Stripe brands itself as the payment processing platform for the internet. That’s a broad and ambitious mission, but it’s one that the company is well on its way to achieving. Two Irish brothers, Patrick and John Collison, started Stripe in 2010 after selling their previous startup, Auctomatic, to live auction site Live Current Media for $5 million.
The duo developed Stripe to make it easy for anyone to accept payments online. The company develops application programming interfaces (APIs) that businesses can use to integrate Stripe’s payment processing capabilities into their websites and mobile applications. And it’s working: Stripe is now the payment processing platform of choice for many of the internet’s most popular businesses, including Amazon, Airbnb, and Lyft.
However, the payments processing industry is highly competitive. It’s no surprise Stripe is always on the lookout for new ways to make money. The primary source of revenue for Stripe is payment processing fees. Here’s a more detailed breakdown of the Stripe business model.
Bottom Line Up Front
Stripe makes money from charging businesses a commission on each transaction processed through its platform. Its main revenue source is payment processing fees, which it charges at a rate of 2.9% + $0.30 per transaction. The company also generates revenue from other sources, like Stripe Atlas, Radar, Sigma, and Connect.
How Does Stripe Work?
Stripe works by allowing businesses to accept payments online, in-app, and in person. It’s a full-stack payment software comprising a cloud-based payments infrastructure, ready-made applications, and customizable tools. The company developed these software solutions to make it easy for businesses of all sizes to accept and process payments online.
The key components of Stripe’s platform are its APIs, which businesses can use to integrate Stripe’s payment processing capabilities into their websites or mobile apps. Stripe also offers a suite of ready-made applications, such as Billing and Sigma, which businesses can use to automate their payment processing operations.
The company provides extensive documentation for clients wanting to develop Stripe-integrated solutions. This documentation includes code samples, best practices guides, and other resources. Clients can also work with one of Stripe’s many partner agencies, which specialize in developing custom payment solutions.
Stripe Business Model: How Stripe Makes Money
Stripe uses a transaction-based pricing model, which charges a fee for each payment processed through its platform. These transactions are mainly between a customer and vendor but can also include other payments, such as those made to Stripe for services or products. The company takes a percentage and a fixed fee from each transaction, depending on the type of package selected.
Below is a detailed breakdown of the different Stripe revenue streams:
1. Payment Processing Fees
Payment processing fees are the primary source of revenue for Stripe. These are fees charged for each successful transaction processed through the Stripe platform. The following are the central payment processing products offered by Stripe:
- Payments: Payments is the most popular Stripe product. Most businesses use it to accept and process online payments. The company charges a 2.9% + $0.30 fee for each transaction processed through Payments. It charges an additional 1% fee for transactions made in a foreign currency, 1% when converting to a local currency, and 1% for instant payout volume.
- Billing: Billing helps businesses automate their recurring billing and invoicing. It offers features such as order acceptance, bill management, revenue optimization, analytics and reporting, and more. The company has two plans for the Billing product: Starter plan, where it charges 0.5% on recurring payments; and Scale, where it charges 0.8% on recurring payments and one-time invoice payments.
- Invoicing: The Invoicing product helps businesses send and manage invoices. It offers automated reminders, automatic payments, and online invoicing. The invoicing plan comes in two: the Starter and the Plus. Stripe charges 0.4% per paid invoice, while the plus plan costs 0.5% per paid invoice.
- Terminal: Stripe terminal allows users to build their own checkout experience and in-person process payments. It cuts 2.7% + $0.05 for every successful card transaction. The company charges an extra 1% for international cards and 1% for the required currency conversion. Pre-certified card readers are also available for purchase on the website.
- Connect: Connect is Stripe’s solution for marketplaces and platforms. It has three plans: Standard, Express, and Custom. No fees apply to the standard plan. Express and Custom accounts charge $2 per monthly active account and 0.25% + $0.25 per payout sent.
Radar is Stripe’s fraud prevention tool. It uses machine learning trained with billions of data points from Stripe’s network to identify and prevent fraud automatically. The Radar machine learning plan starts at $0.05 per screened transaction, while the radar fraud teams plan costs $0.07 per screened transaction.
