Stripe

Businesses are increasingly reaching their customers online. In the US, the fraction of retail sales conducted online rose from 17% in 2019 to an estimated ~24% in 2022. Globally, this proportion rose from 15% to ~22% over the same time period. As of 2021, 1 in 3 people around the world has yet to use the Internet. Increasing reliance on the Internet for commerce and general economic growth will power global commerce online. The global e-commerce market was valued at $14.3 trillion in 2021 and is projected to reach $58.7 trillion by 2028.

The growth of online commerce over the past two decades was paralleled by the growth of online payments. Merchants increasingly needed a way to accept credit card payments online from consumers. However, early options for this had drawbacks. PayPal, the most popular payment product of the 2000s, required buyers to set up a PayPal account and complete the transaction on PayPal’s website instead of on the merchant’s site, leading to friction and lack of control. Some merchants instead opted to use legacy payment processors or gateways to set up a white-labeled online purchasing experience, but this was prohibitively difficult and time-consuming for others.

Stripe is a developer-oriented payments company that enables businesses of all sizes to accept credit card payments easily and quickly. Having launched in 2010, Stripe has significantly impacted the payments industry and is used by companies such as Amazon, Instacart, Zoom, Slack, and Shopify. Millions of businesses of all sizes — from startups to Fortune 500s — now use Stripe to accept payments, send payouts and manage their businesses online. Stripe’s aim is to build and modernize online financial infrastructure in the service of its stated mission to “increase the GDP of the internet”.

Stripe was founded in 2010 by two brothers from Ireland, Patrick Collison (CEO) and John Collison. The pair first came to the US in 2006, aged 18 and 16, respectively. The pair demonstrated early promise: the year prior, Patrick had won a national Irish competition for young scientists with his project “Croma: a new dialect of LISP” (LISP is a programming language developed at MIT), leading an Irish newspaper at the time to dub him “the smartest redhead in Ireland”.

Having arrived in the US, the two brothers applied to Y Combinator with a startup idea for tracking software for eBay sellers, only to join up with another pair of brothers already in the program with a similar idea. That startup, Auctomatic, was acquired for $5 million in 2008. In 2009, John enrolled at Harvard, placing him near his elder brother who was at MIT. Having noticed the difficulty of accepting payments over the Internet, the pair began working on Stripe at this time, which was then known as /dev/payments. Over the course of many months, they grew increasingly focused on this project until, after almost a year, they dropped out to work on the company full-time. The brothers raised their first round of funding in 2010 from Y Combinator, although they did not participate in the accelerator’s demo day.

At the time, startups had no easy options for payment processing. Setting up with banks involves weeks of administrative work and lots of fees. PayPal, the other option, was also complicated to set up and came with its own issues, including taking up to 60 days to provide access to funds and lacking a white-label solution. /dev/payments, by contrast, was built to be a developer-friendly product that could be integrated with a simple seven-line code snippet, which was especially appealing to startups.

As a result, the product achieved product/market fit with other Y Combinator startups and quickly gained traction. However, the startup was forced to change its name since Delaware does not permit leading slashes in corporation names; also, the company name needed to appeal to traditional bankers that the company had to work with. After considering various options, the team eventually settled on “Stripe.” The team grew to only four people after a year because they insisted on highly technical backgrounds for employees, even for managers. The Collison brothers continue to lead Stripe as of February 2023, with Patrick serving as CEO and John as President.

Stripe’s core business is online payments, including everything from typical 1:1 payments (Stripe Payments) to complex multi-party payments enabled by platforms and marketplaces (Stripe Connect). For the first few years of its existence, the company focused on these core offerings. Starting in 2015, it began to branch out with more frequent product releases.

Source: The Generalist

Payments is Stripe’s core product. It provides an API for businesses to accept online payments from customers around the world. In the US, the online payment flow works as follows:

1. The customer provides their card information to the business.

2. The business sends the payment information to the “acquiring bank” via a “payment gateway.” Payment gateways ensure that the information is sent securely and in compliance with PCI standards. The acquiring bank is the bank receiving the payment.

3. The acquiring bank communicates through a card network, such as Visa or Mastercard, to the “issuing bank.” The issuing bank is the bank sending the payment.

4. The issuing bank communicates its acceptance or rejection of the transaction back through the card network, acquiring bank, and payment gateway to the business.

5. The funds for the payment are placed on hold at the issuing bank and later sent to the merchant account. A “merchant account” is separate from the business’s usual bank account and is where the money is held for ~1-2 days before being moved to the usual bank account.

