The digital payment market has been seeing striking growth as many businesses and consumers tend towards choosing online transactions over cash payments. In fact, the online payment market size is expected to reach around USD 154.1 by 2025 whereas it is USD 79.3 billion as of October 2020 as per a report.
Integrating online payment into business was not an easy thing a decade ago as it is today. There were security threats, lack of technology, and too much complexity, but the game had changed with the entry of new payment processors and payment gateways. They both have a long way to go as they facilitate physical and online payments and hence, the market has tough competition.
However, Stripe, one of the most valued fintech companies across the world has been keeping itself the most-preferable payment processor for most businesses and consumers. The company surpassed Square, Adyen and went nearly halfway to PayPal in processing the higher payment volume as of 2019.
Want to know more about this most undervalued company in the Fintech industry? Then let’s jump into the topic. Let us see what Stripe is, how it started, its business model, and how it makes money in this article.
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Short History of Stripe
Stripe is an American SaaS and financial services company founded in 2010. The company is headquartered in San Francisco, California, US and serves in over 120 countries. It is a technology company founded by the Irish brothers to increase the GDP of the internet. Stripe helps millions of companies to manage their business online using their software to accept payments.
The founders, John and Patrick Collison sold their first company, Auctomatic for $5 million in 2008 and became overnight millionaires. The brothers started Stripe in 2010 and named it initially as /dev/payments. The company was first funded by Paul Graham, Y Combinator’s founder as he knew Patrick and his work.
Anyhow it didn’t take any longer for the company to seek funds as investors in Silicon Valley are close to each other. A few investors including Elon Musk and Peter Thiel participated in seed funding and as a result, the company raised $2 million in seed funding. This in turn helped Stripe to kickstart their service towards success. The company processed billions in transaction volume in more than 12 countries by 2014, just four years after its inception.
Today, millions of companies from startups to the world’s largest companies such as Amazon, Google, Microsoft, Spotify, National Geographic, Salesforce, Uber, etc., use Stripe to start, run and scale their businesses.
Okay, enough said! Now let’s get into Stripe Business Model to understand how it makes money.
Stripe Business Model
Being one of the world’s largest and popular fintech companies, it serves millions of companies to manage online payments through its platform. Its mission is to ease the online payment process and help businesses thrive using reliable, flexible, and scalable software so that they can fully focus on their core business. Hence, it offers software products for payments, payouts, and business operations which are discussed below.
Payments
- Payments – A payment platform to accept, process, manage and reconcile payments and reports and has many other features.
- Terminal – It lets you extend Stripe payments to point of sale easily.
- Connect – A tool to facilitate payments for platforms and marketplaces. It helps in onboarding and verifying users, accepting payments, controlling the fund’s flow, and managing your software platform.
- Billing – Supports subscriptions, invoices, any billing model, and accepts recurring payments globally.
Payouts
- Payouts – It helps in paying out fast around the world. The payout can be used to automate payout workflows, offload KYC, or other verification requirements and boost user experience.
- Issuing – Helps in creating their own virtual and physical cards for businesses in the US.
Business Operations
- Radar – Fights fraud using advanced machine learning and protects your business without blocking legitimate customers
- Sigma – A unique software that helps businesses to analyze their Stripe data quickly to improve their business model.
- Atlas – Form a company from anywhere in the world without any lengthy paperwork, bulk fee, and legal complexity.
It is a full-stack provider that helps people launch a business and companies run and scale their business with cloud-based products. The best part is it offers customizable and also ready-to-use applications which is why most developers choose Stripe over its competitors such as PayPal, Square etc.
The company charges for using products and services from businesses for exchange and makes money.
How Stripe Makes Money?
Having said that the company makes money from fees it gains from products and services based on different packages. Say it lets businesses accept payments from the credit, debit, UPI payments, and charges a certain fee for every successful transaction.
Payment Fees
It takes 2.9% and fixed 0.30 cents for every transaction. It charges 1% extra (a 3.9%) for international transactions. Stripe makes the majority of the income from the transaction fee and the remaining from other services.
It charges 0.8% of the total order value when the payment is made using Bitcoin or ACH. Stripe’s payment fee is capped at $5.
Stripe Product’s Revenue
Although it is completely free to start using Stripe, create an account, it charges a certain fee for premium products as a monthly package and a transaction fee for free-to-use products.
Connect
Connect lets you add payments to the platform and doesn’t charge any specific fee for the Standard plan. Whereas in case any business wants Custom or Express plans to use advanced features, the pricing starts at 0.25% of account volume. An additional fee per account fee may also apply.
Billing
This helps you accept and manage any type of billing and grow your recurring revenue. Stripe charges 0.5% on recurring payments.
Payout
Stripe charges 1% of the total payout amount for crediting the amount to the bank account instantly.
Terminal
Stripe offers two types of readers for prices of $59 and $259 respectively. It further charges a 2.7% and fixed 5 cent fee for every payment.
Radar
This is a fraud management software that comes with two plans – Pay As You Go and Enterprise.
It charges 5 cents per screened transaction for Radar’s machine learning. Accounts with standard 2.9% and 30cent pricing are waived off from this fee.
Stripe charges 7 cents for using Radar for Fraud Teams. A 0.4% per transaction is charged for Chargeback Protection.
Sigma
Stripe cuts a 2 cents as fees for using Sigma and it may also charge an extra infrastructure fee.
Atlas
Stripe eases the job of its customers in starting a company and also offers benefits such as free credits from Amazon Web Services, issues stocks/shares to co-founders, etc. It charges a one-time fee of $500 for this service.
Premium Support
Stripe additionally offers Premium Support for fast-growing and complex businesses. It includes faster and prioritized support, personalized optimizations, a dedicated support manager, and emergency support for critical issues. The pricing for Premium Support starts at $1800 per month.
Stripe Funding & Valuation
As said, Stripe is one of the most undervalued fintech companies over the internet and it is valued at $36 billion after the recent Series G funding round held in April 2020. This latest round of funding raised about $250 million and made the company one of the most valuable private companies in the fintech industry. The company has raised nearly $1.6 billion to date from different funding rounds.
The company has processed more than $200 billion in total transactions manually and has surpassed its competitors. However, the annual revenue and profits of the company are kept private.
What’s more interesting is that Stripe didn’t go public to date and its founders have no idea of taking it into public anytime sooner.
Stripe Investments
The first investment of Stripe was Monzo in November 2017. It had participated in three rounds of funding till June 24, 2019, and raised a total of around $144 million in funding for Monzo. Monzo was valued at $2.5 billion after three funding rounds, its valuation almost grew from approximately $350 million to $2.5 billion.
The other investments of the company include Paystack, PayMongo, Step, and Fast.
Bottom Line
This independent company that doesn’t rely on public funding is beating its strong competitors with the help of its brilliant business model. One of its main assets is its mission to help businesses thrive using online payment software and services which is a win-win for its customers and the company.
With its smart business strategies the company is racking up and planning to enter into new markets and products, it serves in over 120 countries currently. This proves that Stripe is making more than enough profits to continue its operations and expand.
