A year ago, we announced that payment giant Bandaged was quietly taking its first step into business financing by testing a cash advance service to existing customers. Now, nearly 12 months later, the company finally unveils an official product: today, starting first in the United States, it is launching Stripes Capitala service to advance money to customers who, in turn, are reimbursed on their future sales made through Stripe’s payment platform, with loan amounts and reimbursements based on the customer’s transaction activity on Stripe itself.
The launch of Stripe Capital comes at a key time for the company: we understand that Stripe is gearing up for a bigger push to diversify into other financial services, especially with the launch of its first credit card product. company (similar to Brex, from what we understand). The company holds its Sessions user conference in San Francisco next week, which will likely bring more product news.
Stripe Capital is made available to direct customers of Stripe and professional customers of platforms and marketplaces that use Band Connect. (In other words, platform and marketplace customers will have access to Stripe Capital themselves, and they will also be able to offer Stripe Capital-based cash advances to their customers.)
In an interview, Stripe co-founder and president John Collison noted that funding for the cash advances in both cases came from a single banking partner that the company is not currently making public.
While loans could potentially stretch to six figures (no specific limit has been set), he added that Stripe expects the typical amount – based on funding issued so far – to be more. around $10,000 to $20,000.
As with credit cards, the idea behind Stripe Capital is to give the company’s customers quick (next day) access to funds to help with both day-to-day liquidity and to invest in growth.
More generally, cash advances have been a lucrative area for competitors like PayPal and Square, which have used the service to supplement their payment business, provide more customer touchpoints and diversify revenue streams. (And more competitors are coming around the corner: Kabbage, which lends to small businesses, is moving to payments.)
Square in his latest quarterly earnings report noted that Square Capital facilitated 78,000 loans totaling $528 million, up 36% from a year earlier, and that it had globally lent more than $5 billion on 800,000 loans since the launch of the service in May 2014. (Indeed, it looks like Square Capital will be sticking around for quite a bit longer than other business forays, such as Square’s move into food delivery, with Caviar now being sold at DoorDash. )
Stripe is best known for its nifty payment platform – through a simple API, e-commerce and other businesses can integrate the ability to accept payments into a site or app. This service helped propel the startup from more humble beginnings to a $22.5 billion valuation earlier this year.
But as it continues to grow and perhaps (?) gets closer to a possible public listing – no comment on that front from Collison this week – it has gradually diversified its activities, offering companies, for example, incorporation services, fraud management and more. . Stripe Capital has something in common with fraud protection: it relies on Stripe’s big data analytics and algorithms to intelligently infer who might be ready to take out a loan and how much that customer might be able to repay. .
Stripe and similar companies – startups that disrupt financial services – are also making this decision for another reason. More traditional banks are apparently lending less and less money to small businesses, with Stripe saying the amount lent over the past decade has halved. Tapping into their wealth of customer data and systems already tightly integrated with their customers’ finances, Stripe not only steps in to provide loans, but to do so more efficiently than banks.
“We use our data to underwrite the loans,” Collison said. “It used to be that you had to wait weeks or months while a loan officer reviewed an application, but we can see a customer’s historical performance on Stripe and apply our machine learning models to do the job, analyzing without human intervention.