Source: Stripe

With Stripe Payments, businesses in 47 countries can simply sign up for Stripe, link their bank account, and use Stripe’s API to accept payments. Stripe handles payments in 135+ currencies and supports numerous payment methods like cards, digital wallets, BNPL offerings, and bank transfers from 197 countries.

Businesses must provide an interface for customers to enter their payment information before sending it to Stripe. Instead of building their own front end to do this, they can use Stripe Checkout. Checkout provides a prebuilt checkout page to ingest this information hosted on Stripe’s servers and works for both desktop and mobile. Businesses can modify the base Checkout template with custom colors, fonts, and shapes to align it with their branding.

With Stripe Checkout, businesses can avoid common checkout flow errors and support 30+ languages. They also benefit from the Stripe team working to improve conversion rates by ordering payment methods based on the customer’s location.

Source: Stripe

Stripe Elements are customizable components for businesses that want more control over their payment page. Control goes down to the level of CSS for granular styling. A checkout page built with Elements is hosted on the business’s website rather than Stripe’s website.

Source: Stripe

Stripe Payment Links lets businesses share links that customers can use to pay. These links can be generated from the Stripe Dashboard or via the Stripe API, and they take the customers to a checkout page hosted by Stripe.

Source: Stripe

No-code dashboard creation of Payment Links reduces the difficulty of accepting payments online. Links can be shared via social media, text messages, or email; this flexibility can be useful to help creators or small businesses transact with customers.

Stripe Link is a one-click checkout offering available on hundreds of thousands of websites. Customers new to Link can save their payment details and shipping information to enable faster checkout in the future. Link automatically detects if a customer is enrolled by using their email address, phone number, or browser cookies. The customer then receives a one-time passcode to authenticate their session. After authentication succeeds, Link loads the customer’s payment and shipping information, allowing the customer to pay with one click.

Stripe Radar uses machine learning to prevent fraudulent payments from being processed. Stripe trains and updates its ML models on the billions of payments it processes annually. Data points used for fraud detection include customer information, shipping and billing addresses, and IP addresses. When a fraudster uses a stolen credit card number to make an online purchase and the payment is processed successfully, the true cardholder can dispute this charge by filing a chargeback with their bank. With Chargeback Protection, merchant’s sales are protected against fraudulent disputes, helping prevent losses. Whether or not the dispute is legitimate, Stripe will reimburse the disputed amount and waive dispute fees.

For customizability, Stripe offers Radar for Fraud Teams. This allows businesses to tune their risk tolerance. Those with lower tolerance may prefer to block payments more aggressively at the cost of incorrectly blocking or flagging some valid payments.

Source: Stripe

Businesses can also create custom rules with Radar. For example, they can automatically flag payments over a certain amount from any email within a specified list of email addresses. Additionally, Radar for Fraud Teams enables better pattern recognition. It surfaces related payments in the manual review process and allows companies to integrate their data with Radar’s data through Stripe Data Pipeline.

Stripe Connect handles payments for online marketplaces and platforms. These types of Stripe customers facilitate transactions between other parties, meaning that more parties are involved in each transaction than in a typical 1:1 sale.

For example, when a consumer orders food via an on-demand food delivery marketplace like DoorDash, the funds are split between DoorDash, the delivery driver, and the restaurant. Similarly, when a consumer orders a product from a Shopify-powered e-commerce store, the funds are divided between Shopify and the store. Stripe must process the payment and then pay each of these parties their share of the transaction.

Source: Stripe

In addition to facilitating payments and payouts, Connect helps marketplaces onboard, verify, and screen users. This is done by leveraging the tech that powers Stripe Identity, which is important for compliance.

Connect customers can earn revenue from transactions on their platforms through Stripe’s Revenue Share program or by imposing additional fees. The money typically takes at least one business day to reach the recipient but can arrive in minutes with Stripe Instant Payouts. Businesses can also issue cards to their users with Stripe Issuing.

Stripe Billing enables companies with recurring subscriptions to accept payments. Billing handles various pricing structures, including generic subscriptions, per-seat, and usage-based pricing. It also handles edge cases such as coupons, free trials, and add-ons. Customers of these companies can manage their billing information in the customer portal hosted on Stripe’s website.

Source: Stripe

Billing integrates with Revenue Recognition and Invoicing for accounting and invoicing purposes. It automatically retries failed payments using a machine learning system called Smart Retries, which recovers 37.7% of failed payments volume according to Stripe.

Stripe Invoicing lets businesses create, manage, and send invoices to their customers. It can be used for both one-off and recurring payments. Invoices can be created via the no-code dashboard or through Stripe’s API.

