Stripe pretty much takes payment processing kicking and screaming into 2011. Merchant accounts are a serious drag. I've opened a few and they've been nothing but headaches (especially if you're young—nobody trusts you.) Couple that with getting a gateway account, dealing with credit checks, monthly fees, monthly minimums, slow people in the payments industry, PCI compliance...
Stripe takes payments and put them behind a simple API. No crappiness and 1099 rules of PayPal. No more reconsidering the meaning of life like back when I had a merchant account. The only downside I see is the 7-day rolling batch (deposit to bank), versus the nightly batch from the merchant account, though I assume that is for fraud protection.
Maybe if you're charging millions of dollars, you should use a regular merchant account. If you aren't, I'm telling you now: don't even bother with a merchant account. Just use Stripe.
It would be great as a starting point to be able to charge in currency other than USD, I suppose that should be easier to set-up than accepting non-US based merchants. There are a lot of non-US people like me that have a SSN and US bank account from past US experiences that can already use Stripe in their home countries. But marketing a product in Italy with a price in USD won't cut it!
Too hard or not - it's a critical feature. They can lure me with the most advanced APIs and super low fees. If they can't treat international customers (on the consumer side at least) like domestic ones then it's a deal breaker.
There are enough alternatives that have support for things like the Euro. They maybe don't have a fancy API but they work well enough and I can accept credit card payments from Uzbekistan in their local currency.
Then there's the part where they only accept US developers. While I can understand that again there's enough alternatives (FastSpring for example) who don't mistrust me because I'm living in the EU and will do payment processing for me.
I understand they wanted to launch ASAP with a MVP but maybe they cut down the wrong features. For me they are now another lazy payment processor who won't accept international customers and they will have to do some work to get rid of that stigma.
> Maybe if you're charging millions of dollars, you should use a regular merchant account.
You should probably still use Stripe in this case. (Some people already are.) We scale up pretty well. Everything that you get with a merchant account (correct statement text, money held in your name), you get with Stripe.
Additionally, there are some advantages for large businesses that would make Stripe more attractive than a merchant account: transfer reporting and detailed reconciliation tools make a big difference to people doing high throughput.
We scale up pretty well. Everything that you get with a merchant account (correct statement text, money held in your name), you get with Stripe.
Key scaling issue is pricing. 2.9% is fine for low volumes and no risk validation, but once you're turning over large volumes and have a track record of no chargebacks etc the comparison looks much worse. If you can offer businesses a pricing that 'scales' with substantial reductions in transaction fee by volume then there is a growth path, otherwise any business would be crazy to stick with you no matter how good your service and APIs, etc because 2.9% could be half their gross margin and they can get 1% by dealing with the bank direct.
I really like your idea of "pricing that scales." However, I feel the need to point out that no one can get a 1% rate on eCommerce transactions from their bank or anyone else. Interchange rates (cost) from Visa and MasterCard range from 1.71% + $.15 all the way up to 3.06% + $.10. Having said that, you're right about larger businesses finding Stripe's rates unpalatable. Maybe they're just trying to become the Square of eCommerce - which might not be a bad idea.
However, I feel the need to point out that no one can get a 1% rate on eCommerce transactions from their bank or anyone else.
I didn't mention 1% as idle guesswork, I have direct knowledge of several businesses paying close to 1% on online (card not present, no signature) transactions. I'm not saying its easy to negotiate good rates, but its possible, even for fairly early stage startups. I got 1.6% for a startup turning over only about $20k per month, no track record and 'non standard' business model.
So feel free to push your bank, get quotes from their competitors, they can almost certainly do better for you.
EDIT: I just notice that stripe is planning to introduce volume discounts - that would make a very nice product!
I'm not sure how to say this politely, but I think that you are mistaken. Perhaps you are not including some relatively high monthly fees? Perhaps you are not accepting all major cards? Maybe you are including a large percentage of debit cards? Maybe all your transactions qualify for some particular promotional rate?
I do about that volume, mostly card present, and think I have decent rates. I think I'm at Interchange plus .2% plus 1 cent per transaction plus $20 per month, and end up around 2.7% for total fees. I'm sure one can do better, but not by a lot. I'm willing to bet a considerable sum that you are not actually paying 1.6 percent once it's all added up. But if somehow you are, the loss of the bet would pay back quickly if I could get those rates myself!
How do you handle situations in which you can't tell if someone is legitimately undergoing hyper-growth or committing fraud? In a prior startup, I had my funds held indefinitely by PayPal and 3 separate merchant banks because our rapid growth made them suspect us of fraud or perhaps that our business was just too risky because our numbers were changing so rapidly. Our ultimate solution was to engage a merchant bank that specialized in sight-unseen, no swipe/no sig transactions that we could meet with face-to-face.
There's no simple thing I can say here. There are situations where withholding funds might be required, but they should be exceedingly rare. In other words, we're hoping to eliminate false positives.
In general, we're a tech company and we're looking for technical solutions to problems. We're also just culturally familiar with startups that explode in popularity, so we aren't worried about that kind of behavior.
You may want to seriously consider working on fleshing out this plan now. Paypal supposedly has thousands of people working in fraud control.
When word gets out that Stripe makes it "dead simple" to process credit cards without a merchant account, the vampires will come out to play. And I'm truly excited for a service like yours. We need this. But be prepared.
PayPal isn't just a payments processor, so they have many more fraud scenarios to worry about than Stripe.
You can't use Stripe unless you have a bank account set up to receive funds, and you can't use Stripe to pay for things -- i.e., you can't launder fraudulent money by buying a ton of stuff online and having it shipped to an abandoned house.
In Stripe there's a very simple money trail, plus there's a week's delay before your charges are transferred into your account... which makes it tricky if you're hoping to run up lots of fraudulent charges then disappear with the cash before anyone notices. With PayPal the money trail could be very complicated indeed.
