BankTechPayments

Why Stripe’s banking-as-a-service play is a big deal

New platform, Treasury, aims to let a client embed the financial services into its own marketplace in a single integration

Unless you’ve been hiding under a rock, you’ve probably heard by now that Stripe will offer banking services through its new Treasury platform, the company revealed in a blog post on Thursday.

San Francisco-based Stripe has been known over the years for building out “payments infrastructure for the internet.” Millions of companies of all sizes — from startups to Fortune 500s — already use Stripe’s software and APIs to accept online payments, send payouts, and manage their businesses online.

Now the company wants to help companies of all sizes with their banking needs via Treasury, its new banking-as-a-service API. In its blog post, Stripe said: Stripe Treasury provides the modular components you need to build a full-featured, scalable financial product for your customers. 

And in a tweet, Stripe CEO and co-founder Patrick Colisson said: “From our earliest days, we’ve wanted to make all of financial services truly programmable. We’re now working with top banks to make that happen.”

Specifically, Stripe is partnering with global banks like Goldman Sachs Group, Evolve Bank & Trust, Barclays and Citigroup to provide services like ACH and wire transfers, interest-earning accounts, access to payments funds and other services, according to a press release.

It added: “As Stripe continues to invest heavily in its treasury infrastructure, it will deepen its new partnership with Goldman Sachs to add even more functionality to Stripe Treasury in the US next year.”

The news had fintech Twitter abuzz all day Thursday with comments about how Stripe just made hundreds of other startups obsolete with its announcement, and how its moving into banking-as-a-service was long expected and also no surprise considering “every fintech wants to be a bank” because “that’s where the revenue is.” (Although to be clear, Stripe is not in fact becoming a bank).

Other comments included, “Ok, when can we buy some Stripe stock?” and “I hope Stripe’s recent announcements on “Capital/Banking as a service for platforms” could help cool down the fintech infra early-stage market.”

Another was more blunt: “Stripe is the most terrifying company in the world for fintech founders. They have the people, they have the capital, they can do anything, and do so quicker and probably better than you. Pray you have something difficult to replicate or you’re eventually getting smoked.”

One pre-seed investor we talked to on Thursday, Tyler Norwood of Antler, remarked that just 10 years ago, “building a fintech was nearly impossible without having a bank be involved” and how difficult that could be because their infrastructure was so inaccessible. Then came companies like Plaid and Stripe that have essentially paved the way for other companies to build on top of the infrastructure they’ve built. And now, here we have one of those companies themselves getting into banking services.

“Everything about running an online business has been transformed by technology, but business banking has largely been left behind,” said Karim Temsamani, head of banking and financial products at Stripe. “But we’re changing this, just like we set out to change payments a decade ago. Offering a user-centric banking experience should be as easy as spinning up a virtual server—that’s what we’re starting to accomplish at Stripe with our bank partner network.”

The what

Before we get into analyzing what we think this means for the fintech landscape, allow us to get into some of the details of what the new platform actually aims to do.

Treasury aims to let a client embed the financial services into its own marketplace in a single integration. This would allow the client’s customers to “hold funds, pay bills, earn interest, and manage cash flow,” Stripe said in its blog post. 

Already, Stripe Treasury has global commerce company Shopify as a client. Shopify uses Stripe Treasury to power Shopify Balance, which will offer its merchants a “simpy and integrated way” to manage funds. Shopify will offer Shopify Balance accounts, built on Stripe Treasury in early 2021. 

“Stripe Treasury gives us the flexibility to customize Shopify Balance specifically for our merchants,” said Tui Allen, senior product lead for banking at Shopify. “By building across Stripe’s payments and banking infrastructure, we’ve been able to give Shopify merchants access to critical financial products that meet their needs, like faster access to funds and rewards, helping them further grow their businesses.”

Through the new platform users can create a bank account replacement, open loop wallet, use a payout card and use a product operations account. Stripe Treasury is still in its initial rollout and has invited a “limited” number of platforms that serve US businesses to participate. 

What does all this mean?

Fellow fintech enthusiast Nik Milanovic believes the news is “big validation for the embedded banking thesis.” (As if we had any doubt!) 

According to FintechFutures.com, embedded finance “is about enabling any business to manage and sell innovative financial services; seamlessly integrating creative forms of payment, debit, credit, insurance or even investment into their end user experiences.”

The market, it estimates, is massive – worth over $7 trillion in ten years’ time, twice the combined value of the world’s top 30 banks today.

In late October, Wise raised a $12 million Series A round to partner with other companies so that they can offer bank accounts to their own customers – just one example of an embedded business banking startup.

The banking as a service (BaaS) industry in the US has seen a wave of new entrants over the last three years, notes Finch founder Neel Ganu.

“In the fintech gold-rush, payments providers and BaaS are the go-to picks and shovels,” he told FinLedger. “Stripe has an incredible reputation for building the best developer-led products and direct access to an incumbent customer base who can benefit the most. This is a massive opportunity for them. And, with Stripe being a global leader in payments, the announcement of Stripe Treasury puts all of the competitors in the space on notice.”

So, does this news mean startups like Wise are basically competing with Stripe? Is that sound you hear one of founders everywhere scrambling to revise their business models? Or, will it actually make thousands of new startups possible at the same time?

The fact that Stripe is deepening its partnership with Goldman Sachs is also notable. Goldman’s been going all out on fintech as of late –investing, partnering and acquiring left and right. And, Citi recently partnered with Google on its revamped Google Pay app, which included the launch of digital bank accounts via an updated version of its Google Pay app.

In a post today, Stratchery’s Ben Thompson wrote about how “Goldman Sachs doesn’t have the flexibility to offer a banking account to individual entrepreneurs.” But it can partner with companies like Stripe.

As Thompson put it: “This, though, is the exact sort of problem platforms solve: they provide an abstraction layer that connects different sides of a market, even if those different sides have dramatically different needs and capabilities.”

It will be interesting to see how this plays out and what companies/businesses beyond Shopify become users of this new platform. And you know we’ll be watching.

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