Source: Stripe

Stripe Terminal enables businesses to accept in-person payments. Businesses can pay either with one of Stripe’s card readers or a smartphone through the Tap to Pay on iPhone and Android features. For no-code integration, businesses can use point-of-sale software from a Stripe partner. Alternatively, they can use code to integrate the payment system with their own point-of-sale application.

Source: Stripe

Stripe Financial Connections lets businesses retrieve users’ financial data without having to build a custom integration for each user’s financial institution. This makes it easy to verify accounts and view balances and transactions. The product functions similarly to Plaid, a fact which caused some concerned reactions from Plaid itself reflecting on Stripe's role as both a partner, and a potential competitor. Stripe claims Financial Connections works for 90% of US bank accounts, though the product is still in beta as of February 2023.

Businesses use Stripe Identity to confirm users’ identities. Identity verification is important in cases like onboarding users onto a marketplace, or linking financial accounts through Stripe Financial Connections. Additionally, KYC regulations in certain industries require identity verification. Verification requires striking a balance between preventing fraudsters from getting through and remaining as frictionless as possible for legitimate users. As such, Stripe Identity relies on both machine learning and manual reviews to improve accuracy and reduce friction.

Stripe validates the authenticity of identity documents and matches user selfies with the image on the identity document. It supports ID documents from over 100 countries. Identity can also check to validate the information that has been input by the user, such as name, date of birth, government ID number, and address. Stripe itself stores this data so companies don’t have to worry about data security and compliance. Identity also provides users with control over their data by requiring explicit consent before data sharing and letting them view and delete their data.

Stripe Tax automatically collects taxes on Stripe-powered purchases in over 35 countries, including sales tax, VAT, and GST. This enables companies to sell in various jurisdictions without concern for tax compliance. When it is time to file taxes, Stripe Tax provides reports with all the necessary information.

Stripe Revenue Recognition helps companies comply with accrual accounting standards by recognizing booked revenue at the appropriate time. For example, revenue from an annual subscription should be spread out in increments over the course of the year rather than being entirely recognized at the time of purchase. Revenue Recognition works on Stripe data but also allows for importing external transactions, and lets businesses generate financial reports such as balance sheets and income statements. Revenue Recognition also enables companies to trace revenue to particular transactions, helping them remain audit-ready. It handles edge cases like refunds, upgrades, and disputes to maintain accuracy.

Source: Stripe

Stripe Sigma lets companies access and analyze their Stripe data from the Stripe Dashboard. Users can run, save, and share SQL queries to understand their business better. These queries can be used to generate reports on a schedule (e.g., quarterly). Stripe provides templates for queries to compute common business metrics like ARPU (average revenue per user).

Source: Stripe

Stripe Data Pipeline lets Stripe customers export transaction-level data from Stripe to their Snowflake or Amazon Redshift data warehouse. They can combine their Stripe data with data from other sources to run more complete analyses of their businesses.

Stripe Atlas is a business incorporation service available in over 140 countries. It navigates the laws, paperwork, and fees necessary for starting a business. The company partners with the law firm Orrick to offer Atlas.

Users can decide whether to incorporate as a C Corp or limited liability company (LLC). Incorporation occurs in Delaware, a US state whose business-friendly policies attracted about 93% of 2021 US IPOs. Delaware requires companies to maintain a registered agent with an office address in the state, and Atlas handles this as well. Other perks of Atlas include access to the Stripe Atlas Community, help to open a US business bank account, free legal templates, and access to $100K in benefits through Atlas partners.

Stripe Climate lets companies automatically donate a percentage of their revenue to carbon removal efforts. This commitment is visible to customers at checkout and in receipts and invoices.

The carbon removal itself is facilitated through Frontier, a public benefit LLC fully owned by Stripe. Frontier is a $925 million, nine-year advance market commitment (AMC) to permanent carbon removal with funding from Stripe, Shopify, Alphabet, Meta, McKinsey, and businesses using Stripe Climate. An AMC aims to stimulate the supply side of a market through demand-side commitments. In this case, Frontier aims to foster R&D on carbon removal tech. Its experts decide which carbon removal companies receive funds.

Stripe Capital offers financing to companies that use Stripe to process their payments. Stripe is able to use customers’ past payment data to gain insight into their businesses’ health. Customers who use this product pay a percentage of sales until the loan and loan fee are paid off.

