How Does Stripe Work? Everything You Need To Know About Processing Payments With Stripe

eCommerce merchants looking for credit card processing services and a payment gateway for their business will find Stripe hard to ignore. One of the largest and most established providers in the world of online payments, the company serves as both a payment service provider (PSP) and a payment gateway provider. With Stripe, you can accept credit cards, debit cards, and even automated clearing house (ACH) transactions from your website without the need to cobble together a payments solution that relies on services from several different companies.

Stripe powers the transactions of some of the biggest brands out there, including Lyft, Under Armour, Blue Apron, and Pinterest. In fact, the company claims that 89% of all credit cards have been processed on a Stripe network at some point. With the ability to handle over 135 currencies, it’s a common solution for companies that do business internationally.

This article will explain how Stripe works and show you how to get up and running with a Stripe account. We’ll also discuss how to integrate Stripe’s payment system into your business and explain some limitations you need to be aware of before signing up. For more in-depth information on pricing, customer service options, and other issues, please see our full review of Stripe Payments.

What Is Stripe Payments & How Does Stripe Work?

What is Stripe Payments, and do you need it for your business? Stripe Payments is a payment processing platform. It allows you to transfer money from a customer’s bank account into your business’s account by way of a credit or debit card transaction. That’s a pretty simplified explanation, but we’ll get more into the details later.

Stripe’s product suite and features are focused first and foremost on eCommerce transactions. However, as more and more businesses are transitioning to an “omnichannel” model involving online and in-person sales, the company has expanded its lineup to include support for credit card terminals, POS systems, and mobile processing solutions.

4 Benefits To Using Stripe’s Online Payment System

While none of Stripe’s products or services are truly unique anymore, its solutions continue to stand out from those of its competitors in several ways. Among the many advantages of using Stripe’s payment system, consider the following features:

• A Quick, Easy Onboarding Process: As a payment service provider (PSP), Stripe doesn’t require an extensive underwriting process to approve a full-service merchant account. You can sign up online and be approved very quickly.
• An Integrated Payments Processing System: Stripe offers both a credit card payments processing service and a payment gateway as part of its service. With support for countertop credit card terminals and POS systems, it now offers a single, integrated system that fully supports both retail and eCommerce sales channels.
• An Expansive Array Of Customization Options: If you’re tired of having only a limited set of customization options for your site, you’ll love Stripe’s extensive collections of developer tools and APIs — all of which come with thorough documentation. Note that you may need coding skills or the services of a developer to take full advantage of these features.
• A Complete Set Of Security Features: While no provider can offer you truly bulletproof payment security 100% of the time, Stripe comes as close as possible to this ideal. Most of Stripe’s fundamental security features, such as TLS (SSL) and encryption, are included with every account at no charge. More advanced features, such as the Stripe Radar anti-fraud service, will cost you a little extra.

Check out our article, The Complete Guide To Stripe Pricing, Processing Fees & Costs, for more information on these costs.

4 Ways To Use Stripe Payments Tools For Online Businesses

To process online transactions, you need both a payment gateway and payment processor. The gateway securely captures and transmits the customer’s credit card payment information to the processor that processes the transaction. Funds from the customer’s bank are temporarily routed to a merchant account (in the case of a PSP such as Stripe, it’s an aggregated account) where credit card-related fees are deducted from the sum.

Stripe combines gateway functionality and payment processing into a single product, making it a convenient way to handle eCommerce. It’s neither the easiest nor the cheapest option, however. Here’s an overview of the main ways you can use Stripe to process either online or in-person transactions:

Stripe Checkout

Designed with non-programmers in mind, Stripe Checkout lets you build a customized hosted payment page without writing any code. As long as you know your way around your site’s content management system (CMS), you can set everything up by cutting and pasting the appropriate code snippets and then selecting from several pre-installed customization options.

While those options might be a bit basic, Stripe Checkout has a wide array of important features that any online business will need. Those features include support for email receipts, coupons and promo codes, automatic tax collection, foreign language support, and chargeback protection.

Stripe Checkout is a great out-of-the-box solution for new eCommerce merchants, but eventually, you’ll outgrow its limited and predefined features and options. When that happens, you’ll want to consider moving up to a more customizable solution, such as the Stripe Developer Tools.

Stripe Developer Tools

To fully unlock Stripe’s potential, you’ll need to either be proficient at writing code or have access to a developer who can do it for you. If you’re not fortunate enough to have a trusty developer available, Stripe can help you find one. This service isn’t free, of course, but it can be a great investment in helping your business reach new heights.

Stripe offers a truly extensive library of online developer resources, including documentation and preformatted code snippets for every feature and option you might want to include on your site. All of this information is publicly available on the Stripe website, so you can get an idea of the work involved before you begin. You will, however, need the appropriate API keys that come with your Stripe account before you can go live.

