Inside Stripe's second shot at crypto

Stripe is adding several cryptocurrency services for businesses, breathing new life into a strategy it abandoned just four years ago.

The San Francisco-based payment company recently debuted global payment solutions for Web3, including application programming interfaces to allow users to buy and store crypto tokens and process cryptocurrency payments. Web3 refers to blockchain-powered technology such as decentralized finance (DeFi) and digital token transactions.

Stripe, which has one of the world’s largest technology company valuations at $95 billion, began recruiting crypto professionals in the fall of 2021. It’s ramping up its crypto strategy ahead of a potential public listing while staying competitive with other digital payment companies that are stacking crypto services.

The overall market is expanding quickly. Investments in crypto and blockchain technology increased to $30 billion in 2021 from about $8 billion in 2020, suggesting growth for companies in blockchain and distributed finance, according to KPMG.

“Crypto companies have lacked a reliable payment provider that optimizes authorization,” said Guillaume Poncin, head of engineering for crypto at Stripe in San Francisco.

Stripe was an early mover in cryptocurrency, indirectly supporting Bitcoin payments as early as 2014 by allowing users to convert their Bitcoin balances to traditional funds at the point of sale. However, Stripe’s original crypto program was discontinued in 2018, with Stripe saying there were fewer use cases for payments that made sense for Bitcoin.

Today, in addition to reviving its crypto business under a new team, Stripe supports nonfungible token (NFT) transactions, and offers fraud prevention and anti-money-laundering services. These functions give Stripe a chance to cross-sell security and risk products such as Radar and Identity.

“The ability to provide consumers the ability to buy, sell and hold crypto obviously becomes more important as customers decide they want to invest in crypto,” said Tim Sloane, vice president of payments innovation at Mercator Advisory Group in Concord, Massachusetts. The compliance piece is becoming more important as the market expands, according to Sloane.

“These companies should be very cautious of enabling the acquisition of DeFi products such as NFTs” unless the DeFi platform performs know-your-customer vetting on all participants and “supports the ability to guarantee provenance for the items being bought and sold, and implements required investment record keeping,” Sloane said.

Stripe does not currently offer the ability to buy or sell crypto, or to transact with crypto directly, but it is enabling transactions for its users, saying it can support more than 135 cryptocurrencies with conversions to traditional currency in 180 countries. Stripe in the past couple of weeks has additionally signed partnerships with FTC, a crypto exchange based in the Bahamas, to improve traditional currency conversions and authentication; and Blockchain.com, a Dublin-based company that will use Stripe’s technology to process payments, mitigate fraud and manage revenue.

Blockchain.com has more than 37 million users, who access the company’s platform to create crypto wallets. It reports more than 80 million wallets had been formed as of January 2022.

Stripe reports it is available in 46 countries. About 167,000 companies use Stripe’s technology, and it has about 17% of the global payment processing market, according to DataAnalyze.

Stripe supports crypto and NFT platforms in the U.S., U.K. and the European Union, and the company is “hoping to bring support to many more markets,” Poncin said.

Poncin was one of the Stripe executives who began building the company’s new crypto team over the past six months, charting a return to a market the company had earlier soured on.

Companies have approached Stripe seeking a route to support cryptocurrency transactions, as well as other services such as buying and selling NFTs, according to Poncin. Clients are also seeking compliance services, he said.

“Web3 companies have told us our documentation and integrations can help them build, test and bring new products to the market more quickly,” Poncin said.

There’s a competitive push, since Stripe is additionally operating in a market in which large payment companies are adding cryptocurrency services.

Block, formerly Square, began building a business line called TBD in July 2021 to develop Bitcoin-related use cases. Block is creating a wallet for cryptocurrency, and its P2P Cash App supports buying, selling and holding crypto. Crypto trading makes up more than 70% of Block’s revenue.

PayPal supports cryptocurrency trading through its main app and its Venmo P2P app. PayPal additionally offers a Checkout with Crypto feature for merchants and is considering developing a stablecoin.

As a firm that focuses more on merchants than consumers, Stripe’s strategy is to compete for business clients by processing payments and managing tasks that are tied to supporting crypto or operating a crypto-specific company, according to Marco Salazar, director of payments for Javelin Strategy & Research in Chicago.

“Stripe is focused on the tech angle. They’re going to be looking at how these firms can move value in crypto from point A to point B,” Salazar said.

Other companies are also active competitors to Stripe’s crypto strategy. Circle, a global financial technology firm and issuer of the USDC coin, is building financial services and is seeking a bank charter; and Shift4, a payment technology company, recently made a deal to acquire the Giving Block, a Washington, D.C.-based firm that helps nonprofits accept crypto donations, with the intent of developing use cases for Shift4’s full range of clients.

“These companies are trying to meet all the needs of a payment business,” said Daniel Keyes, an analyst in New York for Javelin. “And crypto is a big part of that.”

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