Source: Stripe

Stripe Capital also enables other platforms to provide loans to businesses. Stripe outsources the development of customer relationships with SMBs by partnering with platforms. Stripe Capital manages the underwriting and lending process and absorbs all credit losses. This means platform partners face less financial risk and are also able to earn a revenue share from the loans.

Source: Stripe

Stripe Issuing lets companies issue and manage physical and virtual commercial cards. The cards can be programmed to control where and how much money is spent. Once they reach enough volume, businesses can capture a small percentage of each transaction as interchange revenue. Platforms using Stripe Connect can also issue cards to individuals associated with business entities on their platform. The diagram below, where the connected account represents a business entity, helps visualize this use case:

Source: Stripe

In this example, the platform could be an expense management company (such as Ramp*), the connected account could be one of its SMB customers, and the cardholder could be an employee of the SMB.

Stripe Treasury is a banking-as-a-service API that enables platforms to embed financial services for businesses. They can create stored-value accounts (a bank account replacement), earn yield, and move money via wire transfers and ACH. Stripe is not a bank, so the funds are held at Evolve Bank & Trust and Goldman Sachs. Platforms can also use Stripe Issuing to issue commercial cards to spend funds in the accounts. Treasury is only available in the US as of February 2023.

Platforms must first be integrated with Stripe Connect to use Stripe Treasury. When using Stripe Connect, there is a “connected account” for each seller on the platform (e.g., for each digital store on the Shopify platform). With the correct configuration, this connected account can use Treasury. The overall architecture is illustrated in the diagram below.

Source: Stripe

As an example, Shopify Balance is built on top of Stripe Treasury. Balance provides financial services for Shopify store owners. They can bank and issue cards from within Shopify rather than relying on an external entity for managing their finances, while Stripe interfaces with the underlying financial infrastructure.

Source: Stratechery

Stripe offers a Corporate Card for businesses to handle expenses while receiving a flat 1.5% rate of cash back. The card is programmable so that businesses can limit spending amounts and locations. It can also be integrated into the company’s financial operations through expense management and accounting software integrations. Customers can take advantage of discounts from Stripe partners like Carta, Gusto, and Expensify.

Source: Stripe

Stripe’s App Marketplace launched in May 2022 to let companies integrate their Stripe information with third-party business applications. As of February 2023, 74 apps are available. Apps are reviewed by Stripe’s team before being published to the store. Use cases include accounting automation (Xero), analytics (Baremetrics), cloud-based file storage (Dropbox), and agreements (DocuSign).

Stripe supports payouts in USDC in the US. In addition, Stripe’s fiat-to-crypto onramp lets web3 developers embed an easy way for end users to fund their crypto wallets. Stripe handles fraud detection, KYC regulations, and payments; its widget can be embedded with ten lines of code.

Stripe began with a focus on startups and SMBs, providing a fast and easy way for developers to accept payments over the Internet. It grew with these companies over time, and the company eventually moved upmarket to serve enterprise customers.

The steady expansion of Stripe’s customer base was reflected in the sequence of its product offering launches. Stripe launched Connect in 2012 to serve platforms and marketplaces like Shopify and Lyft that need multi-party payments. In 2018, it launched Billing to handle the needs of subscription-based SaaS companies such as Figma, Slack, and Zapier. Stripe supports invoices and introduced Financial Connections in 2022 to ease payments for bank accounts, which are important for B2B companies’ payment needs. B2B customers include Atlassian and Maersk. These adaptations have allowed Stripe to meet the needs of an increasingly wide range of businesses.

The company also has deals with two of the world’s largest ecommerce platforms, Shopify and Amazon. Shopify Payments and Shopify Balance were built using Stripe’s infrastructure. Shopify Payments facilitates payments between customers and Shopify merchants, and Shopify Balance provides business accounts and spending cards for Shopify merchants.

Amazon and Stripe first partnered in 2017, and in January 2023 they announced the expansion of this partnership. Stripe will expand its usage of AWS as its cloud infrastructure provider. In exchange, Amazon will use Stripe to process payments in the US, Europe, and Canada for a significant portion of payment volume for offerings like Prime, Audible, Kindle, Amazon Pay, and Buy With Prime. Other notable Stripe customers include marketplaces like Lyft and Instacart and companies like Ford, Slack, Figma, and OpenAI.

The total payments volume (TPV) in the US alone is $34 trillion, with $9 trillion in B2C payments and $25 trillion in B2B payments. Globally, there are $125 trillion in B2B payments. Assuming the same ratio of B2C to B2B payments as in the US, this means there are ~$45 trillion in B2C payments. That would mean a total global TPV of ~$170 trillion.