Stripe Terminal

If you also need to accept in-person sales, Stripe Terminal allows you to integrate physical processing hardware into your payment stack. The emphasis here is on mobile systems, with support currently available for the Stripe Reader M2 and the BBPOS Chipper 2X BT, both of which connect via Bluetooth and support magstripe, EMV, and NFC-based payment methods. Support for the BBPOS WisePOS E, a “smart” countertop terminal with a color touch screen and support for Wi-Fi and Ethernet connectivity, is coming soon.

These terminals are available directly from Stripe and are reasonably priced. With Stripe Terminal, you’ll be able to have all payment data from online and in-person sales available from your Stripe Dashboard.

Stripe Billing & Invoicing

If you’re a freelancer or an independent contractor who relies on invoices to get paid, Stripe is an excellent option. You can generate and send online invoices right from the Stripe Dashboard, complete with customized business logos, line-item breakdowns, automatic tax collection, and (most importantly!) a payment link for convenient and secure payment. Stripe claims that most of its invoices are paid within three days.

Stripe Prohibited Businesses: What You Can & Cannot Sell With Stripe Payments

As a general rule, Stripe does not accept high-risk merchants. The elevated risk that comes with aggregating multiple businesses into a single account makes it impractical for the company to accept any business that experiences an unusually high chargeback rate or provides products or services of questionable legality. This is the case with virtually all payment service providers (PSPs).

Unfortunately, Stripe doesn’t make this limitation very clear on its website. Further complicating the issue is the fact that what constitutes a high-risk industry can vary from one country to the next. We recommend checking to confirm that your business isn’t in a high-risk category before signing up with Stripe. Otherwise, the most likely outcome is that you’ll initially be approved for an account, but the company will quickly shut it down once you start processing transactions.

In the United States, Stripe restricts the following industries:

Is Stripe Safe For Payments?

Is Stripe safe for your business to use? With a full array of both basic and advanced security features, Stripe is one of the safest payment processors you can use. Every Stripe account comes with the following security features, all at no extra charge:

• Address verification service (AVS)
• CVV/CVV2 checks
• HTTPS using TLS (SSL) encryption

Stripe is also a certified Level 1 PCI Service Provider, which means it meets the most stringent PCI DSS standards set forth by the PCI Security Standards Council. Because your account is aggregated, Stripe essentially takes care of all PCI compliance requirements for you. (Note that you’ll still have to follow basic security practices, such as never writing down a customer’s credit card number.)

With online fraud on the rise, Stripe also offers an advanced fraud detection service called Stripe Radar. This service uses machine learning to predict the likelihood that any particular transaction is fraudulent by factoring in data from your business and information Stripe has about the card being used. Radar is free with accounts paying the standard Stripe processing fee (2.9% +$0.30 per transaction) or as a $0.05 per transaction add-on if you’re on a custom pricing plan. You can also buy chargeback protection for a 0.04% per transaction fee.

That said, nobody’s perfect. Stripe offers an incentive program to anyone who identifies a qualifying security-related bug and reports it to Stripe’s security team. Major bugs earn a minimum reward of $500. Lesser vulnerabilities may be rewarded a minimum of $100.

Why The Stripe Payment Gateway Is Great For International Businesses

If you’re considering Stripe over a more cost-effective solution, there’s a good chance it’s because you’re interested in selling across international borders. Stripe markets itself as a premier payment services company for international businesses, and, along with PayPal-owned competitor Braintree, it’s one of the best and most popular choices on the market.

Stripe is now available to merchants in 44 countries, with expansion into even more markets occurring regularly. It can also accommodate payments in over 135 different currencies. Better still, if the charge currency (yours) differs from the customer’s credit card currency, Stripe can convert the payment to your currency for a small fee based on daily mid-market exchange rates. You can avoid the currency conversion fee if you have a connected bank account that uses the credit card’s currency.

Another nice feature for international businesses is that Stripe allows you to display the cost of your products in the viewer’s native currency. So even if your hipster barber business is based in New York, you can sell your whisker trimmers in pounds sterling in London.

Finally, Stripe accepts a large number of payment types, including ones popular in foreign markets. For these and many other reasons, it’s one of our top choices for international payment processing services.

Stripe Atlas Program For International Merchants

With such a strong emphasis on serving international businesses, it’s no surprise that Stripe now offers a new program called Stripe Atlas. This out-of-the-box solution allows you to set up a US-based online business (incorporated in Delaware, naturally) with a minimum amount of hassle and confusion on your part. Stripe Atlas provides the legal framework to set up and properly register your business. The service comes with a Stripe account, a business banking account, a business debit card, and various special offers from third-party partners (including $5,000 in free credits from Amazon Web Services).

