2021 is shaping up to be another record-setting year for payment companies. Mohamed Dabo looks at some key factors behind Stripe’s blockbuster $95bn valuation
Payments companies continue to be some of the most highly valued businesses in fintech. A fresh fundraising round for digital payments company Stripe has made the company one of the world’s most-valuable startups.
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By GlobalDataStripe has raised $600m from a group of investors that included Ireland’s National Treasury Management Agency, insurers Allianz and AXA, and investment managers Baillie Gifford & Co, and Fidelity Investments.
The round valued Stripe at $95bn, more than 2½ times the valuation it attained in a 2019 fundraising round.
Thanks to the new fundraising, Stripe is now worth more than other startup darlings like Instacart. Globally, it still trails the Chinese fintech giant Ant Group in terms of valuation.
Founded in 2010 by Irish entrepreneur brothers Patrick and John Collison, Stripe is an Irish-American financial services and software as a service (SaaS) company dual-headquartered in San Francisco, California and Dublin, Ireland.
The fintech company primarily offers payment processing software and application programming interfaces (APIs) for e-commerce websites and mobile applications.
Interestingly, Stripe wasn’t the Collison brothers’ breakout role. The two had sold their previous company, Auctomatic, for $5m back in 2008. At the time, Patrick was 19 and John was 17.
Riding the Covid boom
As a payment processor to startups and fast-growing internet companies, Stripe has benefited hugely from the pandemic-induced boom in online shopping.
More than 200,000 new companies in Europe have signed up to the platform since the start of the pandemic.
Stripe customers including DoorDash, Shopify, and Wayfair all experienced a surge in demand as consumers shifted their spending away from bricks-and-mortar establishments.
John Collison said its systems handled almost 5,000 requests a second in 2020, including payments, refunds, customer data checks and other queries to its application programming interface.
“We’re bigger now than the entire e-commerce [market] was when we first started Stripe,” Dhivya Suryadevara, Stripe’s chief financial officer, said in an interview.
Looking out for number one
In the pandemic, some small businesses were unhappy with steps Stripe and other payment processors took to protect themselves from possible losses.
The manoeuvres, including sometimes making the businesses wait extra days or even months to access money deposited in their accounts, intensified a cash crunch at many firms.
Stripe doesn’t disclose its payment volumes or financial results.
The company said in a release that it processes payments worth hundreds of billions of dollars a year for millions of businesses worldwide and that it counts as customers more than 50 companies that each use Stripe to process more than $1bn annually.
Stripe, which takes a cut of each transaction it processes, started out selling payments services to developers at other tech start-ups, allowing it to piggyback on some of the world’s fastest-growing companies.
Going beyond payments
Beyond payments, Stripe has been adding more financial services to the products it offers customers.
In December, the company announced it was teaming up with banks including Goldman Sachs Group and Citigroup to offer checking accounts and other business-banking services to merchants.
Incidentally, other payments processors have been broadening their ambits to support innovation in a wider range of financial services. These include emerging domains like neo-banks, sachet-sized insurance, and flexible investments.
Attracting investment heavyweights
Big investors have drawn to payment processing companies. Investors have long viewed Stripe and other payments companies as a way to get exposure to a range of fast-growing industries.
Among Stripe’s early investors in Stripe were PayPal founders Elon Musk and Peter Thiel, as well as Silicon Valley’s influential start-up accelerator, Y Combinator.
More recently, though, some have started to wonder if the Covid-fuelled run-up in tech stocks is overdone, and they are starting to rotate out of popular tech companies and into established industries like banks and industrials.
Dreaming of big expansion
With the new funding, Stripe plans to bulk up its European business.
The San Francisco-based company recently named Dublin as a second headquarters and added former Bank of England governor Mark Carney to its board of directors.
Stripe plans to hire 1,000 more people for its Dublin office over the next five years. It is also planning launches in Brazil, India, and Indonesia in 2021.
Closer to its home in California, Stripe has stepped into the political-speech fray that other tech giants are wading through.
After the pro-Trump riots at the Capitol in January, it stopped processing payments for former President Trump’s fundraising apparatus.
2021: a year that began fundraising at full speed
Investors have kicked off 2021 with big bets on fintech companies, which are seeing broad tailwinds from the adoption of digital payments and an appetite among financial institutions for the latest technology.
Just two weeks into the new year, fintech startups had recorded 10 deals worth $100m or more, compared with three in the same period last year, according to PitchBook data.
The auspicious start builds off momentum from last year, when VC-backed fintech companies raised $41.7bn in the second-largest annual total of the past decade, according to PitchBook data.
Fintech investing enthusiasm has also caused startup valuations to swell quickly, and it potentially shrinks the pool of acquirers large enough to buy them.
