Payment Companies: New Business Models
Stripe, PayPal, Square and Ripple are all examples of payment aggregator companies that have expanded their business models to include offerings that are outside of their core product or service. Whilst not credit card issuers or acquirers, the companies have expanded their business models into new areas not typical of payment aggregating services. Stripe launched Radar, a fraud prevention tool, and Sigma, a data analytics tool; PayPal offers capital to small businesses through PayPal Working Capital; Square offers loans and cash advances through Square Capital; and Ripple offers currency and payment solutions through RippleNet. You'll find a deep dive of my research below.
In October 2016, Stripe, a payment platform for websites and mobile apps that operates around the globe, launched Radar, an e-commerce fraud prevention tool. This service was rolled out as part of the company's payment platform, included free of charge for Stripe clients. The Radar technology is enabled by machine learning and by Stripe's extensive monitoring of transaction data on its platform. Radar is a customizable tool that provides users with a list of flagged charges along with traditional fraud checks. The idea for Radar came from the fact that "Stripe handles so many millions of transactions every day... it has a way bigger and deeper set of data from which to draw conclusions about which transactions are fraudulent than most any single retailer." Stripe is striving to eliminate the impediments to accepting credit card payments over the Internet. During Radar's beta period with nonprofit Watsi, the tool was able to block more than $40 million in fraudulent transaction attempts.
In addition to fraud prevention, Stripe also expanded its services this year to include Sigma, a customizable SQL tool for data analysis. The tool gives Stripe clients access to data analytics through the Stripe platform, and the user can write queries to gain deeper insights into the data. The tool was just launched in June of this year, so I could not find any available data on the success of Sigma, as it's probably too soon to assess.
In 2013, PayPal expanded its offerings to include a lending platform for small businesses called PayPal Working Capital. The platform provides PayPal clients with access to capital within minutes through a funding tool that offers loans between $1,000 and $20,000. Loan approval is based on the business's sales data, rather than on a credit check, and borrowers pay a single fixed fee for the loan, which they can pay back based on a fixed percentage of their sales. Initially, PayPal selected 90,000 businesses to take part in the loan program. As of August of this year, the program had lent more than $3 million to 115,000 small businesses. At that time, PayPal moved to expand its lending service further by acquiring Swift Financial, a move that "will allow PayPal to offer loans to the larger businesses that process payments through its platform and better provide credit to firms that are not yet users of its services." This acquisition will enable larger PayPal merchants to borrow up to $500,000 at one time from the company.
Square, a company known for its mobile phone and tablet credit card readers, and accompanying mobile POS system, has expanded its business model in several ways. In 2014, the company launched Square Capital, with offers cash advances and loans to Square merchants in exchange for a flat rate percentage of their daily card sales. Recently, Square "applied for a bank charter that would let it make some of these loans using deposits that small businesses would store with its bank." This summer, Square further expanded its lending business by offering loans to non-Square merchants in partnership with Upserve, a restaurant software company. Then, in October of this year, Square partnered with BigCommerce, an e-commerce software company. This partnership will enable Square to offer loans to tens of thousands of additional clients. In addition, "Square is also extending loan offers to restaurants that work with its own delivery service, Caviar, but which don’t already process payments through Square." To date, Square Capital has provided $1.8 billion in funding to more than 140,000 businesses.
Ripple is a blockchain-based global payments network that operates a real-time gross settlement system and a currency exchange based on its cryptocurrency, known as ripples or XRP. In July of this year, Ripple expanded its offerings through its payments processing solution, RippleNet. The expanded offerings include xRapid, which leverages XRP "to lower the liquidity costs of payments in emerging markets"; xVia, an international payments interface; and xCurrent, a payments processing solution. Through this expansion, Ripple's is working toward the goal of an Internet of Value. In November, Ripple announced that three major banks in Asia have adopted RippleNet for making cross-border transactions. Moreover, "American Express and Santander announced that they would be using RippleNet to process cross-border payments made by some American Express business customers. According to a Finance Magnates report, these latest partnerships are part of a list more than 100 financial institutions that have adopted Ripple." Then, in December, the Japan Bank Consortium, in collaboration with Woori Bank and Shinhan Bank, two of South Korea's largest financial institutions, announced their adoption of Ripple's settlement technology, xCurrent.
To wrap up, Stripe, PayPal, Ripple and Square are all examples of payments companies that have expanded their offerings beyond their core product or service.