Dropshipping has become more popular with new or first-time business owners because it allows them to create a business and income stream without having to store products or inventory on-site. However, while dropshipping has its benefits, reaching success depends on additional factors, such as researching and understanding a market to become more dependable and adaptable and finding a suitable credit card processing provider for a dropshipping business.
What Makes Dropshipping a Valid Business
In addition to being a way to create an income stream, dropshipping has unique benefits that don’t come with the typical requirements of a standard business model. These include:
- No inventory – to start with, a dropshipping business doesn’t require the owner to keep and manage in-house inventory. To stock the store, the owner or merchant selects items online, which will be held offsite by the manufacturer or a distributor. The dropshipping owner, or merchant, manages the online business and receives part of the profits of each sale.
- No shipping – dropshipping also does away with the need to directly handle or ship the products or even keep track of them. The manufacturer or the warehouse not only stocks the product but also takes care of all shipping and tracking of items sold through the online store.
- Automated stores – automation involves the adoption of technology to take care of tasks the dropshipping owner would normally need to do. The objective here is to free up time from repetitive or time-consuming tasks and work on growing the business or finding new areas of business. Such technology might include automatic re-targeting in the wake of abandoned online shopping carts and emails for confirmations, cancellations or refunds.
Dropshipping as a High-Risk Business
A dropshipping business, as an eCommerce merchant, will rely just about exclusively on credit and debit cards for payment, which will require a payment service provider, or PSP. However, card processors will handle businesses in different ways, depending on the amount of financial risk the businesses present.
Dropshipping is known for aspects that make it a high-risk business type, which can lead processors or acquiring banks to refuse merchant-account approval, seek exceptionally high fees or ultimately freeze or shut down an account. Among these aspects are:
- High rate of chargebacks – When a customer disputes a chargeback, the card-issuing bank initiates a reversal of funds from the merchant to the customer, which is called a chargeback. This happens without a return of goods and can be the result of technical errors, such as accidental double billing, or customer dissatisfaction, including a claimed inability to return goods, or fraud. A 1-2% rate of chargebacks is not unusual in dropshipping, making it a high-risk industry.
- Lack of control – The fulfillment center is the company shipping the physical product. Since the seller is not directly shipping the product, they have limited control. If an item is delayed for shipping, doesn’t get shipped, or is shipped and damaged, those tend to turn into chargebacks or refunds with drop shippers due to each fulfillment center having different return policies.
- Fraud – fraud is a common inconvenience for both customers and merchants and represents more than half of all chargebacks. Fraud can result from customers placing orders and claiming they didn’t make a purchase or from third parties stealing cards or illegally obtaining cardholder information.
Consistent card payments are better facilitated by a payment processing service that specializes in dropshipping and high-risk businesses. A merchant’s ability to stay within acceptable terms with an acquiring bank can be difficult enough. A business with a higher level of risk makes it even harder. However, with an industry-experienced high-risk payment processor, a dropshipping business does not need to be subject to uncertain terms with its bank. Flow Payments has decades of experience working with dropshipping merchants and we understand the ins and outs of the industry and required payment solutions.
How a Dropshipping Business Profits With a High-Risk Merchant Account
A high-risk merchant account specialist will have industry-leading solutions aligned to a dropshipping business and its specific market. Solutions include hardware and software that enable easy purchases with all types of credit cards, providing the drop shipper with the payment options needed to build a business.
An industry-experienced dropshipping merchant account provider will have working relationships with various banks and familiarity with typically high-risk transactions and offer fraud and chargeback mitigation tools that provide a buffer for resolving chargebacks before they reach the banks, helping improve the prospects of approval for a dropshipping business. They will also have history working with different fulfillment centers.
A useful merchant account processor will prioritize transaction solutions through account underwriting, security and compliance rather than pursuing high fees from high-risk merchants who may otherwise find difficulty getting approval.
A personalized credit card processing services provider will also have seamless payment gateway integration with top websites and eCommerce platforms and dedicated account support that can quickly respond to all transaction inquiries, helping a prepared dropshipping business receive consistent payments and quick deposits.
A dropshipping business that takes the time to do the research necessary for a full understanding of its market and that finds a dedicated dropshipping merchant account provider with industry knowledge and fraud and chargeback mitigation tools will be able to focus on consistent sales and business growth.
If you operate a dropshipping business, contact Flow Payments today for a free quote. We look forward to exceeding your expectations.