If you're laundering money, you might want to consider in-house legal expertise, as well as in-house payments processing expertise.
If you're not laundering money, then (all other things being the same), you should prefer Stripe over PayPal, since it would be quite hard for someone to use Stripe for this purpose, hence they will have fewer money-launderers to deal with, hence you have less risk that you'll set off some obscure alarm and they'll lock up your account for months.
In any case, if you sell anything (online or off) you may want to learn a bit about the various risks and liabilities. Fraud does happen, and some businesses are at far higher risk.
I'm not sure the average lawyer will help much, though. They can tell you "yup, if someone buys a diamond from you with a stolen credit card and you ship it, you will not get to keep that money even if the diamond isn't recovered" (but don't you know that already?).
The more important advice is technical, and it's about all of the things you can do to reduce the risk of that ever happening to you.
If you are looking for a technical solution you might want to check out..ahem... my company ThreatMetrix.
As ex paypal Im guessing you have invested a lot in risk management, ML and automation etc as its really technically difficult to make such a broken process like online payments this simple so you may have it all covered.
What we can bring to the table is a (300ms) https name value pair API that delivers aggregated intelligence in real-time based on transactions, identities, devices and behavior across 6000 sites that represent over 1MM individual CNP txns on a daily basis (only 1/5 of Paypals txns but hey we are a startup!) which you can ingest into your rules engine or risk models during, before or after the payments authorization/capture.
We dont just provide a score which can be impossible to integrate with other ML engines we also provide customizable (by you) reason codes/triggers that can be used to characterize behavior e.g. customer's computer associated with 3 difference identities and 4 different proxy ip addresses across global network in last hour....Data Geeks geek out on it as we also provide full attribute data back in the API response so provides a good way to do feature extractions for SVMs etc. We have been proven to reduce FP and increase TP.
We currently process peak 700 tps with about 20% degradation in performance at load. We suck at batch processing cause its just not our thing. I head up products and one of the founders so not selling just helping as I think you have a solid offering that should do very well.
Paypal bought Fraud Sciences for 170M but you can rent ThreatMetrix ;-)
One major barrier is that in many countries it's difficult to set up a service like this in a way that doesn't require it to be a bona-fide "bank", and setting up a bona-fide bank is often not low-overhead.
As you can see if you want to provide this service to a foreigner then you need to do checks on this person and his bank. This costs such much that most will decide that it is not cost effective to do so.
Presumably they will set up a company in Europe instead of handling it from the US company, but this takes extra time and effort so most companies start in the US (and empirically they stay that way until they become very big).
Most merchant acquirers, as well as the US Government, will interpret sections 312 and 326 of the US Patriot Act to require a Social Security Number to positively identify a merchant application and to check the applicant against various financial crimes and terrorist lists. This essentially prohibits non-US companies. There are some exceptions, but this is generally the rule.
Many of the card acceptance solutions that do not require this information are not actually issuing merchant accounts or are otherwise performing what is known as aggregration or is opening a merchant account on your behalf that they own. Some are also issuing merchant accounts in non-US banks. Others are in violation of US law.
There are two big reasons as to why it's so painful elsewhere. One is underwriting: people want to know a lot about your business so they can figure out if you're likely to be fraudulent (or expensively incompetent). They typically do this by taking a shotgun approach to information requirements.
The second reason is that it's "standard", and everybody copies the "standard" without much consideration. The companies providing merchant accounts are usually not technology companies, and historically haven't had thought much about product.
We like to think that we can do much better than traditional companies on both counts.
I am curious as I am in fact an Australian citizen and know that a lot of people have a hard time here when trying to open a merchant account. From what I've read and heard it's traditionally a similar in the US and it is obviously one of the killer features of Stripe.
Was it hard for you to work with a bank (Wells Fargo) on this? From what I've heard banks are the main driver behind the 'shotgun' approach to information collection, at least here in Australia. I could well be wrong on this, hence I ask the question.
You are already doing a much better job than traditional companies on both accounts, it's great to watch and I'm sure you guys will continue to do great work.
Note: I just realised my spelling error in my previous post...iPhone autocorrect got the better of me!a
I'm a college student, and pay cash for nearly everything, so I have very little credit history. After trying 3 or 4 merchants earlier this year, I still couldn't find one that would accept me, even with my father co-signing. Stripe is good news for young businesses.
Get a credit card and start using it -- paying it off 100% every month. I was in your shoes only a few years ago and it is worth starting to build your good credit early on. Even if you can only get a $300 limit.
Variation: you can get a secured credit card. Give them money, and that's your limit. But it's a credit card nonetheless. After some period of time, you get the money back, and a better card. Talk to your bank.
Well... yes and no. It's great to see more payment options. But segregated merchant accounts are there for a reason, pretty much every company that is in the payment processing world that does not use segregated merchant accounts sooner or later goes bust. See DMR and ibill for some nice examples of what happens when you multiplex a merchant account across more than one customer.
By making sure everybody has their own merchant account you may not make as much money on the transactions but you stay in business long term. And if there is one thing that really sucks it is to have to start all over again because your payment processor goes under, taking all your customers with it.
Stuff like that can kill you. If your transaction volume is serious enough to warrant your own merchant account then you should probably get one.
I would have to agree; a plethora of headaches are to be expected when dealing with merchant accounts. Monthly fees coupled with compliance issues and constant intervention make for extra work. Relying on merchants is like relying on your local broker. Nonetheless, certain merchant accounts will allow you to escape with fees almost a full point less than Stripe. Not to mention, the 7-day rolling period can seriously impact operations pending your specific business structure. I for one am curious to learn more about how Stripe can customize payment flows...