In the ever-evolving world of digital payments, one company stands out as a force to be reckoned with: Stripe.
With its ubiquitous presence and seamless transaction processing, it's hard not to wonder how this fintech giant generates substantial revenue.
Scroll down for a deep dive into how Stripe's money-making machine works, keeping it at the forefront of the global payments industry.
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What does Stripe do?
Stripe offers a pay-as-you-go payment processing platform. Merchants accepting payment online through Stripe pay 2.9% plus 30 cents for each transaction, while those accepting in-person payments have to pay 2.7% plus 5 cents.
Stripe users do not pay monthly or annual fees.conversion-optimized
How does Stripe work?
Stripe handles the steps between customers giving their card information and being informed that their payment has been processed successfully.
Stripe effectively serves as the merchant, and the business owner becomes a submerchant. For this reason, Stripe users do not have to set up a dedicated merchant account, saving time and hassle.
Earnings payouts are usually processed within two business days of the transaction date. Businesses can also schedule daily, weekly, or monthly deposits.
How Stripe makes money
Stripe makes money by charging merchants for facilitating each transaction. Fees charged can vary by the type of transaction. Stripe has brought in an extra fee on manually keyed-in transactions and earns currency conversion fees for accepting payments.
- Payment processing for online payments
- Billing for subscriptions and recurring payments
- Terminal for in-person and omnichannel payments
Stripe Connect helps route payments between multiple parties and is designed for platforms and marketplaces.
Strip offers a whole suite of prebuilt components to set up a sales website quickly from anywhere in the world.
- Payment Links for no-code payments
- Checkout is for prebuilt, Stripe-hosted checkout pages that are conversion-optimized
- Elements provides customers a way to create pixel-perfect checkout flows with prebuilt UI components for secure frontends
Stripe provides an ecosystem of services for businesses to improve and enhance their business productivity and operations.
- Radar is for fraud and risk management
- Sigma offers custom reports
- Stripe Climate offers its customers an opportunity to opt-in and contribute a percentage of their revenues automatically towards permanent carbon removal technologies (rather than carbon offsets)
- Stripe Atlas enables entrepreneurs to set up companies quickly
- Startup incorporation is another service offered by Stripe to entrepreneurs
- Stripe Identity helps confirm user identity of global users for fraud prevention and streamlines risk operations to increase trust and safety
- Stripe Tax provides features for automatic tax calculation
To cater to the financial service needs of its customers Stripe offers a range of financial services.
- Card creation services, issuing branded cards on behalf of customers
- Stripe Capital, for business financing (like Shopify Capital)
This approach has helped Stripe increase and expand its customer base. Stripe has increased its revenues by strategically cross-selling services that cater directly to the needs of its customer base.
Offering such a large portfolio of services in one place makes Stripe even more attractive to both large and small, and medium-sized customers.
Here are the main ways Stripe makes money.
Fees on online and in-person transactions
Merchants pay 2.9% plus 30 cents for online transactions and 2.7% plus 5 cents for in-person transactions made via Stripe terminals.
From 2022 November, Stripe raised its fees an extra 0.5% — that is 3.4% compared to 2.9% — for manually entered transactions.
Currency conversion fees
Stripe charges currency conversion fees at 3.9% plus 30 cents for international cards.
Bank transaction fees
Stripe charges Bank transaction fees for cheques, ACH credit, ACH debit, and wire transfers.
Additional fees that may apply to card payments, digital wallet use, and for bank transactions through Stripe, may include the following:
- Additional percentage fee on international cards
- An extra percentage for currency conversion on international cards, where necessary
- Fees for failed and disputed ACH direct debit transactions
- A fee on disputed card transactions
- A fee on bounced or returned cheques
Future growth engine
When businesses and consumers moved online during the COVID-19 pandemic, it helped Stripe and drove its revenues to $7.4 billion, a 70% increase over 2019.
To grow its customer base and increase revenues from the existing customer base, Stripe has resorted to both horizontal and vertical integration efforts. In 2021 alone, Stripe invested around $1.1 billion in 14 companies.
Stripe has an extensive portfolio of products and services that strategically integrate a host of services their customers need.
On the one hand, this approach has helped Stripe increase and expand its customer base. At the same time, Stripe has increased its revenues by strategically cross-selling and upselling services that cater directly to the needs of its existing customers.
Offering such a large portfolio of services in one place makes Stripe even more attractive to startup, small, medium, and large customers.
Building a portfolio of products their typical customers need and offering them all in one place has been a winning strategy for Stripe. We expect it to continue along this path into the future.
Stripe alternatives and competitors include Square, Elavon, and PayPal.
Square is a payment processing and POS platform with an affordable fee structure for small businesses.
PayPal has a simple fee structure of 2.29% + 9 cents for each transaction. It has an easy-to-use customer interface that does not require a merchant account. It enables you to get started with a personal credit card or debit card. PayPal's extras include the ability to send invoices and setting up recurring payments. Businesses that need a POS system or a card reader can get it from PayPal Zettle.
Helcim is considered the best budget-friendly alternative to Stripe. It combines attractive transaction rates and no monthly payment fees, or fees for setup, cancellation, or deposits.
Elavon works best for businesses with omni-channel payment processing and can accommodate online sales, in-person sales, and sales via a mobile app. As an affiliate of U.S. Bancorp, Elavon customers can access funding options unavailable with other payment processors.