Stripe's new financial strength opens multiple paths for expansion

When Stripe Inc. launched its e-commerce payment services in 2011, the San Francisco-based startup wasn't presenting itself as a major threat to online giant PayPal — and even with its new $9.2 billion valuation, it still might choose a different path.

There is no denying Stripe is prepared to take yet another step in a market that is open for disruption. With its value soaring after this week's announcement of a funding round that sets the company's worth at nearly twice as much as its previously reported value of $5 billion, Stripe has the means to invest in technology, market expansion, or both.

The valuation speaks to Stripe's well-established expertise, said Gil Luria, analyst with Los Angeles-based Wedbush Securities.

"The real reason Stripe's valuation increased so much (from $5 billion just six months ago) is they are very successful in this extremely important market of e-commerce facilitation," Luria said.

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Because e-commerce is growing 15% faster than any other payments or retail market, merchants are seeking less friction in transactions for their customers and "that is exactly what Stripe does," Luria added.

Merchants using Stripe say the company provides a powerful yet simple platform for payment acceptance, allowing retailers to emulate companies like Lyft and Shopify that feature embedded payments, Luria said.

Stripe's next move is still unclear. Market expansion has been critical to Stripe's strategy to date; just two months ago, Stripe brought its service to Singapore, eyeing an expansion into the Asia e-commerce market.

The company earlier this year also set up relationships to provide payments services in Cuba not long after the U.S. softened economic and business relations with the country.

"Right now, because of its size and services, you would say PayPal is clearly at the top of the e-commerce market," said Richard Crone, chief executive of San Carlos, Calif.-based payments consulting firm Crone Consulting LLC. "But that could change over the next four years or so, as these investors look at Stripe in the same manner as investing in a company like Oracle in its infancy."

If Stripe instead emphasizes technology, it may want to put its brand on a cloud-based mobile wallet or person-to-person payment service, Crone said.

"The capital venture guys are betting heavily on Stripe because there is so much untapped potential, not only in e-commerce but also what could propel them forward into the physical point of sale," Crone said. "Stripe has not indicated yet how they might do that, but their expertise in mobile could be a key, because the barriers to getting to a physical point of sale with a cloud-based wallet are very low."

While PayPal, a $50 billion company, and Stripe are at the top of the hill in e-commerce payment services, Square is also encroaching on that territory by building an e-commerce platform on top of its physical point-of-sale presence.

But unlike Square and PayPal, Stripe is not a public offering and operates as a private company. As such, Stripe backers Peter Thiel and Elon Musk — both PayPal founders — and Sequoia Capital, as well as Visa and American Express, traditionally have not been vocal about Stripe's long-term vision. Stripe did not respond to an inquiry about its latest funding round and its goals prior to deadline.

But following payments trends, it seems logical that a financially strong Stripe could move into a new arena any time it chooses to do so.

"P-to-P is big for all of these companies, with PayPal having Venmo and Square offering Square Cash," Crone said. "PayPal has a wallet and some presence at the physical point of sale, whereas Square dropped its mobile wallet."

That leaves Stripe open to invest where it sees the biggest opportunity above and beyond an e-commerce market that reportedly netted an 18% increase over last year's holiday shopping opening and is expecting big numbers for Cyber Monday, Crone said.

The economics of e-commerce payment services is such that few companies can build a long-term strategy by competing on price. They are all around the 2.9% plus 25 or 35 cents per transaction, a blended acceptance rate that PayPal pretty much created, and others have closely followed. The few products that tried to lower fees beyond that, such as Google Wallet and LevelUp, ultimately scrapped those business models.

So the competition falls into the "ease of implementation" category. More than a year ago, Stripe was at the forefront of the "buy button" trend through its Relay service that helped add payments to mobile commerce sites.