In 2021, the payments industry brought in $2.1 trillion in revenue. McKinsey projects that this revenue figure will rise above $3 trillion by 2026.

Source: Y Combinator

Global digital payments penetration lags behind the US, so the global fraction of non-digital payments is likely to be even higher. 89% of US consumers use digital payments to some degree, compared to two in three consumers worldwide.

Stripe’s product suite exposes it to markets beyond payment processing. Radar alone, for example, expands its addressable market significantly as businesses are expected to face $343 billion in losses to online payment fraud globally between 2023 and 2027. In addition, Stripe Capital provides loans to SMBs using Stripe or a Stripe-enabled platform and SMBs are financially underserved. In developing countries, 40% of SMBs have unmet funding needs totaling $5.2 trillion annually. In the US, a 2021 survey found that less than half of US small businesses had their funding needs fully met, as shown in the graphic below.

Source: 2021 Small Business Credit Survey

Alternatively, a simple way to evaluate the cumulative market opportunity for Stripe’s products is by using competitor valuations as benchmarks. The valuations below reflect the public market cap or the last private funding round valuation in February 2023:

• Payments: Adyen ($47 billion)

• Financial Connections: Plaid ($13.4 billion)

• Issuing: Marqeta ($3.2 billion)

• Treasury + Issuing + Capital: Unit ($1.2 billion)

• Capital: Clearco ($2 billion)

• Billing: Chargebee ($3.5 billion)

• Radar: Sift ($1 billion)

• Identity: Socure ($4.5 billion)

• Corporate Card: Brex ($12.3 billion)

• Tax: Avalara ($8.4 billion)

• Link: Bolt ($11 billion)

Stripe offers a payment product with an integrated product ecosystem, especially for small businesses. Once a company uses Stripe for one aspect of their business, they are more likely to use Stripe for other products they need. In addition, the more deeply integrated Stripe becomes into a customer’s operations and finances as that customer adopts more and more Stripe products, the higher switching costs become.

However, competitors focused on narrow slices of Stripe’s business are sometimes able to create products with more functionality. For example, Marqeta issues cards with greater customizability than Issuing, and Plaid offers more bank integrations than Financial Connections. Here are some of Stripe’s competitors across various parts of its business, followed by deeper dives into the competition for Payments, Financial Connections, and Issuing:

• Payments: Adyen, PayPal, Checkout.com

• Financial Connections: Plaid, Finicity (Mastercard), Tink (Visa)

• Issuing: Marqeta, Lithic, Highnote, Galileo

• Treasury + Issuing + Capital: Unit, Bond, Treasury Prime

• Capital: Pipe, Clearco, Square Loans

• Billing: Chargebee, Recurly, Zuora

• Radar: Sardine, Sift, Kount

• Identity: Persona, Socure, Alloy

• Corporate Card: Ramp*, Brex, American Express

• Tax: Avalara, Vertex, Sovos, Anrok

• Link: Bolt, Apple Pay, Google Pay

Given its large addressable market, payment processing has space for multiple winners. Competitors include PayPal (Braintree) and Square for SMBs and Adyen, PayPal, Checkout.com, and FIS for enterprises. However, tech-forward players like Stripe are gaining market share from legacy businesses, as shown below:

Source: F-Prime Capital

Internationally, Stripe has been more successful in countries with higher card penetration. An important component of the market is companies that act as “the Stripe for [country].” Razorpay in India and Xendit in Indonesia are two unicorns in this category.

Adyen

Founded in 2006, Adyen is Stripe’s main competitor in payments. It’s a public company with a $47 billion market cap. From the beginning, Amsterdam-based Adyen focused on serving large, global enterprises. A self-serve option for SMBs and startups is not available with Adyen; by contrast, Stripe started out targeting SMBs and startups and is now moving upmarket into Adyen’s territory. It also reaches many more small businesses through platforms such as Shopify.

These strategic differences are reflected in two companies’ respective customer counts and compositions. Stripe has millions of customers, but only 110 with $1 billion or more in volume. Adyen, on the other hand, has a customer count in the thousands comprised solely of enterprise and mid-market companies. Bigger customers have higher transaction volumes, but their greater negotiating power results in a lower take rate for Adyen.

Adyen’s offerings have been tailored to global enterprises’ needs. Stripe’s point-of-sale solution, Terminal, lags behind Adyen’s, although Stripe’s acquisition of BBPOS may help address this. This helps Adyen win omnichannel deals with companies like Subway and McDonald’s, even as it attracts digital enterprises like Uber and Spotify. In addition, Adyen provides support for more countries and payment methods than Stripe. Adyen supports over 300 payment methods in nearly 100 countries compared to fewer than 50 payment methods in 47 countries for Stripe.

