There is only one thing worse than not making any money from your store and that is to make a lot of money and have Paypal put it on hold. This so-called Paypal sandbox is becoming a huge headache for dropshippers and many other ecommerce businesses.
No online store can exist without a payment processor and Paypal is by far the easiest to set up. They tightened things up a bit but in theory you can be up and running in a few hours and start accepting payments.
Because it is so easy it tends to attract a lot of scams. Most of the time dropshippers get caught in the crossfire. In the last year or two however, Paypal started targeting dropshippers directly.
They simply do not like dropshipping as a business model and if your Shopify store relies on Paypal, then it is time to rethink things – urgently.
Why Is Paypal Holding Funds and Placing You in The Sandbox?
The first and most obvious reason why you are being sandboxed by Paypal is because you are receiving a lot of disputes and/or you are issuing a lot of refunds.
These are big warning signs for Paypal. You have to keep in mind that Paypal is primarily interested in protecting consumers – and themselves. Any merchant that poses any sort of risk to them or their consumers will trigger the alarm bells.
Your business may be perfectly legit and you may even have low refund rates, yet Paypal caught on to the fact that you are a dropshipper and they will lock your funds.
If there is a sudden spike in sales, Paypal starts paying attention. While this is great for your business to start making a lot of sales overnight, it is terrible for your business from a Paypal perspective.
Another telltale sign that you are dropshipping is that you do not have any tracking numbers on your Paypal orders. Shopify does not automatically post tracking numbers to Paypal.
Even if you do it manually (more on this later) Paypal can see if you ship with a Chinese carrier).
How Does The Paypal Sandbox Work and How Does It Affect Your Dropshipping Business?
No one knows exactly what Paypal’s thresholds are for triggering the sandbox. It seems to be a combination of factors that will trigger them to hold your funds.
If you are starting a Shopify dropshipping store and you are making a few hundred sales a month then you will be absolutely fine with using Paypal. Unless you get a lot of disputes, Paypal will not hold your funds.
Once you start getting a few hundred orders per day, the risk increases. Paypal seem to have no set rules for how they lock your account. In most cases they will hold a percentage of your funds for a set time – usually 30 days. In some cases it is as long as a 6 month hold but that is the worse case scenario.
Most of the time you can still accept new orders but any new funds will also be subject to the hold.
This is TERRIBLE for any business – especially dropshippers. If you can not access your money you have no cash flow.
This means you can not fulfill orders and you may have to refund customers – which in turn will make you look even worse in Paypal’s eyes.
Shopify, Paypal and Stripe – Alternatives for Dropshipping eCommerce
If your Shopify store starts making more than $1k per day you need to start implementing different payment options. If you rely only on Paypal then it is just a matter of time before you can lose your entire business.
Stripe is the obvious alternative. It is harder to implement Stripe and it does take a bit more verification but it is a solid option. Most people steer away from this because Stripe is only available in certain countries.
In that case, you may have to register a business in the USA or Hong Kong. There are many online services that can get this set up for you. It is quite robust if done correctly. Incorporating in Delaware is probably the easiest setup and you can get that done for a few hundred dollars.
Shopify payments also use Stripe’s payment processor so you can have that as an option too. However, Shopify payments is becoming more strict for dropshippers. The challenge is that unlike Paypal they do not sandbox you or hold your funds. They simply ban you.
If your refund rates are high or you receive a lot of disputes for parcels not getting delivered then Stripe will most likely do the same and ban you as well.
So, what then? Shopify Paypal and Stripe are gone and you can’t accept any payments. You have no business anymore.
The Best Shopify Alternatives to Paypal and Stripe
While Paypal and Stripe are by far the easiest and fastest ways to integrate a payment processor to your Shopify store they are by no means the only ones.
They are definitely NOT the best options because they both have a track record of eliminating dropshippers without any notice or warnings.
So, what alternatives are there for dropshipping payments?
This is one of the most widely used payment processors for big online stores. Authorize.net is a very robust option and have great fraud protection filters. You will need to integrate Authorize.net with Shopify to start accepting payments.
You will need to create an Authorize.net merchant account and get an API ID and Transaction Key before you can activate it in Shopify.
Getting approved for an Authorize.net account is not easy though. They do very thorough checks. However, if you are in the USA and have a good sales history with good credit score you will be in very good hands with them.
