Stripe is a fintech business using a product business model to offer fast, simple, secure online purchasing for businesses. Stripe works as a payment processor that can be incorporated into websites and mobile applications. Its payment solution provides technical, fraud prevention and banking infrastructure to facilitate online payments.
Merchants embed Stripes payment solution into their website or app allowing customers to make purchases using their credit or debit cards. The customers’ payment information does not pass through the merchant’s server and is only accessible to Stripe. This removes the risk of fraud for merchants as Stripe takes the responsibility for all payments. Stripe stores customer credit/debit card data on its servers and utilizes tokenization to enable merchants to bill accounts while never having to access the information.
The company charges a flat rate of 2.9% + 30 cents for each transaction – large volume customers can negotiate a discount on this price, but those details are not revealed and are on a case-by-case basis. These rates are the same as rival PayPal and comparable to Klarna. Unlike PayPal, Stripe is only available to business users and does not charge a monthly fee.
Stripe is described as the ‘PayPal for the mobile era’, with a vast list of customers from small businesses to global giants like Amazon and Google, operating in 130 countries. In September 2019, the payment processing company announced its intention to expand into lending and credit.
Brothers Patrick and John Collison founded Stripe in 2010 to provide a simpler solution for taking payments on the web. The company was originally named “/dev/payments” and became Stripe due to a range of difficulties associated with the original name, including how to pronounce it. The business has secured funding from various high-profile private equity investors including Elon Musk and Peter Thiel. The company has received $685m in 9 funding rounds and 2018. Stripe joined the unicorn club (i.e. startup companies that had succeeded in growing and attracting international investments–worth $1 billion or more) in 2014, and now its new evaluation of $ 35.25 billion has surpassed unicorns like Airbnb, Pinterest, and Slack.
Stripes has one customer group: businesses that can range from SMEs to multi-billion-dollar companies (such as Google, Microsoft, Amazon, Uber). All businesses have an e-commerce operation and require fast, simple, secure payments.
Stripe accounts support businesses that receive payments; Stripe does not provide consumer accounts, namely accounts that allow consumers to manage their payments. Indeed, a consumer that use Stripe as an intermediary when they are making an online transaction, are users of the service rather than Stripe’s customers. Their transaction remains on the pages of the business they are purchasing from and most are unaware they are using Stripe’s payments services.
Learn more about the Product Business Model
A dyadic transactional relationship where your good or service can be designed and delivered without prior interactions with the customer.
Engagement — Value Creation Proposition
How Stripe creates value for businesses:
-Providing a payment service that is easy to incorporate in web sites and mobile apps;
-Reducing the risk of fraud as Stripe takes responsibility for payments;
-Removing the need for a merchant receiving payments account in a bank;
-Increasing conversion rates with simple and well-known check-out service.
Delivery — Value Chain
Merchants access the service by creating an account on Stripe’s website. Once the account is created companies can take payments immediately via the online dashboard. The payment platform can be incorporated into mobile applications or websites by adding Stripe’s code into the page or application.
Monetisation — Value Capture
Stripe makes money by charging fees for each transaction, that is comparable to competitors PayPal and Klarna. These fees are for SMEs and the fees charged to larger businesses are negotiated on a case-by-case basis (with volume and value of sales taken into account in the pricing model). In addition, Stripe fees vary by geographic location–for instance, within the “pay-as-you-go” revenue model in the UK, each transaction is charged at 1.4% + 20p for a European card or 2.9% +20 p for a non-European card.
Stripe does not publish details of its revenue but industry sources state that it processed $20billion worth of payments in 2015 with revenue approximated at $450million.
Stripe designs APIs to create the best possible experience for users and now it’s bundled its experience and AI into a new product called Radar 2.0, which allows large businesses to take their fraud protections. The company uses machine learning to power the core of Radar to help businesses to optimize their outcomes. Radar’s algorithms evaluate every transaction for fraud risk and take action appropriately. High risk payments are blocked by default.
Disclaimer — Written by Thomas Murray under the direction of Prof Charles Baden-Fuller, Cass Business School in 2016. Revised and updated by Francesca Hueller under the direction of Prof Charles Baden-Fuller, in 2019. This case is designed to illustrate a business model category. It leverages public sources and is written to further management understanding, and it is not meant to suggest individuals made either correct or incorrect decisions. The information contained here should not be used for investment advice and is simply indicates the individual’s understanding of the company’s business models as of November 2019. © 2019