Other differences include Stripe’s broader product suite versus Adyen’s, which contributes to Stripe’s higher take rate. Adyen does not have offerings to match financial software products like Stripe Tax and Revenue Recognition. These two products alone can add 0.7% to Stripe’s take rate on a transaction. Stripe also has greater traction among platforms such as Shopify since it has given more attention to this aspect of this business than Adyen. For example, Stripe launched Treasury and Capital ~2-3 years before Adyen launched competing offerings.

Despite Stripe’s higher take rate, Adyen has better margins. Stripe lost $500 million in 2022, although it expects to return to profitability in 2023. In contrast, Adyen generated over $650 million in free cash flow in 2022. A major contributing factor is that Stripe spends much more on its workforce. Adyen has fewer than 3K employees, whereas Stripe has 7K employees even after laying off 14% of its workforce. Adyen also likely pays each employee less, given that most of Adyen’s employees are based in Amsterdam instead of the US. Stripe’s higher headcount was likely needed to build out its additional products and seems to be reflected in its financials.

Open banking refers to the ability for users to share their financial data stored at one financial services provider with other financial services providers. Unlike the US, Europe has regulations that drive the adoption of open banking.

Stripe Financial Connections is one of many offerings facilitating open banking through data aggregation in the US. Other players in the US include Plaid, MX, Yodlee, and Finicity, which was purchased by Mastercard in 2020. Tink, acquired by Visa in 2021, leads the European market. Plaid has also been expanding into Europe.

Plaid

Founded in 2012, Plaid is the most well-known company in this area. The company raised a $425 million Series D at a $13.4 billion valuation in April 2021. Like Financial Connections, Plaid offers APIs that allow application developers to retrieve end users’ account data from financial institutions. One customer described Financial Connections as very similar to Plaid.

Source: Stratechery

Stripe supports 5K financial institutions in the US, while Plaid supports 12K+ in the US and Europe. The two products also differ in pricing transparency. It’s difficult to find Plaid’s base pricing, while the pricing for Financial Connections is easily accessible.

Plaid has partnered with various financial companies to build a network for bank account payments. Bank account payments save merchants from having to pay credit card fees, hurting card networks like Visa. The Department of Justice focused on this aspect of Plaid’s business in its antitrust lawsuit to prevent Visa’s acquisition of Plaid. Companies that rely on the interchange for revenue could be negatively affected by the widespread adoption of bank account payments.

Companies whose main focus is card issuing include Marqeta, Highnote, Galileo, and Lithic. One industry expert describes Stripe as having effectively productized a low-cost, easy-to-implement solution at the expense of customizability.

Source: Credit Suisse

Marqeta

Marqeta is an enterprise-focused card issuing company. It was founded in 2010 and is now public, with a market cap of just over $3 billion as of February 2023. Stripe Issuing is focused on commercial cards, but Marqeta issues both commercial and consumer cards (e.g., Cash App’s Cash Card). In addition, Marqeta’s card-issuing capabilities are more advanced than Stripe’s according to several sources. Marqeta added banking capabilities to its platform in October 2022, expanding its competitive surface area with Stripe to include Treasury. However, Marqeta faces customer concentration risk. Block accounts for ~70% of Marqeta’s net revenue and has contracts with Marqeta expiring in 2024.

Stripe Payments lies at the core of Stripe’s business and features usage-based pricing. The standard pricing for Payments in the US is $0.30 + 2.9% of the transaction value for each successful card charge and includes Radar for fraud detection. Pricing varies by country

Stripe increases its take rate with the products layered around Payments. Its take rate for 2021 was estimated to be 0.39%. Below are standard charges companies incur for other products, although Stripe products generally offer custom pricing for high volumes:

• Radar: $0.05/transaction

• Data Pipeline: $0.03/transaction

• Revenue Recognition: 0.2%/transaction

• Tax: 0.5%/transaction

• Connect: 0.25%/payouts

• Identity: $1.50/verification

• Financial Connections: $0.10/Balances API call

• Atlas: $500 + $100/year

Not only do the additional products increase the take rate Stripe is able to charge, but they also create a more complete ecosystem for business finance. Companies using multiple products may be less likely to switch away from Stripe once its deeply embedded in their operations.

