The Stripe Business Model – How Does Stripe Work & Make Money?

Executive Summary:

Stripe is a SaaS company developing various products that allow businesses to accept and make payments over the Internet. The company’s full-stack offering ranges from backend cloud infrastructures over a customizable payments platform up to dedicated applications for tasks such as billing or reporting.

The business model of Stripe is based on charging customers a fixed and variable fee for every successful payment. Other sources of income include company incorporation services for startups, fees on premium support, or access to certain software products.  

Founded by two Irish brothers, who sold their previous company for $5 million at age 19 & 17 respectively, Stripe has become a massive success. With a valuation of $36 billion, it is now one of the world’s most valuable startups. Furthermore, the average customer processes over $40 million annually through the Stripe platform.

How Does Stripe Work?

Stripe is a developer of various financial software products that allow online companies such as Google or Uber to conduct and receive payments over the internet.

According to the company, only three percent of today’s global commerce activities happen online. The company’s payment platform is supposed to ease with the process of facilitating transactions online – and thus drive online growth.

Stripe describes itself as a full-stack provider of payments software and is comprised of three layers

  • A cloud-based payments infrastructure
  • A customizable payments platform that allows companies to build tailor-made applications
  • Ready-made applications for various purposes, including billing, reporting or fraud prevention with machine learning

To allow for the best possible experience, Stripe provides its developers and customers with an extensive documentation.

A Short History Of Stripe

Stripe was founded in 2010 by Irish brothers Patrick and John Collison. Both brothers showed flashes of genius early in their life, which pathed the way to the foundation of Stripe.

At the humble age of 16, Patrick Collison received the award of Young Scientist of the Year for his work on the programming language Lisp. He went on to leave high school a year ahead of time to study Computer Science at MIT.

Meanwhile, his brother John broke the record for the highest score in the Irish Leaving Certificate (the last examination to qualify for university). In 2009, he went on to study Computer Science two miles away from his brother – at Harvard University.

In the meantime, Patrick already became bored of Ivy League life and in 2007 went on to start Auctomatic, an auction management system for sellers present on marketplaces such Amazon or eBay, together with his brother John.

A couple of months later, after first joining the 2007 winter batch of Y Combinator, Auctomatic was acquired for $5 million by Live Current Media, where Patrick went on to serve as Head of Product Engineering – at the age of 19.

His stint did not last particularly long though as two years after his acquisition, he went on to start Stripe together with his brother John (who himself consequently dropped out after his first year at Harvard).

Consequently, the company’s first funding was provided by Paul Graham, the founder of Y Combinator. Graham knew Patrick through his involvement with Lisp and Auctomatic.

 And since everybody in Silicon Valley is super close, it didn’t take the brothers too long to get acquainted with both Peter Thiel and Elon Musk, the founders of PayPal (amongst other companies you may have heard of).

The result was a seed investment of $2 million, which helped to get the ball rolling on Stripe. The service became an immediate success. By 2014, Stripe was processing billions in transaction volume and present in over 12 countries.

These days, Stripe handles the payment process for world-leading companies such as Google, Amazon, Microsoft, Shopify, Uber, and many others. 

How Does Stripe Make Money?

Stripe makes money primarily by taking a cut on every successful payment the company facilitates. The company uses different price packages depending on the selected products.

For every successful transactions, a 2.9 percentage as well as 0.30 cent fixed fee is applied. For international transfers, 1 percent is added on (to a total of 3.9 percent).

Apart from the transaction fees on payments, which would account for the majority of Stripe’s income, there’s a plethora of other products and services that are monetized.

Billing. The Billing application allows Stripe customers to invoice their clients, analyze current subscription revenues, or set up schedules on when to charge customers. The tool is free for the first $1 million, and afterwards a fee of 0.5 percent on recurring charges applies.

Connect. With the Connect platform enables marketplace businesses to pay out their sellers and service providers around the globe. Features include a customizable onboarding procedure for sellers, setting payout timing, allowing for complex money movement, and getting integrated financial reporting among many other things. Prices start at 0.25 percent of the account’s transaction volume.

Radar. Radar is a machine learning based application that allows customers to weave out fraudulent transactions. The algorithms would flag any suspicious payment and stop the system from processing the transaction. Being directly integrated with the platform’s other application, Radar can help to instantly use rich payment information like customer details, shipping and billing addresses. Stripe charges 5 cents per transaction, but remove that fee for customers on the standard plan.

Terminal. Terminal comes with a physical card reader that allows businesses to accept payments in the real world.

The company offers two types of readers, coming in at $59 and $259 respectively. On top of that, Stripe charges 2.7 percent plus 5 cents for every facilitated payment. The card reader is directly connected to Stripe’s other applications so that users can check and compare payments.

Sigma. Stripe’s Sigma is a data warehousing tool that allows customers to access transaction data via SQL queries. Customers pay a fixed monthly infrastructure fee. On top of that, a variable fee per credit card charge is paid, which starts at 2 cents per charge.

Atlas. Atlas is a service that allows customers to incorporate a business within minutes. It allows to form an LLC or C corp, create a US bank account, issue stocks/shares to co-founders and access special services for startups (e.g. $5,000 in free credits from Amazon Web Services). A one-time fee of $500 has to be paid.  

Premium Support. As the name indicates, Premium Support provides customers (ranging from small startups to big enterprises) to receive operational and technical support 24/7 and across the globe. This includes email, chat, or phone support. The service starts at $1,800 a month and scales depending on the company’s size.

Stripe Valuation, Funding, Investors & Revenue

According to Crunchbase, Stripe has raised over $1.6 billion in 12 different rounds of funding to date. The company has been valued at a whopping $36 billion during its latest Series G funding round in April 2020. This recent valuation makes Stripe one of the world’s most valuable private FinTech companies.

Investors into the company include world-class institutions such as Sequoia Capital, Andreessen Horowitz, General Catalyst, Tiger Global Management, and many others.

While Stripe (like many other venture capital funded companies) does not publicly disclose its revenues, the company has claimed to be processing over $200 billion in transactions annually. Between it’s SME and Enterprise accounts, Stripe charges a fee of about 2 percent – putting the company’s annual revenue at roughly $4 billion.

Stripe IPO

As of today, Stripe has not disclosed any plans to go public. During their last funding round, John Collison emphasized that there are “no plans” of going public anytime soon. He added that Stripe is “very happy as an independent company” and “quite early in this opportunity.” Many of the company’s investors, including Sequoia and Andreessen Horowitz, are known to follow a long-term investment approach. Furthermore, the company already has massive amounts of revenue (and plans to expand into new markets and products), which should allow them to remain private for the time being.


Hi folks, my name is Viktor! By day, I lead a tech team of 10 for an e-commerce startup. At night, I work on expressing my weird thoughts through this blog. And if there's time, I cuddle my cat..