When digital payments company Stripe announced last week that it would allow customers of other payments processors to use its embedded financial tools, its move was part of a larger industry shift toward customer choice in financial services, according to analysts.

“This strategy aligns with what we are seeing in the fintech landscape at large – businesses increasingly demanding flexibility,” QED Investors Partner Laura Bock said in a Monday email. “The future winners in payments will support platforms in customizing the way they build their payments businesses.”

That customer demand for à la carte financial products was echoed by Mizuho Securities Senior Associate Ryan Coyne. “Oftentimes, customers want to use some of the products on their own,” he said in an interview last Friday. “Rather than turning them away, now, Stripe is basically casting a wider net, and they're bringing these customers on to take on some of their other value added services.”

Stripe, which is dual-headquartered in San Francisco and Dublin, made three of its embedded products, including its online checkout suite, billing services, and fraud protection, available last Wednesday to companies processing payments with rival payments providers, according to a post on the company’s website.  

“This is particularly relevant for large enterprises that were unable to take advantage of Stripe’s product suite without breaching other long-term contract commitments,” the post said. 

Bock called the move both “smart” and “a significant change” for the digital payments giant. “They will need to evolve to support this decoupled model because, historically, customers were forced to operate within their guardrails,” she said.

With the guardrails gone, Stripe could face a world in which its current payments customers choose to go to a rival such as PayPal or Adyen. But the company is well-positioned to compete on the price of payments processing after it gained the ability to process payments on its own, according to Cliff Gray, an industry consultant affiliated with The Strawhecker Group.

Stripe previously had to send payments to rival Fiserv’s First Data for processing, but now the company can process transactions on its own, Gray said in an interview last Thursday. “They eliminated a cost to doing business, a big one. And so they can compete with virtually anybody on price for just straight up payments.”

As for Stripe’s embedded payment services, they are ready to stand on their own, according to Coyne. 

“Stripe has done a really good job in developing a lot of these ancillary products,” Coyne said. “And so they're now confident enough that they can lead with those products, and then potentially win some more businesses over time.”

Offering those other services to larger clients has potential financial benefits to Stripe, according to Coyne. “Some of these other value added services are higher margin than just payments,” he said.

But that doesn’t mean Stripe is poised to eliminate rivals like PayPal and Adyen, according to Milan Miric, an associate professor at the University of Southern California’s Marshall School of Business. He sees a future payments world with a “handful of providers,” each with different specialities.

With Stripe, “you have better information about the consumers,” Miric said in an interview last Friday. “So you can imagine that's Stripe’s area. That's how they're differentiated in relation to everybody.” 

When asked about the decision to decouple embedded financial services from payment processing, a company spokesperson referred to remarks made by Will Gaybrick, Stripe’s president of product and business, during the opening keynote of Stripe’s annual conference, which took place from last month.

“We do want you to use Stripe for payments processing,” Gaybrick said during the keynote, adding that the company’s goal was to win customers based on the quality of its payments offering and “not because you’ve been technologically coerced by Stripe’s payments adjacent services.”

By James Pothen on May 1, 2024
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