A year ago we broke the news that payment giant Stripe was quietly making its first move into business finance by testing a service for advancing cash to existing customers. Now, nearly 12 months on to the day, the company is finally unveiling an official product: today, starting first in the U.S., it is launching Stripe Capital, a service for advancing cash to customers that in turn gets repaid out of their future sales made through Stripe’s payment platform, with loan amounts and repayments based on the customer’s transaction activity on Stripe itself.
The launch of Stripe Capital is coming at a key time for the company: We understand that Stripe is gearing up for a bigger push to diversify into other financial services, specifically with the launch of its first business credit card product (akin to Brex, from what we understand). The company is holding its Sessions user conference in San Francisco next week, which is likely to bring more product news.
Stripe Capital is being made available both to direct customers of Stripe’s, and to business customers of platforms and marketplaces that use Stripe Connect. (In other words, the platform and marketplace customers will have access to Stripe Capital themselves, and they in turn can also offer Stripe Capital-based cash advances to their customers.)
In an interview, Stripe co-founder and president John Collison noted that the financing for cash advances in both cases was coming via a single banking partner that the company was not making public at this time.
Although loans can potentially stretch into six-figures (no specific limit has been set), he added that Stripe expects the typical amount — based on financing issued so far — to be more in the region of $10,000-$20,000.
As with credit cards, the idea behind Stripe Capital is to give the company’s customers quick (next-day) access to funds to help both with daily liquidity as well as to invest in growth.
Cash advances more generally have been a lucrative area for competitors like PayPal and Square, which have used the service to complement their payments businesses, provide more touch points to customers and diversify revenue streams. (And more competitors are coming around the corner: Kabbage, which makes loans to small businesses, is moving into payments.)
Square in its last quarterly earnings report noted that Square Capital facilitated 78,000 loans totaling $528 million, up 36% over the year before, and that it had overall loaned more than $5 billion across 800,000 loans since the service launched in May 2014. (Indeed, it looks like Square Capital will stick around for a fair bit longer than other business forays, such as Square’s move into food delivery, with Caviar now sold off to DoorDash.)
Stripe is best known for its slick payments platform — by way of a simple API, e-commerce and other businesses can integrate the ability to take payments into a site or an app. That service has helped to catapult the startup from more modest beginnings to a valuation of $22.5 billion earlier this year.
But as it continues to grow and possibly(?) inch closer to a potential public listing — zero comment on that front from Collison this week — it has gradually been diversifying its business, offering companies, for example, incorporation services, fraud management and more. Stripe Capital has something in common with the fraud protection: it’s building on Stripe’s big data analytics and algorithms to intelligently deduce who might be ripe to take a loan, and how much that customer might be able to pay back.
Stripe and companies like it — startups that are disrupting financial services — are also making this move for another reason. More traditional banks are apparently lending less and less money to small businesses, with Stripe claiming that the amount loaned in the last decade declining by half. Tapping into their trove of customer data and systems that are already tightly integrated with their customers’ finances, Stripe is not only stepping in to provide loans, but to do so in a more efficient way than the banks do.
“We use our data to underwrite the loans,” Collison said. “In the past you had to wait weeks or months while a loan officer reviewed an application, but we can see a customer’s historical performance on Stripe and apply our machine learning models to do the work, analysing with no human intervention.”