Why Stripe Launching a Competing Product was the Best Thing That Happened to My Startup
As CEO of Treasury Prime I’d like to welcome Stripe Treasury to the Banking as a Service (BaaS) space. Stripe’s entry is a fantastic validation of the size and immediacy of the market opportunity. Here’s to healthy competition that delivers more innovation and value to customers!
When I read variants of those statements from other companies, I laugh and call BS. I get that is what they have to say as company leaders. Honestly, what are you supposed to say when a great company like Stripe—with a $36 billion valuation and a massive war chest—appears to be moving into your space?
In my case though, I get to say that the Stripe Treasury announcement has been great for my business. Less than 24 hours after the announcement, people started reaching out to me. And it’s because of parts of the announcement that didn’t make headlines.
Easy-to-use merchant APIs
Stripe’s best-in-class, easy-to-use merchant APIs perform an incredibly important service of abstracting the complexity of integrating payments for e-commerce companies. With Stripe Connect, Stripe had already expanded to other banking services.
I would argue that Stripe Treasury is really just Stripe Connect v2. The purpose of Stripe Treasury is to advance payments and make small loans to merchants through pairing with Stripe Capital. This isn’t Banking as a Service; it’s banking. The organizations that will be most impacted are traditional banks, not companies that digitize banks’ services.
A bank’s business model is pretty straightforward: they take cheap deposits and make expensive loans. This business provides healthy margins and banks have traditionally been very good at it. Stripe Treasury is a direct threat to this core business.
More broadly, Stripe Treasury is a new signal in the larger banking technology space. Its release should tell banks and investors alike that if you haven’t sunk your hooks into BaaS, you’re going to get left behind.
The fine print
What’s been buried in the coverage is a piece of news about three quarters of the way down Stripe’s press release:
“Stripe is enabling standardized access via APIs to the global banking capabilities of its bank partner network, which now includes Goldman Sachs Bank USA and Evolve Bank & Trust as US partners, and Citibank N.A. and Barclays as global expansion partners.”
In short, Goldman Sachs, Citibank, and Barclays are getting into API banking. This fact may not have been central, or even peripheral, in the coverage of the news, but that message has been heard loud and clear by the other 4,500 banks in the US.
API banking is what it sounds like: Building APIs that enable banks to digitize and connect their services to fintech offerings. On the fintech side of the API, we’re seeing a trend called embedded finance. An example of embedded finance is Klarna, a financing tool that businesses like H&M are using to offer installment payment plans to customers online.
Banking as a Service, which is what Treasury Prime does, encompasses API banking. It’s also something that thousands of banks are only starting to think about doing, if they’re even there yet. The “Fear of Missing Out” (FOMO) these banks feel at seeing the Stripe Treasury news is huge. The banks partnering with Stripe Treasury are getting access to fintech services that act as far-flung nodes of interaction with Shopify’s merchant customers.
This is creating a sense of urgency for banks to get an API strategy in place. If they don’t, they face two risks: losing some of their existing business, and being shut out of acquiring new customers.
Don't count them out. Banks are very smart and they excel at managing and mitigating risk. They are actively assessing their options and we’re having conversations now that I thought were years away. All as a result of the Stripe Treasury announcement.
The BaaS space: bigger picture
FOMO has also set in on the investment side. VC firms that don’t have a strong bet, or even multiple hedges in the BaaS space, are suddenly scrambling to fill that gap. With Stripe only working with a limited number of banks at the moment, others who aren’t looped in will need to look for other BaaS providers.
As a BaaS founder, that doesn’t mean you should rush to take on an investment from the first me-too, lower-tier firm who comes knocking—your fundraising strategy shouldn’t change. But the reality is that the investment market conditions are just better for you, and you can afford to be picky in selecting your partners for future growth, or demanding more favorable terms in any negotiations that were ongoing.
We’re not in head to head competition with Stripe Treasury. There are some areas of overlap, but we have fundamentally different target customers. As I previously told TechCrunch, most fintechs have multiple vendors for different services and redundancies, there will be room for many vendors per major fintech served by banking-via-an-API services. Treasury Prime is an API company that connects fintechs who need to embed banking services with the banks that deliver those services. Stripe is a merchant services firm launching a new offering to merchants via Shopify.
This news has woken up the banking world in a way that I’ve never seen before and we’re having lots of substantive discussions. That’s great for our business. Thank you, Stripe!