Stripe tests cash advances, following Square and PayPal moves into corporate finance – TechCrunch


Stripe, the fast growing payments startup now worth over $ 9 billion, is working on a new product to help fill some of the gaps in its product line as it aims to become the financial services partner of reference for startups and other companies. He tested a new cash advance service, providing financing to his business clients, which would provide funds to businesses 1-2 days after their request.

Stripe has already started proactively reaching out to customers to market and issue the loans, which appear to be tested under the Advance brand name.

One of these companies provided us with details of what Stripe offers: The company was offered a $ 25,000 advance from Stripe, with a 10% premium (in other words, a loan of $ 25,000 will total $ 2,500 plus the loan amount of $ 25,000). Users are given a fixed percentage, taken from daily sales, to repay the advance, which means the minimum amount you pay back may vary from day to day depending on your sales for that day. In the case of our tipster, that recovery rate was three percent of his daily sales.

When asked about the cash advance service, Stripe admitted that he was testing something and told us this tweet without further developing. So we don’t know if Stripe has offered other users different bonuses or payback percentages, or if $ 25,000 is the cap or if he’s lending more, or if he’s working with a third party to provide the funding. , or if it offers off its own balance sheet.

For comparison, today Square is working with Celtic Bank to provide loans through Square Capital, and the loans come in the next day and range from $ 500 to $ 100,000, with what appear to be variable premiums; Like Stripe, customers have the option to refund as a fixed percentage of daily sales.

Amex offered the same client that Stripe approached the option of taking out a loan of $ 250,000 with an overall lower cost, four percent. PayPal grants loans of up to 30% of your annual sales “in minutes” upon approval.

For these reasons, we believe that when (if) Stripe fully launches its Advance product, you may see different numbers depending on this feedback and what is already available in the market.

Creating a cash advance service makes sense for a number of reasons.

On the one hand, it will help Stripe to diversify its business as it grows. Payments – the heart of Stripe’s business – typically generate a low margin and require economies of scale. Funding works on a different principle, potentially giving the business a way to instantly monetize the money it already has.

And there is clearly a great appetite for business loans. Square Capital has loaned more than $ 3.1 billion to companies since May 2014. At the same time, it is also examining how it could further expand its fundraising activities. Square Payments, currently in the pilot phase, allow Square merchants to offer their customers the option of paying over a period of several months in the form of billed deposits.

Square Capital’s core business is also growing: the company said that in its most recent quarter, Square Capital facilitated more than 60,000 commercial loans totaling $ 390 million, up 22% from a year over year.

Issuing business loans, in this regard, would also help Stripe better compete with the rest of the payments and financial services package, including other tech companies like Square and PayPal, more established payments and credit companies. like American Express, and of course traditional banks.

Stripe has already expanded to other business services, like helping businesses integrate with Delaware and better handle transaction fraud. Funding fits these: Like Product Against Fraud, this is another example of how Stripe can create products based on data it already collects on its business customers and their transaction histories.

You can also see Advance (or whatever it is) as a way for Stripe to better retain customers.

Our informant said he was actually considering leaving Stripe because it was too difficult to get full records of his business accounts on Stripe in order to arrange funding through companies. This fundraising service doesn’t solve that problem, but it would offer customers who are otherwise happy with Stripe an alternative rather than becoming a deal breaker.

Indeed, you could also argue that not offering a fundraising product puts Stripe down a bit and misses out on a key financial service for smaller and younger businesses, a service others offer. For years. SMEs typically take out loans to smooth their cash flow, invest in a part of their business as they grow, or to offset an unforeseen cost over a period of time.

Some prefer to take out funding instead of working with VCs. “What a lot of startup founders don’t realize is the cost of venture capital,” our source said. “Venture capital is by far the most expensive way to access capital as a business, more expensive than credit card debt. “

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