Has Stripe Lost its Focus on Merchant Processing? 


December 8, 2021

Stripe has been considered a pre-eminent merchant payment processor practically since the company was publicly launched in September 2011. However, recent news suggests the company may be focusing more and more on its Cash App, which helps users trade in stocks and Bitcoin, and its loans business.

This new concentration for the company may mean that some of Stripe’s merchant customers are up for grabs in the near future. Payfacs looking to grow their base of merchants should pay attention to how Stripe is currently positioning itself, and rethink their merchant acquiring strategy.

A report on Digital Transactions notes that although the company’s reputation has largely been built as a provider for “mom-and-pop” merchants, the consumer side of its business is now contributing more revenue to Stripe’s bottom line. The first quarter of 2021 saw gross profits from Cash App rise to $495 million, a growth rate of 171 percent.

In fact, this is the first time that Stripe has brought in more gross revenue from Cash App than from the seller side of its business. Stripe logged gross revenues of $468 million from sellers in the first quarter of 2021, a growth rate of 32 percent compared to the first quarter of 2020.


Stripe is Beginning to Target Big Fish Only

Stripe’s latest activity strongly indicates that the company is beginning to target big fish only, leaving the smaller fish flailing out of water.

Although Stripe’s merchant processing revenue rose in Q1 of 2021, it is likely that much of that came from large merchants and not smaller ones they’re originally known for supporting. As noted by Digital Transactions, “An influx of larger merchants helped drive first-quarter payment volume for Square Inc.”

The gross payment volume from sellers using Stripe came to $29.8 billion in the first quarter, a rise of 21 percent from the previous year. On the surface, it looks like more merchants are processing more payments through Stripe than ever before. However, much of that increased volume came from merchants doing at least $125,000 annually. Those merchants saw their share grow to 61 percent. It was 54 percent just one year before.

Smaller merchants, on the other hand, didn’t see similar gains or, indeed, any gains at all! Their share has stayed relatively consistent at $11.6 billion.

In terms of revenue, there’s no arguing that Stripe is off to an incredible start in 2021. Cash App alone has generated revenues of $4.04 billion in the first quarter, but most of that revenue came from a rise in the value of Bitcoin. This suggests that Stripe is posting most of their revenue in an equities position, rather than driving in new sales revenue.

Bitcoin and other cryptocurrencies are technically a medium of exchange, but there is little impetus among merchants to treat it that way. Cameron Bready, president of Global Payments, explicitly referenced this in a recent earnings call with investors.

“There’s really zero demand among our merchants to accept crypto. Crypto is really not a currency for commerce. It’s a security,” he said.


Are mom-and-pop merchants being left behind?

Stripe may be putting too many eggs in one basket by focusing so much of its business on Cash App and Bitcoin. While their merchant base has grown as we stated above, much of that growth seems to come from larger merchants, leaving behind Stripe’s traditional “mom-and-pop” customer base.

This could lead to an opportunity for leaner and more nimble payfacs to start scooping up disgruntled customers. And, to compete with a Stripe-like onboarding process, payfacs must provide merchants with a frictionless application and onboarding process if these opportunities are to be taken advantage of.


Aligning Your Payfac With Merchant Needs

The greatest cause of friction during onboarding originates in the underwriting process. Merchants don’t want to take weeks or even days to start accepting payments – they want to start processing immediately, if not sooner. This is where your goals must align, as you want them processing payments quickly as well.

Naturally, you can’t operate without underwriting, but there are ways to grow revenue, speed up underwriting by taking friction out of the process, and onboard more merchants faster, all without increasing your risk levels.

Automating tedious, manual processes is the key to unlocking a frictionless process. Using a configurable risk scorecard, like Merchant ScanXpress, allows you to automate a large part of the underwriter’s burden, freeing up their time to spend it on cases where their expertise is truly needed. As the solution is configurable, you can set it to use the exact risk profile that suits your business. In essence, you’re doing what you would normally do, just much, much faster and more accurately.

For more information on how Agreement Express can help you process more merchant applications and grow your revenue, connect with us here.