IIf you’ve been dumped by Stripe, you’re not alone. Spend five minutes on Reddit e-commerce forums, and you’ll see a parade of posts from business owners, entrepreneurs, and freelancers all working through the various stages of grief:
Denial (“This has to be a mistake. My business is legal! Stripe can’t just shut me down!”)
Anger (“Stripe is a predatory company that hates small businesses!”)
Bargaining (“If I upload one more document, maybe they’ll give me my funds back…”)
Depression (“I’m ruined. I can’t process new orders and I can’t buy supplies. It’s all over.”)
And, finally, Acceptance (“Can anyone recommend an alternative to Stripe?”)
As a lawyer specializing in high-risk merchant processors, this fifth and final stage is usually where I get brought in. But it occurred to me during a recent late-night Reddit lurking session (as one does) that I might be able to help certain Merchants skip past the trauma of stages one through four entirely. Here is what you need to know.
It’s Not Stripe… It’s You (Sort Of)
Stripe is a fantastic tool… for the right kind of business. It’s user-friendly, quick to set up, and offers transparent pricing. So why is the internet so mad at it? Setting aside the fact that the internet is mad at pretty much everything, my sense is that most Merchant anger is rooted in (i) being a bad business match from the outset, and (ii) Merchants finding themselves caught off guard by Stripe’s terms of Service (either because they didn’t understand the terms, or, let’s be honest, didn’t read them).
Don’t worry. I read the terms for you.
Finding the Right Match
Stripe is fairly clear in what it wants in a Merchant partner: their business model revolves around onboarding as many low-risk, low-volatility merchants as possible, not catering to edge cases or high-maintenance industries. Basically, Stripe wants a partner who puts the same dinner on the table every evening at 6 pm, will golf on weekends, and is not interested in surprises or shaking things up by swapping out ricotta for vegan cheese. If you’re looking for someone who will order takeout once a week, try new restaurants, and occasionally fly to the Sphere in Vegas to drop acid with you… this partnership is not going to work. And that’s on both of you!
Who Stripe Was Built For
Stripe works brilliantly for certain businesses that fit its narrow definition of “low risk.” Small nonprofits with steady donations, subscription services with predictable billing, and e-commerce stores selling low-ticket, low-return items like coffee or stationery thrive with Stripe. Freelancers billing regular clients and platforms selling simple digital products with low return rates and chargebacks are also a great fit.
Who Stripe Was NOT Built For
Merchants in High-Risk Industries: Stripe and high-risk Industries go together as well as Blake Lively and Justin Baldoni. High-risk industries, including gambling, travel, adult content, crypto, nutraceuticals, and pseudo-pharmaceuticals (i.e., anything part of a “protocol” being sold by a podcaster). Firearms can be added to the list, as well as alcohol (at least for Canadian Merchants). It goes without saying that Merchants should review the Stripe Prohibited and Restricted Business list for your country (you can find it here on the Stripe website).
Low to Medium Risk Businesses with sales volatility: This is where most “dumped” Merchants seem to have run into trouble. Many businesses that seem low risk on paper struggle with Stripe’s risk tolerance parameters, which require low volatility and low chargeback rates. Ticketing businesses, e-commerce stores with viral sales spikes (thanks TikTok), or freelancers with irregular invoices often trigger fraud or risk controls for having volatile sales.
Small, Low-Volume Businesses: These businesses are particularly vulnerable to breaching the chargeback threshold of 1%. Consider, a custom leather jacket store processing roughly 50 transactions per month. If just one customer files a chargeback, their chargeback ratio jumps to 2%, triggering a review or account freeze. If keeping chargebacks below 1% isn’t realistic for your business- for whatever reason- it’s time to move on.
What Could Go Wrong?
When a Merchant who falls outside Stripe’s relationship criteria chooses to sign up anyway, the breakup can be messy. Once a Merchant is flagged for sales volatility or excess chargebacks, Stripe has a number of remedies available (all of which you agreed to, by the way), including imposing a Reserve or terminating the relationship entirely.
The triggering of a “surprise” Reserve seems to be a common pain point for my fellow Redditors. Many Merchants are shocked to learn Stripe can, at its discretion and at any point during the processing relationship, withhold a percentage of the Merchant’s funds (I’ve seen posts about holds reaching 25%) for months on end.
This hold on funds constitutes a Reserve. Stripe defines a “Reserve” as meaning any “funds described as such by Stripe, which Stripe holds as security against liabilities you incur under this Agreement.” In practice, that means Stripe can hold on to a substantial chunk of your sales proceeds for an uncapped period. While many Merchants get their Reserves back eventually, it may be too late if locked-up funds result in unpaid suppliers and unfulfilled customer orders. The stress and uncertainty of an unexpected Reserve can turn the most reasonable Merchant into a bunny boiler. Or, at least an unhinged keyboard warrior.
The Rebound: What to Look for in a New Processor
If you’ve been dropped by Stripe, or if it feels like you’re constantly walking on eggshells to maintain the relationship, it’s time to consider an alternative processor better suited to meet your needs. High-risk Merchant processors specialize in working with industries that mainstream providers like Stripe and PayPal avoid. These processors understand a broad spectrum of business models and can offer more flexible terms, like higher chargeback thresholds or custom reserve policies.
When evaluating new payment processor agreements for high-risk Merchants, we focus on the following matchmaking priorities for our clients:
Industry-Specific Tolerance: Processors that explicitly support your medium to high-risk business category.
Higher Chargeback Tolerance: Look for more manageable thresholds above the 1% chargeback standard.
Transparent Reserve Policies: If your business meets Reserve criteria, ensure the terms are clear upfront. Reserve amounts should be expressly defined, and Reserve return terms (post-termination) should be clear so that funds aren’t unexpectedly withheld and locked up indefinitely.
Getting dumped isn’t the end of the world. Consider it an opportunity to reevaluate your payment strategy and to find a better partner. Let us know how we can help by reaching out to lindsay@gmelawyers.com.
