Stripe is testing cash advances, following Square and PayPal’s moves into business funding – TechCrunch

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Stripe, the fast-growing payments startup now worth over $9 billion, is working on a new product to help fill some of the gaps in its product suite as it tries to become the go-to partner for services. finance for startups and other businesses. He tested a new cash advance service, providing financing to his business customers, which would provide funds to businesses 1-2 days after they requested it.

Stripe has already started proactively reaching out to customers to market and issue the loans, which appear to be trialled under the Advance brand.

One of these companies provided us with details of what Stripe offers: the company was offered a $25,000 advance by Stripe, with a 10% premium (in other words, a loan of $25,000 will total $2,500 plus the loan amount of $25,000). Users receive a fixed percentage rate, taken from daily sales, to repay the advance – meaning the minimum amount you repay can vary from day to day depending on your sales for that day . In the case of our tipster, that recovery rate was three percent of his daily sales.

When asked about the cash advance service, Stripe admitted they were testing something and told us this tweet without further detail. So we don’t know if Stripe has offered other users different bonuses or payback percentages, or if $25,000 is the cap or if they’re lending more, or if they’re working with a third party to provide the funding, or if he offers off his own balance sheet.

For comparison, Square today works with Celtic Bank to provide loans through Square capital, and loans come in the next day and range from $500 to $100,000, with what appear to be varying premiums; like Stripe, customers have the option to repay through a fixed percentage of daily sales.

Amex offered the same customer approached by Stripe the option of taking out a $250,000 loan with an overall cost of less than 4%. PayPal offers loans of up to 30% of your annual sales”in minutesafter approval.

For these reasons, we believe that when (if) Stripe fully launches its Advance product, you might see different numbers based on that feedback and what’s already in the market.

Creating a cash advance service makes sense for a number of reasons.

For one, it will help Stripe diversify its business as it grows. Payments – Stripe’s core business – are typically low margin and require economies of scale. Funding works on a different principle, potentially giving the business a way to make an instant return on the money it already has.

And there’s obviously a big appetite for business lending. Square Capital has lent more than $3.1 billion to companies since May 2014. In the meantime, it is also considering how it could further expand its financing business. Square Installments, which is currently in a pilot phase, allows Square merchants to offer their customers the ability to pay over a period of months through billed installments.

Square Capital’s core business is also growing: the company said that in its most recent quarterSquare Capital facilitated over 60,000 business loans totaling $390 million, up 22% year-over-year.

Providing business loans, in this regard, would also help Stripe better compete with the rest of the payment and financial services pack, including other tech-focused companies like Square and PayPalmore established payment and credit companies like American Express, and of course traditional banks.

Stripe has already expanded into other business services, like helping businesses integrate into Delaware and better manage transaction fraud. Funding fits these: like the anti-fraud product, it’s another example of how Stripe can create products based on data it already collects about its business customers and their transaction histories.

You can also see Advance (or whatever it is called) as a way for Stripe to better retain customers.

Our tipster said he was actually considering leaving Stripe because it was too difficult to get full records of his company’s accounts on Stripe, to arrange funding through our companies. This funding service does not solve this problem, but it would give customers who are otherwise happy with Stripe an alternative rather than becoming a market breaker.

Indeed, you could also argue that not offering a financing product puts Stripe somewhat behind and misses out on a key financial service for small and start-ups, one that others have been offering for years now. SMEs typically take out loans to smooth their cash flow, invest in part of their business as they grow, or to offset an unexpected cost over a period of time.

Some prefer to contract financing instead of working with VCs. “What a lot of startup founders don’t realize is the cost of venture capital,” our source said. “Venture capital is by far the most expensive way to access capital as a business, more expensive than credit card debt.”

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