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Learn all about Stripe and how it works

  • Mallika Rangaiah
  • Oct 28, 2020
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In the present high-tech world, the approach of shopping has taken a complete shift from traditional times. With shopping online becoming a norm,  merchants seek the best medium to receive their money, while consumers seek the easiest and safest approach to carry out their payment.


Long gone are the days when the process of making an online payment used to be complex and complicated and involved various expenses. The concept has been revolutionized with the entry of payment gateway applications that have streamlined the process and made it easier and flawless.  We can easily connect our applications or websites to our banks via these approaches. One such online payment gateway application is Stripe. Among one of the fastest expanding Fintech firms in the world, Stripe has situated its growth and emphasized upon being pegged as the “Internet’s middleman”.  


From placing an order for a Lyft, purchasing those much-needed earphones from Amazon, or booking a room via Expedia, the adoption of Stripe for such transactions has become a part and parcel of our everyday lives. 



How does Stripe work?


Stripe is a platform that develops a variety of financial software products that empower online organizations like Google or Uber to handle and accept payments via the internet. The organization’s payment platform aims at streamlining the procedure of executing transactions online and as a result, propel online growth.  


Stripe terms itself as a full-fledged facilitator of payments software and is primarily constituted of three components. 


  • A cloud-based payments infrastructure

  • A personalized payments platform which empowered organizations to develop customized applications

  • Instant applications for a variety of purposes which includes billing, reporting or prevention of frauds through machine learning


In order to prepare for an effective experience, Stripe facilitates its developers and consumers with wide-ranging documentation. Although the platform has a prompt merchant approval procedure, there is a compulsory 7-day waiting period for each transaction before they can receive their money.  The platform has a collection of products and services which it seeks revenue several of which have been listed here :

Billing: This application enables the Stripe users to invoice their clients, examine present subscription revenues, or develop schedules on when they are supposed to charge consumers. 


Connect: This platform allows the marketplace organizations to carry out payments to their sellers as well as service providers across the globe. The platform’s features constitute a personalized onboarding process for sellers, establishing payout timing, enabling intricate money movement, and receiving unified financial reporting along with various other things. 


Radar: This is a machine learning-based application which enables users to detect fraudulent transactions. In case of any suspicious payment, the algorithms would send a warning and prevent the system from fulfilling the transaction. Since it is directly unified with the platform’s other application, Radar can aid in promptly adopting extensive payment data such as customer information as well as addresses for shipping and billing.  


Terminal: This is equipped with a physical card reader which enables businesses to incorporate payments within the real world.  


The firm offers two kinds of readers, charged at $59 and $259 respectively. Additionally to that, Stripe charges 2.7 % plus 5 cents for each provided payment. The card reader will be directly connected to the other applications of Stripe so that the users can oversee and equate payments.

The image shows the products and services of stripe like radar, sigma, billing, atlas, payments, connect.

The Products and Services of Stripe

Sigma: This is a data warehousing tool that enables users to access transaction information through SQL queries. The users are required to pay a fixed monthly infrastructure fee. 


Atlas: This is a service that enables users to assimilate a business in a matter of minutes. It empowers to form an LLC or C corp, develop a US bank account, issue stocks/shares to co-founders, and access special services for new businesses. 


Premium Support: This facilitates users (ranging from petite startups to large enterprises) to gain viable and technical backing 24/7 and across the globe. This could be supported through email, chat, or phone. 

Recently, the platform has also launched Issuing, which is a platform that white-labeled credit cards for organizations, facilitating a fraction of the fees which it gathers as cash back for its business consumers.


How the idea of Stripe came to be


Brought up in rural Ireland, brothers Patrick and John Collison,  who are the present co-founders of Stripe, had been subjected to the business sphere at a pristine age. Being the offsprings of enterprising parents, it was only innate to begin and operate businesses for the duo. The two even used to develop their own websites and venture with web development during their free time.


At the age of 19 and 17 respectively, the two founded Auctomatic, a business that aimed at solving some of the problems they witnessed with eBay. During the period of a mere 10 months, they developed, funded, introduced, experimented, and sold that firm for a smashing $5 million dollars, which made the duo pretty rich before they had even wrapped up high school.


Upon jokingly concluding that they should set up their own payment service, Patrick and John came across the seed which lay to root to Stripe. 


It wasn’t until late 2009 when the duo began operating on their payment acceptance service, dropped out of school, and headed to Buenos Aires to work on it full-time. 


