Stripe Starts Issuing Credit Cards

(Bloomberg) -- Stripe Inc., a startup that lets businesses and websites easily accept money online, now wants to help them spend it by introducing a new product: credit cards.

The San Francisco-based startup became a well-known name in payments by making it simpler for platforms such as Lyft Inc. and Postmates Inc. to process payments for on-demand rides and takeout. Its next venture, which it plans to announce Thursdsay, will allow businesses to make payments and control expenses including, for example, whether to approve the burrito purchase a courier just made on behalf of a customer.

“We’ve tackled many of the major problems on accepting payments, but businesses still have trouble moving money,'' said Lachy Groom, head of the new Stripe Issuing division. “We realized we're staring at another Stripe-sized hole in the payments economy.”

The company declined to name any of the partners it has been testing the product with, other than to say there are dozens. But Groom did explain some of the ways companies are using or could use the product: A car-sharing company could manage and track gas purchases made with its fuel cards. Contractors sent to run errands could use a one-time virtual credit card number to go shopping, and only get approved if the purchase is the right amount at a predetermined store. A manager could set dynamic budgets for a sales teams’ expense accounts, rather than waiting to approve dining purchases later. And new banks could issue credit cards to customers in a matter of months, rather than more than a year.

Stripe will get a small cut of each payment made with the cards and will share some of that revenue with the companies when they use the cards — directing some cash back to the employer whose sales team is expensing dinner, for example. The employer’s logo would go on the physical cards, and Stripe will handle printing and distribution for a separate fee.

Visa Inc. and Mastercard Inc. will be the card networks for Stripe’s new business. The company said that while the new offering will drive some revenue through interchange fees, it will also help acquire and retain customers looking for one way to handle both accepting and making payments.

“It’s a great revenue opportunity,” Groom said of the potential to make Stripe a one-stop shop for payments. “It always pains us when people need to go deep into building the [payment] infrastructure themselves.”

Stripe has raised about $450 million in funding from investors such as Sequoia Capital, Visa and General Catalyst since it was founded in 2010, but the company has faced increased competition. Marqeta Inc., another startup that issues credit cards, has raised more than $100 million. Adyen BV, a similar payments startup based in Amsterdam, went public last month and has seen its valuation rise by more than 140 percent since. Jack Dorsey's Square Inc. also competes in some of the same businesses and has seen shares double since the start of this year. 

Jordan McKee, an analyst with 451 Research, said he was initially surprised by Stripe’s decision to start issuing cards but could see the appeal to customers who would otherwise have to partner with multiple entities on their own. “It’s very difficult for people to issue cards right now,” he said. “The complexity of that process has throttled the level of innovation we've seen on the issuing side. So I think with Stripe coming into the market and leading with a simplicity value proposition, over time we could see some new use cases we haven't thought about before today.”

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