I would recommend you set yourself up with warehousing and fulfilment in the USA before you start with Authorize.net as that will be a requirement. Just register a business in the USA and be done with it.
I’ve had a lot of experience with Alipay like many other dropshippers who drop shipped from Aliexpress. Alipay is their payment processor and chances are that you already have an account anyway.
This opens up a lot of options for dropshippers outside of Stipe and Paypal’s country limitations as Alipay is available almost everywhere.
They are quite difficult to communicate with and accepting payments back to your bank account may need an intermediate account like Payoneer.
I am always a bit nervous having them hold large amounts of my money just because they are so poor at communicating.
2Checkout has been around since forever and what sets them apart is that they serve countries that Stripe typically does not.
If you live in a country where Stripe and/or Paypal is not available then 2Checkout might be your only viable solution.
They are quite strict though so make sure you have all the requirements in place before you apply. They are also known for placing holds on accounts with high refund rates so pay close attention to that.
This is one of the least known Shopify payment options and by far the best. It is my merchant of choice simply because they are so good. You always feel like they are on your side – unlike Paypal and Stripe who almost always sides with the consumer.
They have very competitive fees, pay out very fast and will never hold your funds on sandbox you. If there are issues with your account they will work with you to try and resolve it.
If you are currently using Paypal and Stripe and your dropshipping business is starting to take off, I would highly recommend you look into switching over to PayCertify.
But, Removing Paypal Will Hurt My Conversion Rates?
Most dropshippers use both Paypal and Stripe (or Shopify Payments). The common belief is that by offering customers both options of paying with paypal or by credit card will give you the highest conversion rates.
This is absolutely not true. Paypal might offer some convenience and protection that puts some customers at ease. However, if someone is going to buy from you they will do it even if they can only pay via credit card.
By dropping Paypal I have seen little to no difference in conversion rates.
Protecting Yourself Against Paypal Holds and The Paypal Sandbox
If you have to keep using Paypal and you have no alternatives then you need to do everything in your power to protect yourself.
Your payment processor is your lifeline.
Without it your store simply can not exist.
While there are no guarantees that you will avoid a sandbox or your funds getting held by Paypal, there are a few things you can do to protect yourself the best you possibly can.
1.Set Up Your Paypal Business Account Properly
Make sure that your Paypal Business account is set up properly. Have your business name, address and everything else filled out and make sure that it can be verified. You need to look like a real business. Do not leave any holes here.
2.Avoid Unexpected Spikes In Sales
This is not always possible but a big red flag for Paypal is if there are sudden spikes in sales. Do not scale your business to fast. While it is very tempting when your Facebook Ads s=work well, it might not be the best idea from a Paypal perspective
3.Do not Sell Crap
This goes without saying but many dropshippers g\fall into this trap. Your intentions might be good but you will probably never see the products you are selling – and they may be complete garbage.
Always order the products yourself so that you can see what your customer experience would be like. This will greatly reduce refunds.
4.Limit Refunds, Chargebacks and Disputes
Disputes are common in Paypal. Many customers will only communicate to your through Paypal by opening a dispute. Always respond quickly and be very professional and polite.
You need to avoid disputes getting escalated. You need to also avoid refunds at all costs. Offer great customer service and always respond to customers quickly and professionally.
If a customer insists on a refund, offer them store credit first and sweeten the deal as much as possible.
5.Post Tracking Numbers Back to Paypal
Always post your tracking numbers back to Paypal. You can do this manually or you can use an App like TrackiPay that will do this for you automatically. Not having tracking numbers in Paypal is a red flag for them.
Do not keep large amounts of cash in your Paypal account. Withdraw funds daily. That way you limit the damage and you limit how much of your funds paypal can hold.
If you absolutely have to use Paypal, get a backup account ready. Do not use fake details to open this backup account. Set it up in your partner’s name. Set it up in your mom’s name. Do it legit and you will be fine. Fake accounts never last anyway and it is illegal do do that so don’t be tempted.
If Paypal holds your funds for 6 months and still do not want to release it, get yourself a lawyer in the USA. It may be expensive but if they have $100k of your money it may be needed. Do not be afraid to go down this route because it may be the only way to get your money back.