solutions.

In this episode, these questions and topics will be covered:
• 1:10 - Overview of Stripe, Square, and PayPal as popular payment facilitators and what makes them well-known in the finance world. 
• 2:29 - The advantages of using payment facilitators: quick onboarding and convenience for merchants.  
• 2:57 - The risks involved: account freezes or terminations with little to no warning due to flagged risks.
• 3:55 - 7:20 - The risks of payment facilitators: lack of deep underwriting leading to future problems, aggregated transactions creating shared risk, and warning signs your account may be in trouble. 
• 7:37 - The importance of diversifying your payment solutions to avoid disruptions and not relying on a single processor.  
• 8:35 - How working with a payment consultant can help find tailored, stable solutions for your business. 

If you found this episode insightful, please leave a rating or review on your preferred listening platform and share it with other business owners! Let’s empower more merchants to navigate the payments landscape effectively.

Have a question about something in the episode? Send your questions to Info@PayDiverse.com and check out our FAQ page https://paydiverse.com/faq

Connect with PayDiverse:
Instagram: https://www.instagram.com/paydiverse
Website: http://www.paydiverse.com
LinkedIn: https://www.linkedin.com/in/franksena

Transcript

UNKNOWN: 0:00

Thank you.

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Hey, welcome to The Payments Guy, your ultimate guide to demystifying the confusing world of merchant payments. I'm Frank Sena, your host, a merchant payment specialist with nearly a decade of experience. In each episode, we'll break down the toughest challenges in the payment space so you can be better informed when navigating payments for your own business. From minimizing the impact of chargebacks, avoiding funding issues, and ensuring you're never stuck without the ability to process payments, we'll help you make smarter decisions and grow your business. Let's get started. Hi and welcome to the next episode of the payments guy. I'm your host Frank Sena and I'm a payments consultant for over the last 10 years and I've been helping merchants to run their businesses effectively and become better informed so that they can save money and process payments without any issues. Today we're going to be talking about stripe square and PayPal and whether or not they are good options for your business for collecting payments. So stripe square Stripe and PayPal are household names in the payment processing world. Everybody knows about them. And they're popular for a reason, but the question we're asking today is, are they the best solution for your business? So today we're gonna explore the good, the bad, and why these platforms might not always be the right solution for everyone's business. So let's dive in. First, let's talk about what Stripe, Square, and PayPal are. They are known as payment facilitators, Payfax, which is a term you may have heard before. You can think of a Payfax as a big umbrella with a bunch of businesses underneath that umbrella, all processing under the same merchant account. So this is different from a traditional merchant account. A traditional merchant account is basically one merchant for one account. When you're working with a payment facilitator or a Payfax like Stripe, Square, or PayPal, you're having many different merchants processing under the same MID number or the same account. All the transactions across all the merchants are aggregated under one master account. So this is great for a couple of reasons, mostly because this allows for very quick onboarding for a new merchant. You can sign up and within a couple of hours, you can start collecting payments for whatever it is that you're selling. The downside of this though, is because there's a shared account structure where multiple merchants are using the same account, these payfax are going to be very, very cautious about risk, meaning chargebacks and disputes. So if your business triggers a red flag, your account could be frozen or terminated without any warning. And that is obviously paralyzing for any merchant who's depending on Stripe Square or PayPal to process payments. The structure can work well for some merchants, but it can be risky for other especially those who are considered high risk by merchant banks. These platforms are incredibly popular for a couple of good reasons. You can get set up really quickly and start accepting payments almost immediately. They usually have very easy technical integrations with your website or your shopping cart. A lot of these solutions have a plugin for WordPress, for example. They offer great reporting and invoicing and analytics tools as well. that many people are familiar with and comfortable with. So for a brand new business, this can be a great way to get started collecting payments quickly. There are some risks that come along with this, even though these tools are very convenient. They don't really do a deep underwriting process when you submit your application to start processing with these tools. So they will tend to auto underwrite, which means that But they're going to take a look at your credit score. They're going to take a look at your financials and just make sure, all right, this is someone who we think can pay their bills and can support this processing, whatever it is that they're collecting payments for. So we're just going to auto approve them and we'll dig deeper later. That's kind of how they work. They don't really dig into your business model. And what can happen is they can later come back to your business, take a deep look and say, oh, you know what? This is a little too risky for us. We don't want to work with this merchant. And they just pull the plug like that. And all of a sudden, you're unable to collect payments with this account that you had. And on top of that, they often hold your funds until the risk of chargebacks is completely eliminated, which is usually 180 days after the last transaction was processed. So it can be really risky for some merchants who want to start using this account quickly, but then later the rug gets pulled out from under them. They're unable to process payments. The other risk is because the transactions are processed under one master account that you can be at risk if there's another merchant in the payfac who's using the same account as you and they get a ton of chargebacks. It can then mean that your account is monitored for chargebacks and they're very sensitive to chargebacks because one bad merchant can ruin it for everyone. You have to keep an eye on your own chargeback rates because this can trigger a red flag or a risk warning with the payfac. Or if there's some inconsistent payments, that could indicate fraud. So if you've been processing 100 payments a day and then all of a sudden there's a thousand payment spike in one day, that's going to trigger a red flag for the payment processor and now they're going to come and take a look at your account and ask some questions. Also, if you start to get customer complaints or disputes, that's going to immediately result in them taking a look and potentially freezing your account or closing it and holding on to your funds. And then some merchants who may have gotten approved really quickly who are operating in a restricted category, maybe they're selling CBD products, for example, which, you know, is legal on a federal level, but there's some great areas with the kinds of products you can sell. Or it could be like a merchant who's maybe utilizing a new technology like artificial intelligence. Things like that can make these pay facts feel very nervous and maybe want to exit the relationship. So they're not always going to give you a warning when they pull the plug. So it's really crucial that you're prepared and that you have some backup accounts ready to go. You're not just dependent on these pay facts because for high risk merchants, they can be very risky to work with. Relying on a single processor leaves your business vulnerable. And we always recommend diversifying your payment solutions and having one or two backup accounts and not just being dependent on one so that if there is an issue with one of them, you're not stuck unable to collect payments for your business. Working with a payment consultant like me will help evaluate your business to find a tailored solution for you. We'll save you time. We'll help you avoid unnecessary credit pulls, which is a ding on your credit score, and we'll help ensure that your payment processing is stable and dependable. We've helped merchants at my company, PayDiverse. We help merchants to transition from Stripe, Square, and PayPal often. Sometimes the merchant comes to us and says, hey, I just lost my Stripe account. They shut me down. I need payment processing ASAP. And then other times merchants will approach us who are using these solutions, but they want to have some backups and diversification. So that's what we do. We help merchants with this stuff all the time. And we help ensure that you're set up with a reliable long-term solution that's going to fit your business. So Stripe, Square, and PayPal, these payment facilitators are great for getting started, but they can be risky long-term for certain businesses. So keep an eye out for what warning signs like chargebacks, customer complaints, or unusual transaction activity. And my recommendation is to diversify your payment solutions to protect your business. Don't just be dependent on that one account. If you're struggling with payment challenges or want a more reliable solution, let's talk. At PayDiverse, we offer free consultations to help merchants find the right payment processing setup. Visit paydiverse.com or email us at support at paydiverse.com to get I'd love to help you secure your business and avoid unnecessary risks. Thanks for tuning into the Payments Guy. And remember, a prepared merchant is a smart merchant. Until next time, take care and keep building your business with confidence.