Stripe has also diversified its product suite with higher-margin BaaS (Banking-as-a-Service) offerings aimed at platforms, including Treasury, Issuing, and Capital. Embedded finance (which refers to integrating financial products into non-financial platforms) helps platforms by opening up additional revenue streams, while enabling contextual financial services. In 2022, 9% of Stripe’s revenue came from non-payment products. For Capital, Stripe charges loan fees and platforms can earn a revenue share.

Treasury allows companies to store money using Stripe. When this money is spent on cards issued by Stripe Issuing, Stripe likely monetizes through interchange revenue, as other companies offering card issuing do. Interchange refers to the small fees associated with using payment cards. A portion of this interchange revenue can be shared with the platform. Here’s the breakdown of interchange fees for competitor Marqeta to provide an idea of what Stripe’s take rate could be:

Source: James Ho

Stripe started out as a bottoms-up company without traditional outbound sales. Its focus on the developer experience paid off because purchasing decisions, like picking a payment provider, were increasingly made by developers. One founder put it like this:

Another leg of the company’s grassroots approach is content. It launched Stripe Press in 2018 to publish technological and economic progress books. Stripe also publishes Increment, a magazine about software, owns Indie Hackers, and writes high quality API documentation.

As customers grew, Stripe grew with them. For example, Shopify was an early customer of Connect and is a $51 billion company as of February 2023. After years of organic product-led growth, Stripe created a sales organization in 2016 to further bolster growth. It has moved upmarket over time, reaching 25 customers with over $1 billion in payment volumes in 2019 and 110 in 2022.

Even as Stripe moves upmarket, it still emphasizes serving startups to maintain its product quality. Smaller companies also provide higher margins, which help offset the lower pricing that large customers can negotiate. Stripe benefits from keeping these large customers away from competitors and collecting large volumes of payment data. These data open up cost-cutting and product-improvement opportunities. For example, they serve as training data for fraud detection ML models, they help save Stripe customers over $2.5 billion by optimizing card network requests, and they can inform underwriting for lending products like Stripe Capital.

Stripe has acquired 13 companies as of February 2023. Some of Stripe's acquisitions contributed to product development, as in the graphic below. The company’s acquisition of OpenChannel, announced in December 2021, may have been helpful for launching the Stripe App Marketplace in May 2022. To improve its point-of-sale hardware capabilities, Stripe acquired BBPOS in early 2022. Other acquisitions, like those of PayStack (Africa) and Touchtech (Europe), helped Stripe expand globally.

Source: The Generalist

Stripe has made dozens of investments through its venture capital arm. The company has two main investment criteria. First, the investment must drive forward Stripe’s mission to “grow the GDP of the Internet” and be in a space where Stripe has sufficient expertise. Second, the investment must represent what the company views as a sensible allocation of capital in a great business. As of February 2023, Stripe’s venture capital arm led 27 of 59 funding rounds it participated in.

Stripe has invested in payments companies in other countries, like Rapyd (UK), PayMongo (Philippines), and Safepay (Pakistan). Neobank investments include Monzo (UK), Step (US), and Cuenca (Mexico). A few of the highest-profile US startups Stripe has invested in are Ramp* (corporate card, spend management, bill pay), Check* (embedded payroll), and Pulley (cap table management).

An interesting aspect of Stripe’s investment strategy is that it doesn’t shy away from investing in competitors or potential future competitors. Stripe could end up in direct competition with the international payments companies it invested in. Other examples include Fast, a one-click checkout product that competed with Link before shutting down, and Ramp*, which offers a corporate card.

Stripe processed $640 billion in payments in 2021 and grew by 23% in 2022 to ~$787 billion. Shopify accounted for $197 billion of this. Stripe expects to process over $1 trillion in payments and record a profit in 2023 after a slowdown in revenue growth led to $500 million in cash burn in 2022. The company recorded $14.3 billion in gross revenue in 2022, but gross revenue growth slowed from 60% in 2021 to 27% in 2022. Net revenue grew 25% to $3.2 billion in 2022, with $280 million, or 9%, coming from non-payment products.

Source: Cory Weinberg

Millions of businesses use Stripe for processing payments, and the company added 1.4K customers a day in 2021. Although most are non-enterprise customers, Stripe has been moving upmarket. It increased the number of customers with over $1 billion in payment volumes from 25 in 2019 to 110 in 2022. The company is growing faster internationally than in North America, but ~75% of customers were still in the US in 2022. Its one-click checkout product, Link, has 14 million MAU.

In March 2021, Stripe raised a $600 million Series H round at a $95 billion valuation, bringing its total funding to $2.2 billion. Investors in the round included Fidelity, Sequoia, and Ireland’s National Treasury Management Agency (NTMA). At the time, it was the most valuable venture-backed startup in the US.

