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> Payment processing is an ultra low margin business, no way they can compete while paying ~1% of revenues to the city. Stripe charges %2.9 + $0.30 per transac

> Payment processing is an ultra low margin business, no way they can compete while paying ~1% of revenues to the city. Stripe charges %2.9 + $0.30 per transaction. That is not an "ultra low margin" by any means in the CC processing domain. Actually, that is a massive markup when compared to other ISO's and VAR's. Depending on the Merchant's processor and their volume, significance, and sophistication, their Discount Rate[0] is often well less than the %2.9 Stripe demands. The fact that Stripe also tacks on another $0.30 USD on top of the top-end Discount Rate for their transaction fee is insane (see here[1] and here[2] for some context and these don't even account for fee negotiations). And to suggest "no way can they compete while paying ..." is to ignore Stripe has a valuation at/near $35,000,000,000 USD[3]. 0 - https://www.creditcards.com/credit-card-news/glossary/term-discount-rate.php https://www.creditcards.com/credit-card-news/glossary/term-d... 1 - https://usa.visa.com/dam/VCOM/download/merchants/visa-usa-interchange-reimbursement-fees.pdf https://usa.visa.com/dam/VCOM/download/merchants/visa-usa-in... 2 - https://www.mastercard.us/content/dam/mccom/en-us/documents/merchant-interchange-rates-2019-2020.pdf https://www.mastercard.us/content/dam/mccom/en-us/documents/... 3 - https://techcrunch.com/2019/09/19/stripe-is-raising-another-250m-at-a-35b-pre-money-valuation/ https://techcrunch.com/2019/09/19/stripe-is-raising-another-...

thr0waway43234 7y ago
Regarding their pricing to low-touch customers, like anyone just signing up on the website, yes, it's a very good margin for a payment processor. But the trick is that nobody processing a million a day + is going to pay that. They'll negotiate, hard, or change providers. I suspect most of them are in more traditional cost plus contracts: 5c-50c take per transaction, even though the entire bank processing fee is counted in revenue. In those cases, the local tax would put SF companies at a major disadvantage vs Adyen, which doesn't pay a tax on revenues. Given that Stripe is already not a major player for those very large companies, 1% of revenues on merchants that have high average transaction sizes means they might as well not show up to the negotiating table, as their break even point will be more expensive than other's best offer.
dehrmann 7y ago
> Stripe charges %2.9 + $0.30 per transaction. That is not an "ultra low margin" by any means in the CC processing domain. That's revenue, not margin.
rstupek 7y ago
And not all of that 2.9% goes directly to stripes account, most of it is going to visa/mc/amex
gamblor956 7y ago
Hypothetical: Item costs $100. Stripe's fee is $3.20 (2.9% plus $0.30). The question is how much of that is gross revenue? Many take the position that the portion that Stripe pays to Visa/MC is not gross revenue to Stripe because it was never their revenue; they were just collecting money the merchant would have owed to Visa/MC. If so, then Stripe's gross revenue is only the $1 they have left after paying Visa/MC on the merchant's behalf. But others take the position that the entire $3.20 is gross revenue to Stripe, and that the amount they pay to Visa/MC is a COSS of that revenue. If Stripe pays Visa/MC less for that $100 transaction than the merchant would if Stripe weren't involved, than it's clear that the $3.20 is gross revenue to stripe and the Visa/MC fee is a COSS. But if Stripe would owe Visa/MC the same as the merchant would, then arguably the Visa/MC was never revenue to them in the first place. It comes down to the terms of the contract--is Stripe merely forwarding on the merchant's Visa/MC fee or is it assuming that liability on behalf of the merchant? When it was growing, Stripe took the position that the entire $3.20 was gross revenue, because it made them look good. (See also, Groupon, Uber.) Now that they're a very big company though, it makes them look too good for tax purposes, even if the financial reality is very different. But having chosen their accounting method, they're stuck with it.

thr0waway43234 7y ago

Regarding their pricing to low-touch customers, like anyone just signing up on the website, yes, it's a very good margin for a payment processor. But the trick is that nobody processing a million a day + is going to pay that. They'll negotiate, hard, or change providers. I suspect most of them are in more traditional cost plus contracts: 5c-50c take per transaction, even though the entire bank processing fee is counted in revenue. In those cases, the local tax would put SF companies at a major disadvantage vs Adyen, which doesn't pay a tax on revenues. Given that Stripe is already not a major player for those very large companies, 1% of revenues on merchants that have high average transaction sizes means they might as well not show up to the negotiating table, as their break even point will be more expensive than other's best offer.

dehrmann 7y ago

> Stripe charges %2.9 + $0.30 per transaction. That is not an "ultra low margin" by any means in the CC processing domain. That's revenue, not margin.

rstupek 7y ago

And not all of that 2.9% goes directly to stripes account, most of it is going to visa/mc/amex

gamblor956 7y ago

Hypothetical: Item costs $100. Stripe's fee is $3.20 (2.9% plus $0.30). The question is how much of that is gross revenue? Many take the position that the portion that Stripe pays to Visa/MC is not gross revenue to Stripe because it was never their revenue; they were just collecting money the merchant would have owed to Visa/MC. If so, then Stripe's gross revenue is only the $1 they have left after paying Visa/MC on the merchant's behalf. But others take the position that the entire $3.20 is gross revenue to Stripe, and that the amount they pay to Visa/MC is a COSS of that revenue. If Stripe pays Visa/MC less for that $100 transaction than the merchant would if Stripe weren't involved, than it's clear that the $3.20 is gross revenue to stripe and the Visa/MC fee is a COSS. But if Stripe would owe Visa/MC the same as the merchant would, then arguably the Visa/MC was never revenue to them in the first place. It comes down to the terms of the contract--is Stripe merely forwarding on the merchant's Visa/MC fee or is it assuming that liability on behalf of the merchant? When it was growing, Stripe took the position that the entire $3.20 was gross revenue, because it made them look good. (See also, Groupon, Uber.) Now that they're a very big company though, it makes them look too good for tax purposes, even if the financial reality is very different. But having chosen their accounting method, they're stuck with it.