How Does Stripe Work? The Complete Guide To Stripe For Business
In our guide on what Stripe does and how to use Stripe for your business, we cover how to get started with it, pros and cons, security, and more.
Stripe Payments is one of the largest and most established providers of online payments. Considering how quickly Stripe is growing in popularity and reach, you may be wondering “how does Stripe work” and “what does Stripe do?” This guide gives you an overview of what Stripe is, what it does, and how to use Stripe for business purposes.
For more in-depth information on pricing, customer service options, and other issues, please see our full review of Stripe Payments.
Table of Contents
What Is Stripe Payments?
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 card, debit card, or alternative payment method transaction.
Stripe’s product suite and features focus on eCommerce transactions first and foremost. 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 with the addition of Stripe Terminal.
Is Stripe A Merchant Account?
Stripe is not a merchant account provider. Stripe is what’s called a payment service provider (PSP) or sometimes a third-party payment processor. A payment service provider does most of the same things that a merchant account does, to the point where the typical user may not notice the difference at all.
However, Stripe users don’t have individual merchant accounts. Instead, their accounts are aggregated together into one large merchant account. To better understand what this means, read our feature on what a payment service provider is.
How Does Stripe Work?
Stripe is somewhat unusual in that it’s built with developers foremost in mind. That can make Stripe a little bit intimidating for the average user unless you’re using a version that comes prebuilt into a platform such as Shopify.
The upside is Stripe is very customizable and well-documented for programmers. Here’s what accepting your first credit card payment looks like.
1) Sign Up
To get started with Stripe Payments, go to the Stripe website, and click on any of the prominently placed ‘Start now’ buttons. 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.
Verify your email address by clicking on the link provided in the verification email Stripe sends you. 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.
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 critical to be completely honest about your business — especially what products and services you sell.
2) Integrate Stripe Into Your eCommerce Website
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.
3) Try A Test Transaction
You can create test payments from your account under Payments to ensure things are functioning correctly.
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 that the receipt will be sent to. If you’re successful, Stripe will return an object containing transaction details.
4) Begin Processing
You can check your balance, including funds coming into and leaving Stripe as well as holds, from the Balances section of your account. While you can begin processing immediately, Stripe will hold your funds until your account has been fully verified. This process takes about seven days.
Note that you can do much more with Stripe than just eCommerce credit card transactions. Stripe can be used for invoicing, ACH payments, international payments, and in-person transactions. Some of these features are included in your basic account, while others require additional fees, which are typically added to your transaction rate.
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 payment 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 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 Stripe pricing guide for more information on these costs.
Are There Any Disadvantages To Using Stripe?
Stripe is a powerful service for the right company, but it’s not perfect. Here are some things to consider before signing up for Stripe.
- Account Instability: This is a problem common to PSPs in general. Account aggregation makes it difficult to resolve issues that may arise, leading to a higher percentage of account holds and freezes.
- Complicated Setup: If you aren’t getting a pre-integrated version of Stripe, you’ll need to do some coding to get it up and running. While this isn’t a problem for companies with technical resources, it may not be a desirable feature for some businesses.
- Fee Structure Can Get Expensive: Many of Stripe’s advanced features add costs on a per transaction basis. That, combined with the flat-rate pricing, can make scaling up with Stripe quite expensive.
Who Uses Stripe?
If you regularly use a credit or debit card, especially to make an online purchase, there’s a very good chance your card’s information has passed through Stripe’s network. The company estimates that 90% of US adults have made a purchase from a business that uses Stripe.
Companies that use Stripe include:
Stripe’s toolset is flexible enough to be useful for both small and large businesses. Stripe also offers incentives for nonprofit businesses.
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).
In the United States, Stripe restricts the following industries:
- Illegal products and services
- Products and services that infringe intellectual property rights
- Products and services that are unfair, predatory, or deceptive
- Adult content and services
- Certain legal services (Bail bonds, bankruptcy attorneys, law firms collecting funds other than legal service fee payment)
- Firearms, explosives, and dangerous materials
- Marijuana and cannabis products (including CBD)
Is Stripe Safe For Payments?
With a full array of 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:
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 0.4% per transaction fee.
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
- Sell across international borders
- Have a programmer on the payroll
- Want software-as-a-service features with their payment processing
The prefab integrations aren’t quite as exciting, but they’re serviceable if you need access to Stripe’s features. Stripe’s “use only what you need” approach to features makes it both accessible to small businesses and useful to large corporations.
That said, Stripe doesn’t necessarily scale smoothly. 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. Be sure to look at our guide on how to avoid account hold, freezes, and terminations for tips.
How Does Stripe Compare To Other Payment Processors?
Curious about how Stripe stacks up to the competition? Check out our comparison features to see how Stripe performs against its biggest competitors:
Where To Next With Stripe For Business?
Looking for more Stripe resources? Take a closer look at Stripe’s fee structure or explore the best Stripe alternatives to find another solution that suits your business. Or, get started with Stripe Payments for your business.