Stripe's new bank partners open many more doors into financial services
Stripe’s technology, which enables millions of merchants to easily accept payments online, also provides a window into the broader money-management pain points of the businesses it serves — and it is through this window that Stripe sees a path for growth.
Even before disclosing plans on Thursday to make checking accounts available to businesses through partnerships with a few major banks, Stripe in recent years developed various ancillary payment products, including a payment card various banks can offer, a corporate card currently in pilot and an expense-management tool.
Adding checking accounts, debit cards and other cash-management services for merchants makes sense as a next step.
“If you look at the product portfolio Stripe already has, they’re just completing a product set by adding banking as a service,” said Alenka Grealish, a senior analyst with Celent LLC.
Stripe Treasury enables platforms to embed banking services through Stripe’s APIs through core banking partnerships with Goldman Sachs and Evolve Bank & Trust in the U.S., beginning with business customers on Shopify’s e-commerce platform early next year.
Citibank and Barclays will also work with Stripe to roll out the services, Stripe said. In this way, the fintech becomes a customer acquisition channel for Stripe's partner banks, Stripe co-founder and president John Collison told The Wall Street Journal.
Stripe's reasoning for expanding into B2B banking services is twofold, according to Grealish.
Stripe, facing rising competition from other API-based online payment processors, needs to expand its services to maintain its growth trajectory, and adding banking services now gives merchants a reason to keep their funds within Stripe’s platform.
The payments market is a very competitive arena, and while Stripe has a strong role there, it needs to add services to promote stickiness for merchant customers, Grealish said.
The account Stripe is providing for Shopify customers will be called Shopify Balance Account, with a Shopify Balance Card also available, designed for entrepreneurs, Stripe said.
“Part of what Stripe is offering now could broadly be called accounts receivable, so that when a payment comes in to a participating Shopify merchant in the future, they won’t have to move it elsewhere. It’s no longer in a cul-de-sac within Stripe,” Grealish said.
Stripe also needs the heft of financial services to boost it into a zone where it could possibly launch an IPO, some observers believe. Stripe is currently on track to reach a $100 billion valuation with another round of investments expected on top of strong VC inflows this year.
But Stripe has its work cut out for it if it hopes to replace the role banks play in serving small businesses, Grealish said.
“Small businesses, especially in specific verticals, tend to need high-touch services for handling unique issues around their credit and cash flow, and that’s something that a banking-as-a-service partner might not be able to deliver as well,” Grealish said.
Stripe’s banking services will likely provide convenience, but not the fully rounded services small businesses currently gather from a variety of sources, including local banks and fintechs, she said.
“Stripe is likely to come up against a lot of what we call ‘unhappy customer journeys’ where small businesses—especially those operated by people who aren’t as tech-savvy—and that might be challenging for them,” Grealish said.