Unless you’re really paying attention, Stripe can almost seem like a monopoly : it’s everywhere — but not always in plain sight. The truth is, Stripe is a “full-stack payment processor,” which is a glorified way of saying that it serves as a third party payment processor and a payment gateway. What this means is that Stripe allows your business to process credit and debit cards, as well as automated clearing house (ACH) transactions, both online and offline.
Founded in 2010, Stripe now powers the transactions of some of the biggest brands out there, including Lyft, Under Armour, Blue Apron, and Pinterest. In fact, the company claims that 89% of all credit cards have been processed on a Stripe network at some point. With the ability to handle 135 currencies, it’s a common solution for companies that do business internationally.
How Does Stripe Work?
Stripe Payments is a payment processing platform. It allows you to transfer money from a customer’s bank account into your business’s account by way of a credit or debit card transaction. While Stripe can be used for all kinds of transactions, chances are you’re considering it because you’re looking for an eCommerce solution. Keep reading for a comprehensive overview of how Stripe works in an online retail setting.
Stripe Payments Tools For Online Businesses
To process online transactions you need both a payment gateway and payment processor. The gateway securely captures and transmits the customer’s credit card payment information to the processor, which then actually processes the transaction. Funds from the customer’s bank are then temporarily routed to a merchant account (in this case of a third party processor like Stripe, it’s an aggregated account — more on that later), where credit card-related fees are deducted from the sum. The payment is then routed to the merchant’s bank account. It’s actually a lot more complicated than that if you want to dive down the rabbit hole, but for our purposes, this works as a general overview.
Stripe combines gateway functionality and payment processing, making it a convenient (if not necessarily the cheapest) way to handle eCommerce.
If you are a merchant, accepting payments for products or services, you need a way for the customer to easily transfer funds from their account to your account. In the distant past, this was done by a bank giving you a merchant account. This merchant account cost the seller a specific amount of money every time a buyer made a charge, but they also charged the merchant for the luxury of even having an account.
Online payments changed the rules, in that the customer was no-longer on property and thus the old customer of showing your identification to prove that you are the name on the card was gone.
Company’s like PayPal and Stripe, redefined payment process by building a system where a merchant can integrate the payment process, into forms and then they, Stripe/PayPal, verify the information based on online based information. A digital ID of sorts.
Is Stripe Safe For Customers?
Stripe has a reputation for taking security very seriously, and it appears to be well-earned. Stripe is a certified PCI Service Provider Level 1, which means it meets the most stringent security standards in the industry.
Stripe uses HTTPS for all services using TLS(SSL), even for their public website and dashboard. Credit card numbers are encrypted, with decryption keys stored on separate machines.
That said, nobody’s perfect. Stripe offers an incentive program to anyone who identifies a qualifying security-related bug and reports it to Stripe’s security team. Major bugs earn a minimum $500-reward. Lesser vulnerabilities may be rewarded a minimum of $100.
If you’re still concerned about fraud, Stripe does offer an advanced fraud detection service called Radar. Radar will probably be overkill for most businesses, but it uses machine learning to predict the likelihood that any particular transaction is fraudulent by factoring in data from your business and information Stripe has about the card being used. Radar is free with accounts paying the standard Stripe fee, or as a $0.04/transaction add-on. You can also buy chargeback protection for a 0.04% fee per transaction.
You can also utilize standard fraud prevention tools like address verification service and CVV checks.
Stripe Prohibited Businesses: What You Can & Cannot Sell
Most payment services, whether due to security concerns, legal concerns, or moral convictions, won’t work with every industry. Stripe, it turns out, is no different. Because Stripe is a third-party processor, meaning it aggregates all of its clients into a single merchant account, it’s taking on a bit more risk than if each customer had their own merchant account. If you’re in a “problem” industry and still need to accept card payments, you may want to consider getting a merchant account from a company like Payment Cloud instead.
So first the obvious: Stripe will not do business with entities that sell illegal or products or services, no exceptions. Beyond that, Stripe’s restrictions are a little soft: you may be able to plead your case to Stripe to get them to make an exemption for you.
- Financial and professional services:
- Investment & credit services
- Money & legal services
- Virtual currency
- IP Infringement, regulated, or illegal products and services
- Anything infringing on IP right
- Counterfeit goods
- Regulated products (tobacco, cannabis, and related products)
- Adult content & services
- Unfair, predatory, or deceptive practices
- Get rich quick schemes
- Mug shot publications or pay-to-remove sites
- Products or services restricted by Stripe’s financial partners
- Aggregation of funds, factoring, payment facilitation
- Drug paraphernalia
- High-risk businesses
- Multi-level marketing
- Pseudo pharmaceuticals
- Social media activity
- Substances designed to mimic illegal drugs
- Video game/virtual world credits
They also don’t like to see Stripe used in a manner inconsistent with its intended purpose or manner prohibited by its Stripe Services Agreement.