Atlas is a product that helps companies incorporate in the United States and open a U.S. bank account. Stripe incorporates businesses in Delaware and provides a U.S. mailing address. The company also helps with tax filing, licensing, and compliance. It also helps integrate the business with Stripe’s payments infrastructure and provides a dashboard to manage the business. Users have to pay a one-time $500 fee to use Atlas.
Sigma is a product that allows users to create and run SQL queries on Stripe data. It offers instant results, ad-hoc exploration, and collaboration features. Businesses use Sigma to analyze their Stripe data and make data-driven decisions. Sigma bases its pricing on usage. For instance, for every 0 to 500 charges, there’s a $0.02 fee for every charge.
5. Data Pipeline
The stripe data pipeline allows businesses to export and query data in real-time. Users can export Stripe data to Amazon Redshift or Snowflake. The company charges $0.03 per transaction for the data pipeline product.
Issuing is a financial service that allows companies to create and manage virtual and physical cards. Users can design and brand their cards, set spending limits, and track expenses. The company charges $1 per month for every active card. Stripe charges $0.10 per virtual card, $3 per physical card, $15 per lost dispute, and 1% + $0.30 for cross border transactions.
8. Premium Support
Stripe offers 24/7 email and phone support for its users. Premium support is available for businesses that need help with integration, account management, and reporting. The company provides 24/7 technical and operational support for businesses on its premium support plan. The premium support plan starts at $1800 per month, depending on the company’s size.
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Stripe’s Financial Overview
Stripe’s popularity directly translates to its financials. The company’s last valuation was $95 billion after raising $600 million in a Series H funding round in March 2021. This funding made it the most valuable venture-backed private company in the U.S. It also made it the third most valuable company globally.
Stripe has gone through 20 rounds of funding, raising $2.3 billion as per Crunchbase. In 2011, it raised $2 million in a seed funding round from Sequoia Capital, Andreessen Horowitz, and other angels, including PayPal founders Peter Thiel and Elon Musk. Backing by such big names helped it gain traction in the early days.
Although it doesn’t publicly disclose its financials, data from CB Insights suggests the company made $7.4 billion in 2020 revenue, up from $2 billion in 2019. Other sources close to its business say the company made $12 billion in 2021 revenue, a 60% jump from the previous year. Perhaps the most significant indicator of its success is that it now powers payments for some of the world’s biggest companies, including Amazon, Facebook, Google, and Microsoft.
According to a Stripe update report in April 2021, the company revealed it processed more than $640 billion in 2021, up 60% from 2020. We can’t independently verify these numbers, but they give you a sense of the company’s growth. However, the effects of the 2020 coronavirus pandemic took a toll on Stripe’s business.
In July 2022, Sources told the Wall Street Journal that the company was taking a 28% internal valuation cut. That’s from $40 to $29, meaning the value of those shares is now about $74 billion. The move to devalue the internal shares was primarily due to rising interest rates and fears that discretionary spending would decrease in a recession.
Although the devaluation is unlikely to affect Stripe’s top line, it’s still a significant hit to employee morale and confidence in the company. Looking forward, analysts expect Stripe to go public in 2022 through a direct listing rather than a traditional IPO. The move would make Stripe one of the most anticipated tech IPOs in recent years.
Stripes Business Model Canvas
Below is a detailed explanation of the Stripe business model canvas:
The problem that Stripe solves is that businesses have a difficult time accepting payments and managing their money. The company makes it easy for businesses to take payments and access their money. When a business uses Stripe, it can take customer payments via credit card, debit card, or bank transfer. The company also offers other products to help businesses with their finances.
2. Customer Segments
Stripe’s customer segments include small businesses, big businesses, and e-commerce platforms. It targets startups, developers, merchants, platforms, and enterprises. The company has many customers, from one-time users to large businesses that process billions of dollars in monthly payments.
