Stripe creates Stripe Capital to start offering loans…
One of the most valuable fintech startups in the world, Stripe, is moving into a new area of business. Last valued at $22.5 billion, the company announced on Thursday that it’s launching a new lending service called Stripe Capital.
The idea behind the new venture is to lend money to small online companies that are already Stripe customers. The loan is then eventually repaid as the borrowers make sales through Stripe’s payment platform. Stripe will use data it has on its customers to determine loan eligibility.
According to Stripe chief product officer Will Gaybrick, “Stripe Capital makes it easy for internet businesses to get the funds they need, when they need them,” he continued to say that it should be “trivially simple and lightning-fast” for small businesses to access capital and invest in growth.
This lending program is meant to make it easy for customers to access funds as they need them. Stripe also says users can receive funds in as little as one business day.
Stripe will initially focus on offering loans of about $10,000 to $20,000.
No Credit Scores
Stripe and other fintech companies offer one major advantage over banks: Stripe doesn’t have to rely on FICO scores when approving loans. Instead, it can use its own advanced algorithms to analyze company data to determine eligibility.
Stripe co-founder John Collison says, “We can constantly be looking at the businesses on Stripe, their cash flow, how they are growing, and who can be productively underwritten for a loan.”
This system allows Stripe to easily identify creditworthy borrowers and distribute funds quickly.
“In the past, you had to wait weeks or months while a loan officer reviewed an application, but we can see a customer’s historical performance on Stripe and apply our machine learning models to do the work, analyzing with no human intervention,” Collison states.
Competition
Stripe faces very strong competition from companies like Square, PayPal, Amazon, Kabbage Inc., and OnDeck Capital Inc. Like Stripe, these companies have introduced their own small business lending programs.
Jack Dorsey’s Square, in particular, has experienced significant growth with its lending service Square Capital. In the company’s latest earnings report, Square noted that Square Capital issued 78,000 loans totaling $528 million. Since the creation of this service in 2014, Square Capital has loaned more than $5 billion.
PayPal reported growth in its lending services for the company’s second quarter.
Stripe IPO: Don’t Expect Anything Soon
Stripe is already one of the world’s most valuable financial-technology companies. Earlier this year, the company raised an additional $100 million from investment firm Tiger Global Management, bringing Stripe’s valuation to $22.5 billion, up from $20 billion in September.
Although the company continues to grow at a rapid pace, there are currently no plans to go public. Stripe COO Claire Hughes Johnson told Fortune, “I think we think of ourselves as building infrastructure very long-term and executing on that.” She indicated that the company’s priorities are “accelerating this global expansion and being there for these large customers who are pulling us upmarket.”
While investors will continue to eagerly await an IPO filing, Stripe seems to be fine staying private for the time being.
Meanwhile, one of Stripe’s largest publicly-traded competitors, Square, has had an incredible year, rallying by as much as 40% since January.