Since their 2021 peaks, Adyen is down 50%, PayPal is down 75%, and Block is down 70%. Stripe reduced its internal valuation to $74 billion in July 2022 and followed up with a layoff of 14% of its workforce in November 2022. It slashed its valuation further to $63 billion in January 2023.

As of March 2023, Stripe is trying to raise $6 billion with help from Goldman Sachs at a valuation of $50 billion from existing investors. The money is going toward helping early Stripe employees exercise their restricted stock units before they expire and then toward organizing a tender offer for employees to sell shares.

Only 3% of the world’s companies transact outside their country’s borders as of November 2022. Zooming in on the US, Stripe’s home market, just 1% of SMBs export abroad as of 2017. This could change as technology eases the friction required for international operations.

Stripe contributes to international commerce by supporting payments from 197 countries and a few dozen payment methods. Although this coverage trails some large competitors like Adyen, it leads smaller domestic players such as Razorpay and Xendit. They lack support for relevant payment methods outside their home markets, including Apple Pay, Pix (Brazil), and iDEAL (Netherlands). In comparison to these more limited offerings focused on local markets, Stripe is a better positioned for companies that want to sell globally. This is especially true for SMBs, which competitors like Adyen don’t cater to.

Jeff Bezos has said that the more important question for a business is not “What’s going to change in the next 10 years?” but rather “What’s not going to change in the next 10 years?” When that question is applied to a company’s finances, it becomes clear that companies will likely still need to accept payments from customers. They will also likely still need to pay consumption taxes on their sales, to track revenue in accordance with accounting standards, to reduce losses from fraudsters, and to spend money on business expenses.

Stripe offers products to address all of these essential, enduring use cases on one integrated platform. That positions it to be the financial center of gravity for customers for a long period of time, providing a sticky base as the company explores additional sources of revenue like BaaS and Financial Connections.

Stripe started with a bottoms-up, developer-first mentality that allowed it to piggyback on the growth of startups such as Shopify. The company intends to continue serving startups as it moves upmarket to the enterprise space. It can capitalize on the growth of the next generation of young companies. An important aspect of this strategy is Atlas, which provides a funnel of newly-incorporated startups. Atlas has incorporated 20K young businesses for entrepreneurs in 140+ countries, and those companies may be more likely to turn to Stripe for other use cases in the future. Because Atlas is available in many more countries than other products like Payments, it establishes Stripe’s presence and reputation in those countries, acting as a beachhead for future rollouts.

Given that functionality of payment processors is often similar, differentiation between providers generally occurs through price. As customers grow, they negotiate lower pricing, evident in Adyen’s decreasing take rate. As Stripe moves upmarket, it is likely to experience similar margin compression even as its processing volume increases.

The heavy competition in the space is likely to exacerbate downward pricing pressures. Open banking account-to-account payments threaten to change the payment landscape with lower fees than card payments. Stripe also must invest in keeping up with competitors. Adyen and Square provide more established offerings than Stripe for in-person payments. Some companies are creating integrated solutions for particular customer segments, like Paddle for SaaS businesses. In developing countries, startups such as Razorpay and Xendit have gained traction in their home countries by replicating the Stripe playbook.

At a certain scale, it can make sense for enterprises to build payments in-house for greater control and lower fees. Tech platforms may do this since they have the engineering talent to execute. In addition, platforms process higher volumes of transactions, with card fees eating into each one.

For example, as of March 2023, Toast is a $10 billion software platform for restaurants that handles payments for its customers, capturing $0.77 of every $100 transacted. And, with a market cap of $79 billion as of March 2023, Airbnb has hundreds of engineers working on its internal payments system.

This risk is especially relevant for Stripe, given that Shopify accounted for about 25% of Stripe’s transaction value in 2022. However, Shopify deepened its integration with Stripe through the launch of Shopify Balance.

Payment processing is a key financial infrastructure for businesses, and an increasing proportion of commerce is being transacted online. Stripe offers a developer-friendly, easy-to-integrate solution for startups and SMBs to accept payments on the Internet. The company has expanded its target customers to include global enterprises while serving small companies. It has complemented its core product with fraud detection and financial software while expanding into other areas, such as financial data aggregation and banking-as-a-service—Stripe’s core business benefits from e-commerce growth and a large market. However, the company needs to execute efficiently to compete across its product suite.

*Contrary is an investor in Ramp and Check through one or more affiliates.