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3. Value Proposition
Ensuring businesses can take payments and access their money is valuable. The company offers a fast, secure, and easy-to-use platform. Its pricing model is easy to understand, and it doesn’t have long-term contracts. If a business wants to use Stripe, it can start and stop anytime.
Stripe’s channels include its website, integrators, APIs, and word of mouth. The company’s website is the primary way it acquires new customers. It also integrates with popular software platforms, such as Shopify and WordPress. Its APIs allow businesses to integrate Stripe into their websites and apps. The company also relies on word of mouth to acquire new customers.
5. Customer Relationships
Stripe has a few different types of customer relationships. The first is self-service, when customers sign up and use the platform independently. The second is assisted service when Stripe provides support to customers who need help using the platform. The third type of relationship is full-service when Stripe manages everything for the customer.
6. Revenue Streams
Stripe’s primary revenue stream is transaction fees. The company charges a percentage and fixed fee for every transaction. The company also offers other products that contribute to its top lines, such as Sigma and Connect.
7. Key Partners
Stripe’s key partners include banks, credit card companies, and software platforms. The company has partnerships with major banks, such as Chase, Citibank, and Wells Fargo. It also has partnerships with major credit card companies, such as Visa, MasterCard, and American Express. These deals allow it to reach a wider audience and expand its customer base.
8. Key Activities
Stripe’s key activities include building its platform, integrating with software platforms, and acquiring new customers. The company spends a lot of time and resources on building its platform. It also integrates with popular software platforms, such as Shopify and WordPress.
9. Cost Structure
The company’s cost structure involves the costs of building and maintaining its platform, acquiring new customers, and processing payments. The company has to spend money on servers and other infrastructure to keep its platform running. It also spends money on marketing to acquire new customers. Processing payments also incur costs, such as credit card fees.
10. Key Resources
Stripe’s essential resources are its team of engineers, salespeople, and customer support representatives. Its proprietary software platform is also a critical resource. The company has invested heavily in its technology, which sets it apart from its competitors.
Stripe’s SWOT Analysis
The following are the strengths, weaknesses, opportunities, and threats of Stripe:
- A strong engineering team that has built a robust platform
- Good reputation for security and reliability
- Easy to use platform with simple pricing
- Flexible payment options (credit card, debit card, bank transfer)
- Extensive clientele, including many major brands
- Strong brand awareness
- Dependence on major credit card companies and banks
- Lack of brick-and-mortar locations
- High costs per transaction
- Direct listing on stock exchanges
- Expansion into new markets, such as Asia and Latin America
- The continued growth of e-commerce
- Increase product development
- Increased regulation of the financial industry
- The rise of competitors, such as Square and PayPal
- The global economic downturn
Stripe Business Model Explained (FAQs)
Question: Is stripe B2B or B2C?
Answer: Stripe is a B2B company because it offers its services to businesses. For instance, it provides payment processing services to e-commerce companies like Shopify. When a customer purchases from Shopify, Stripe processes payments and transfers the funds to Shopify.
Question: Who are Stripe’s biggest customers?
Answer: Thousands of companies use Stripe’s payment processing services, including major brands like Amazon, Facebook, Google, and Uber. More recent Stripe customers include Lyft, Airbnb, Glossier, and Slack. Through its partnerships with software platforms, such as Shopify and WordPress, Stripe gained many small businesses as customers.
Question: Who are Stripe’s competitors?
Answer: Stripe’s competitors are other companies that offer payment processing services, such as Square and PayPal. In addition, Stripe competes with traditional financial institutions, such as banks and credit card companies. Other major players in the industry include WePay, Stax, 2Checkout, Adyen, and Braintree.
Stripe makes money by charging businesses a fee for processing payments. It has different products with varied pricing structures. However, its main source of revenue is payment processing. Other revenue sources include Radar, a fraud detection product; Atlas, a tool for incorporation; Sigma, an analytics product; and Connect, an API for developers.
I believe you can better understand how the company makes money from this Stripe’s business model explanation. If you have a similar business, you can learn from Stripe’s example and create a business model that works for you. And if you’re thinking of investing in Stripe, this article can give you a better idea of the company’s financials and how it makes money.