COMMENTARY: Why Stripe Will Dominate the New Era of Processing

In North American payments, full-suite processors—those that perform direct authorization and interchange for branded networks, including Visa and Mastercard—belong to an exclusive club. But many still rely on what would otherwise be considered commercially obsolete infrastructure. All of them grew up in a world where magstripe was leading edge, payment developers were rare, and open banking was science fiction.

Recently, however, an upstart has joined that club. As payment news goes, Stripe Inc.’s announcement that it has become a full-service processor came with little fanfare. But when Stripe walked away with 10% of Fiserv’s processing business, it made a much larger splash.

One explanation may be Stripe overload. Payments today is all about ISVs, open integration, and APIs, JSON, and SDKs. If those acronyms don’t mean anything to you, that’s my point: at the end of the day, it’s the developers who drive integration strategies and market penetration. Stripe figured that out more than a decade ago and has remained perfectly focused on those developers. It wins because it is the API of least resistance.

I’m a business and technology consultant in the payments space. Much of what I do connects solutions to customer challenges. These days, Stripe always has a solution (well, with one glaring exception, but that’s another discussion entirely). Stripe becoming a processor wasn’t news because in the payments world, Stripe already is the news.

Legacy processors are dependent on third-party fintech partnerships to keep up with modern integration standards because their own core platforms cannot natively support them. IBM’s big iron from the 1970s doesn’t know JSON from Jason. As a result, these legacy infrastructures are still excellent at authorization and clearing, but that’s about it. Stripe is also excellent at payments, while natively supporting a vast catalog of complementary functionality, all under one contract and service agreement.

A simple example of this is payment-facilitation infrastructure. All the required capabilities—like instant onboarding and sub-merchant hierarchies, underwriting, and fraud controls—are utterly native to Stripe.

Open banking encourages cooperation among diverse integrations. The thinking is that the whole is greater than the sum of its parts. This is largely proving truer and truer these days, but Stripe is, more than ever, the exception. Having checked the interchange-processor box, it is now a monolithic solution that, for developers needing payments, does do it all.

Note to Fiserv and everybody else: 10% is just the beginning. The message is clear. Stripe will not be the last transaction network to shun the old guard. The new generation of payments tech has cut the last of the apron strings. It no longer needs the old generation. The king is dead, long live the king.

—Cliff Gray is a senior associate at TSG, a payments advisory firm.