Stripe is a financial services company that uses a Software as a Service (SaaS) platform. The company operates from two locations, including San Francisco, US and Dublin, Ireland. Primarily, Stripe offers payment processing software and an application programming interface (API). Its intended customers include e-commerce websites and mobile applications.
Stripe offers similar services to some other payment processing platforms. However, it focuses on providing consumers with more flexibility for the control they have over the process. Through its API, the company allows its users to customize the payment processing process. However, it still needs the Stripe platform to empower this process.
Stripe facilitates online transactions between consumers and businesses. It allows customers to buy a product online and then delivers the paid amount to the seller. Overall, the process is safe and efficient, empowered by Stripe’s platform. Stripe offers both parties the ability to use and process credit cards, debit cards or bank accounts to transfer funds.
The primary objective of the Stripe platform is to provide a payment processing platform. It allows for the seamless transfer of money from a customer’s account to a business account. As mentioned, this money may come from several sources. Therefore, the company focuses on processing payments from multiple sources efficiently and safely.
As a payment processor, Stripe faces competition from various other names. Some may include general competitors, for example, PayPal or Venmo. However, it may also consist of more specific alternatives, for instance, Square. What sets Stripe apart from the competition is its focus on catering to the needs of e-commerce businesses and platforms.
Stripe started its operations in 2009 with its founders Patrick and John Collison. They were Irish brothers who founded the company in Palo Alto, CA. The founders raised capital of $2 million from well-known entrepreneurs Elon Musk, Peter Theil and Liam Casey. These investments allowed the company to boost its operations.
Over the years, Stripe has become one of the most prominent names in the market due to its operations. One of the most crucial factors behind this success is the Stripe business model. Through this model, it is possible to study how Stripe makes money. Before understanding that, however, it is crucial to discuss how Stripe works.
How does Stripe work?
In a nutshell, Stripe is a payment card processing company. It helps businesses conduct online and in-person transactions through its platform. The company uses technology to provide an efficient and simple process. However, it requires merchants to register with its platform first. Without an account on Stripe, they can’t accept credit card payments.
After registering with Stripe, merchants must verify their email address provided for the account. This process doesn’t require any effort or time. The verification link is a click away in the provided email. Once they verify their account, merchants must provide details about their business and bank. This information is crucial for linking the Stripe account to their bank account.
Once completed, merchants can start processing payments with Stripe. However, they must configure their account to do so. Once users provide their details on their account, they will get a “Connect” option which will become active. This feature enables users to know when their account is ready to process credit card payments.
Online payments
The process of connecting Stripe with an online business is straightforward. The platform requires users to connect their e-commerce page with the platform. Customers of the business can then purchase an item through this page and use the “checkout” button to confirm the order. From there, they must enter their credit card information to complete the purchase.
When the purchase gets completed, the page will send the details to Stripe’s platform. Stripe will then verify that the customer has sufficient funds to process the order. Once completed, the platform will send those funds to the merchant’s accounts. It will also include a receipt for both the customer and the merchant.
In-person payments
Stripe doesn’t offer the ability to process online payments. It also allows merchants to process credit card transactions offline or in person. This feature is crucial when businesses have physical locations that serve customers. Stripe offers businesses a Stripe Terminal, which is a point-of-sale terminal to process payments. This terminal has a card reader which reads card details.
The process of using the Stripe Terminal is similar to other payments processing machines. However, this terminal connects with a merchant’s Stripe account. Any transaction that gets processed goes through the same process as for online payments above. The Stripe Terminal ensures that the money gets deposited into the merchant’s bank account.
Recurring payments
Lastly, Stripe also allows merchants to accept recurring payments. This feature is beneficial for businesses that offer a subscription-based product or service. This way, merchants don’t need to charge customers every time or worry about billing. Stripe helps merchants optimize their payment flow and ensure they receive their payments regularly.
What is the Stripe business model?
Stripe is a fintech company that uses technology to provide financial services. The company uses a product business model to offer simple, secure, and fast payment processing for merchants. Its primary service includes its payment processing feature that merchants can link to their websites or applications. Through this feature, businesses can process their transactions seamlessly.
Being an e-commerce platform, Stripe uses a digital business model. However, it also works offline by processing in-person payments. As mentioned, this feature comes through the company’s Stripe Terminal product. This product is a part of the company’s services provided to merchants. However, it does not constitute its primary service.
Stripe’s revenues primarily come from fees it charges for each transaction. This feature is similar to that of a commission-based business model. The company allows merchants to process payments, which include online, in-person, and recurring transactions. Every time a transaction gets processed through the platform, merchants must pay a percentage of the transaction fee.
Apart from these, Stripe also offers various other services. For example, it allows merchants to pay their suppliers and service providers around the globe. Similarly, it has the terminal product, which contributes to its sales. However, Stripe’s business model primarily falls under the fintech and commission-based business models.
How does Stripe make money?
Stripe makes money from various sources. Primarily, the company generates revenues from its payment processing services. As mentioned, this feature includes a commission-based fee that it charges for every transaction. However, several other sources may also contribute to the company’s revenues. The primary income sources for Stripe include the following.
Payment processing
Stripe offers merchants various payment processing-related features. The most prevalent of these include payments received by merchants. For these transactions, the company charges a 2.9% fee and a fixed fee of $0.30. Some additional charges may also exist, for example, 1% for international cards or 1% for instant payments.
Other than that, Stripe also charges a 0.5% recurring charge for its subscription billing service. Its connect product also fetches $2 per account per month with 0.25% and $0.25 for every payout. Similarly, its terminal services provide the ability to process payments in person. For this feature, the company charges a 2.7% fee and a $0.05 charge. Lastly, the company also offers an invoicing service, which fetches 0.4% or 0.5% based on the plan.
Atlas
Stripe also has a service known as Atlas. This service allows merchants to set up and incorporate a startup business within minutes. The company provides the required infrastructure for the business. In exchange, it charges the customers a $500 fee. This fee includes registration charges, corporate tax prep, tax filing fee and a business bank account.
Radar
Radar is a service provided by Stripe, which involves a machine learning-based application. This service allows merchants to filter out fraudulent transactions. For this feature, the company changes 5c per transaction. Although not a significant income, it provides a great opportunity to offer an add-on product that most merchants are likely to want.
Hardware
When it comes to in-person card processing, Stripe offers various hardware equipment to support the process. These also include products such as test cards, connector cables, power adapters, etc. The company’s hardware product ranges from $5 to $299.
Others
Stripe also has various other products and services. Sigma, a warehousing tool for merchants, generates a 0.02 fee per charge and a fixed fee based on the infrastructure. Issuing, another product, provides corporate services to create. Similarly, Stripe Treasury allows merchants to embed financial services in their platforms. The company also makes $1,800 in exchange for offering premium support.
Conclusion
Stripe is a fintech company that offers products and services that allow payment card processing. The company has existed since 2009 and made a name for itself in the industry for its exemplary services. Overall, Stripe’s business model is similar to other fintech companies. However, the company makes money from various sources, as mentioned above.