All of this will cost you a one-time setup fee of $500, plus a variety of annual fees for services such as tax preparation and filing. Is Stripe Atlas a good deal? Let’s put it this way: You’re going to have to pay for all of these things anyway. By bundling them together, Stripe Atlas can save you a significant amount of money overall. However, the high upfront cost makes the program best suited to businesses that already have a fair amount of capital, whether from investors or personal savings.

Stripe Payment Methods

Stripe supports a large number of payment methods, making it a convenient choice for doing business in foreign markets. Stripe even takes the rare approach of supporting local payment types in addition to the more common “universal” ones, with a particular focus on types that are popular in the EU and China.

Stripe’s Payments API supports the following universal payment types (these are supported in all markets):

• Alipay
• Apple Pay
• Click To Pay
• Google Pay
• Microsoft Pay
• WeChat Pay

Additionally, Stripe supports local payment types in the markets where they’re popular. They are:

• ACH credit transfers
• ACH debits
• Afterpay/Clearpay
• Bacs Direct Debit
• EPS
• FPX
• Giropay
• GrabPay
• iDEAL
• Klarna
• Multibanco
• OXXO
• Pre-authorized debits in Canada
• Przelewy24 (P24)
• SEPA Direct Debit
• SOFORT

Check out Stripe’s website for the latest information on supported payment methods, as this information changes frequently.

How To Set Up A Stripe Account

Although the coding work required to take advantage of Stripe’s developer tools can be pretty extensive, setting up a basic Stripe account is actually very simple. Here’s what you’ll need to do:

1. Go to the Stripe website, and click on any of the conveniently placed ‘Start Now’ buttons.
2. You’ll be directed to a ‘Create Your Stripe Account’ page, where you’ll need to provide your email address, full name, and country. You’ll also need to set a password.
3. Verify your email address by clicking on the link provided in the verification email Stripe sends you.
4. Provide the required information to activate your Stripe account. This will include details about the nature of your business, fulfillment details, your business banking account information, and a recent credit card statement. You can also set up two-step authentication (which we highly recommend) at this time.
5. You’ll receive an email verifying that your account has been approved. Verification requires 24 hours, or possibly longer. Note that Stripe uses an expedited process to get your account approved quickly, so it’s critically important to be completely honest about your business — especially what products and services you’re selling.

Okay, that was the easy part. You still need to set up Stripe to work with your eCommerce website. Here’s a brief overview of how to do it:

You’ll need two pairs of keys to use Stripe’s REST API: one for testing, the other for when you go live. You can find them in your Stripe Dashboard under Developers —> API Keys. You can toggle between Live and Test keys once your account is activated.

Stripe plays nicely with popular server-side languages/frameworks, with particular care given to Ruby, Python, PHP, Java, Node.js, Go, and .NET. The minimal setup for Stripe is pretty simple. If you’re using a prebuilt option such as Stripe Checkout, it can usually be done by simply copying and pasting the appropriate lines of code to your site.

For a customized option that requires actual coding, you’ll first need to install the language-appropriate Stripe library. You can do this with package managers, such as npm for Node.js, pip for Python, etc. From there, it’s just a matter of setting your API keys and creating an object containing your payment intent with properties for amount, currency, payment method, and the email address the receipt will be sent to. If you’re successful, Stripe will return an object containing transaction details.

From here, Stripe stops holding your hand quite so tightly and instead offers a few different paths you can take to build your eCommerce page.

The Stripe developer guides are all as concise as the basic setup guide, with plenty of code snippets and links to other relevant parts of the Stripe Docs. If you don’t want to start from scratch, you can clone one of many existing boilerplate projects through GitHub.

Still with us? If the last few paragraphs caused your eyes to glaze over (which is perfectly understandable), it’s time to hire a developer who can do this work for you. You’ll want to consult with them closely to ensure that all the customization options you want are included in the finished product.

Is Stripe Right For Your Business?

Stripe is a great option for businesses that have an eCommerce sales channel, want the best security the industry has to offer, and that do business across international borders. If you’re a programmer or have one on your team, Stripe also provides some of the best developer tools in the payment processing industry, period. The prefab integrations aren’t quite as exciting, but they’re serviceable if you need access to Stripe’s features.

That said, Stripe can be overkill for some small businesses. It’s not the cheapest option, and you can’t just use it as a gateway. You get a lot of services for your money, but it’s possible, perhaps even likely, that you won’t need or use all of them. And, like all payment service providers, it comes with a heightened risk of sudden account holds and freezes.

If you like what Stripe offers but are a little overwhelmed by its scope, check out our Stripe alternatives. Is your industry not served by Stripe? Find a payment processor that works with your business among our favorite online payment gateways and credit card processors.

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