Stripe is thinking about going public, and I have an idea who the losers will be. The biggest losers of the Stripe IPO will be those who use the payment processing service.

This is inevitable because Stripe has to look out for their short-term and long-term profitability by creating favorable conditions for institutional investors.

If Stripe does go public, it’ll be one of the biggest tech IPOs in years. And it will be a major catalyst for similar, yet less mature, startups to follow suit. Stripe has become the clear leader in online payments, but Stripe’s business model is flawed.

Going public will harm merchants using Stripe’s services.

The Good

Stripe going public shows that fintech companies are coming of age and can be highly successful. It also gives other potential unicorn tech companies hope that they can do the same.

Though public investors are unlikely to see a financial return for years, going public will give Stripe access to new sources of capital, allowing it to invest more in its business. The company can use that cash to expand into new markets or help new industries like banking or insurance adopt its technology.

Is Stripe a public company?

Stripe is not yet a public company. Up until recently, the company has stated its intentions to stay a private company.

When is Stripe Going Public?

Sometime in early 2022, Stripe is expected to release its IPO. Right now, the company is valued at $95 billion.

This Bloomberg article has more information about the potential stock market listing. It’s also not possible to buy Stripe stock before the initial public offering/direct listing market debut on Wall Street.

The Bad

Stripe has a stronghold on the market. But this is not a fact you would tell by observing their business activities. They have shown no interest in disrupting the status quo of online payment processing. Even more troubling, Stripe is now considering becoming a public company and taking on even more venture capital. I believe this could have devastating effects on both existing merchants using Stripe as well as startups looking to build technology on top of Stripe.

Big Players Take Control

Stripe going public could be a major blow to the startups it serves.

Stripe was founded in 2009 and has since become one of the biggest payment processing companies in the world, raking in $100 billion annually. Its clients include Amazon, Shopify, Salesforce, and many more.

But now that it’s going public, big corporations will soon have a chance to buy shares in Stripe, giving them control over the company. That means big players could soon own a huge stake in the company. And that might not be good news for small businesses and startups.

Profit for Shareholders Become Priority

When a company goes public, it’s owned by its shareholders instead of its founders. This means, in essence, that the company is no longer beholden to the original vision of its founders — who might have been motivated by lofty goals like changing the world or providing great customer service — but rather to the investors who want to see a return on their investment.

Stripe’s last private valuation was $95 billion. That’s a lot of money for a payment gateway that does not own any part of the payments chain beyond being an intermediary between merchants and processing networks. And when you do simple math and divide $95 billion by Stripe’s revenues ($7.4 billion), you realize there are extremely high expectations for Stripe’s future growth.

The only way those expectations can be met is if Stripe grows very quickly into new markets, and most importantly, if it starts squeezing more money out of its existing customers. In other words, while Stripe might have been motivated by a “do good” mission before it went public, now it will be trying to squeeze every penny out of every transaction it processes and charge every fee it can.

Increased Risk of Regulatory Scrutiny, Clean House

One of the great unwritten rules of business is that every time a company gets ready to go public, it cleans house. That’s what happened with Peter Thiel’s PayPal. It’s what happened with Uber. And it’s going to happen with Stripe.

Back in the early 2000s, PayPal went through this exact process of going public. In doing so, they performed a clean sweep, getting rid of high-risk merchants and anything that was unappealing to shareholders and investors. Then, Dublin-born John Collison and co-founder Patrick Collison brought Stripe onto the scene as an e-commerce solution to the PayPal fiasco. From Ireland to San Francisco, Stripe has been the go-to payment platform for credit card payments.

This is a continuous cycle. A 3rd-party processor appears, merchants of all sizes gravitate toward it, the company grows, goes public, and transforms into something that it promised it would never be. Then a new gateway/aggregator/3rd-party processor appears, merchants gravitate toward it, etc.

Stripe is now a victim of that cycle. Which payments company will be the one to pick up where Stripe left off? Is it worth it to wait for that new provider, continue to use Stripe (even if it’s not performing how you need), or find a different solution altogether?

New Standards for Use Will Be Implemented

Stripe will have to implement new standards for use of its service once it goes public. That could mean users sharing more sensitive data than before and may be more reluctant to do so after recent hacks and data breaches.

Another adjustment likely comes in the form of increased fees or new fees. Stripe will need to increase profitability and the fastest way to do so is by charging those who use the platform more.

The company which has been a disrupter for over the last decade will now have to think about their growth in a different light.

As an example, let’s look at how Stripe has handled cannabis companies since the market opened in 2010. While there are other payment processors who have been more accommodating to cannabis companies, Stripe has had a “no tolerance” policy towards the industry due to federal regulations. How will they handle this now that they are a publicly traded company? What about cryptocurrency?

New Services, Not Better Services

Another way for Stripe to increase profitability is by providing new services, attracting new customers, and possibly entering new markets.

That newness does have the potential to benefit you, sure. But at what cost? The company could easily neglect areas of their business that need improvement due to their new focus on a new area of business. Areas like invoicing, better APIs, or improved financial services. Or, perhaps, those new features might come at a monetary cost to you, no matter how long you’ve used the platform or how much your business rakes in for Stripe.

The point is that just because a company may offer something new, doesn’t mean it’s better. With more capital, Stripe’s goal is not to make the service better for merchants who use it, it’s to offer more services, attract new customers, and grow their own business at the expense of SMBs.

Summing Up: What Does Stripe Going Public Mean for Existing Merchants?

Maybe not much right now. But existing Stripe customers should keep an eye out for potential competition from other payment providers.

At the risk of stating the obvious, Stripe as a publicly traded company would need to grow revenue quarter after quarter. That puts pressure on management to add new products and expand into new markets — which could potentially eat into existing relationships with customers if they want to go in another direction.

Our advice is not to wait around until next year, or month, or week and see how the change will affect your business. You’d hate to one day log into your Stripe account and see that it’s been terminated.

What to Do: Get a Backup Merchant Account

The best possible way to protect yourself in any situation is to open a backup merchant account. This will keep your store running smoothly no matter what happens with Stripe.

DirectPayNet excels in providing merchant accounts to sellers coming from Stripe, PayPal, and Square. We allow you to focus on stability, sustainability, and growth for your business by connecting you with a payment processor that’s dedicated to your business type.

Open your backup merchant account today and protect yourself from Stripe going public.