Initially, the start-up had been named /Dev/Payments. But since the name was too complicated to properly pronounce and created confusion amongst both the employees and clients, the firm finally altered the name to Stripe.


Business Model of Stripe


Stripe’s business model is primarily concentrated on charging customers a fixed and variable fee for each favorable payment. Various other revenue sources incorporate company incorporation services for new businesses, fees on premium backing, or access to particular software products. The platform gains money mainly by collecting a cut on each successful payment that the firm executes. The firm adopts varying price packages on the basis of chosen products.


For each favorable transaction, a 2.9 % alongside a 0.30 cent fixed fee is activated. In the case of international transfers, 1 % percent is added on (to a total of 3.9 %).


Aside from the transaction fees on payments, which constitutes a major part of Stripe’s revenue, the platform has a whole collection of various other products and services upon which it has monetized.


Recent Growth of Stripe


During the recent pandemic times, Stripe has been the recipient of massive demand for payment services since many businesses have been compelled to operate online and various renowned firms have consistently begun chasing sales online. 


“People who never dreamt of using the internet to see the doctor or buy groceries are now doing so out of necessity. And businesses that deferred moving online or had no reason to operate online have made the leap practically overnight. We believe now is not the time to pull back, but to invest even more heavily in Stripe’s platform.” 

- John Collison, co-founder, and president of Stripe


Alongside Stripe in itself, a number of its customers have also seen rapid progress during the COVID19 pandemic. For instance, Zoom, which is one of the new Stripe customers this year, witnessed a high degree of surge over the adoption of its platform amidst the period between December and March, as claimed by the company. Instacart saw a 300% increase in customer demand year-over-year, while Slack, which is another customer of the platform, observed an 80% escalation in paid customers this quarter. 


Apart from payments Stripe has also been heading towards fresh finance areas. In the month of November, the firm declared the introduction of a lending arm termed Stripe Capital. This fresh venture has been launched to aid online firms in borrowing money to expand their businesses, which would consequently aid Stripe’s business. 


The company’s Stripe Atlas platform, which is adapted for establishing and registering a startup, witnessed a 220% rise in new businesses being registered in April compared to the last year. 


The firm recently announced a Negative Emissions Commitment, under which it vowed a minimum $1 million per year to pay for the direct eradication of carbon dioxide from the atmosphere and its sequestration in secure long-term storage. The platform is also backing FastGrants.org, an American charity that supports researchers and entrepreneurs who are operating on Covid-related projects.


Recently around the end of September Stripe had declared its plans to partner with the customer relationship management (CRM) giant Salesforce. The platform claims that it will be processing payments for the new service of the giant. Stripe will be powering Commerce Cloud Payments for Salesforce’s new enterprise-customer suite, Digital 360 platform.


The firm has also dismissed the recent rumors of it becoming a public company and declared that it has no plans of going public so far and is in no hurry to do so. 



Funding Rounds


In their first seeding round which occurred around June 2010, Stripe had raised an extensive sum of investment from the American seed money startup accelerator Y Combinator.  


The next year around the month of May the platform raised around a $2 million investment from Sequoia Capital, Peter Thiel as well as Andreessen Horowitz. In the same year, the platform carried out in-depth private beta testing before declaring its decision of going public.


In the second month of February 2012, Stripe raised another $18 million infusions, primarily from Sequoia Capital as Series-A infusion, after an evaluation of almost $100 million. In the same year, the firm received a Series-B infusion of around $20 million from Sequoia Capital, General Catalyst, Peter Thiel, Aaron Levie, Chris Dixon as well as Redpoint Ventures.


Large sums of funds have been raised by the platform through varying investment platforms such as the Founders Fund, Thrive Capital, Capital G, General Catalyst, Tiger Global Management, and Andersen Horowitz.


The latest funding received by the company was a sum of $600M, which was received in the month of April 2020. It was a combined infusion on behalf of Sequoia Capital, General Catalyst, GV, and Andersen Horowitz. After this funding, the San Francisco-based firm’s valuation has reached $36 million, as confirmed by CNBC





Stripe has definitely created a thriving community of developers that have developed a collection of champions specializing in the platform. When we perceive the comprehensive growth of the e-commerce sector and the eagerness of the platform to facilitate more leading and competent online payment gateway services, the company holds the promise of witnessing a great degree of growth in the near future. 

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