Banking & Payments
How far – and fast – can Stripe grow in Asia?
The deal with China UnionPay opens doors to SaaS solutions Stripe must develop to beat Asian competitors.
Stripe, valued in March at $95 billion, announced last year its intention to ramp up its efforts across Asia Pacific. This included a drive to hire local engineers and expand its headcount from its regional headquarters in Singapore, which it established in 2016.
Now the San Francisco- and Dublin-based fintech has announced its first major deal since then, a tie-up with UnionPay International, the cross-border arm of China UnionPay, the world’s most prolific issuer of credit cards.
“UnionPay clients can integrate into Stripe and, with just a few configurations in local markets, enable merchants overseas to accept payments from their cardholders,” said Noah Pepper, Stripe’s head of Asia Pac in Singapore. “And we can help overseas merchants access Chinese consumers.”
This is the highest-profile move by Stripe in Asia’s emerging markets. Its main activities have been focused on the developed markets of Singapore, Australia, and New Zealand. This includes a pilot program to integrate with PayNow, Singapore’s QR code-based portal to real-time payments. It is also building a presence in Japan and Hong Kong.
Its efforts in Southeast Asia and India are nascent, although last year it entered an experiment in Indonesia facilitating interbank payments.
The UnionPay agreement fleshes out similar deals Stripe has made with AliPay and WeChat Pay, giving it an almost complete relationship with China’s three biggest payment processors.
Such relationships are not exclusive, however. PayPal and Payoneer have their own China relationships, as do Asia-based fintechs such as NIUM and Airwallex. LianLian is a small Chinese payments company that has developed a niche serving the overseas market.
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Because these relationships are not exclusive, Stripe may find itself competing more on price. Its fees are lower than PayPal’s, but they may not be low enough, especially if the company has to rely on core pay-in/pay-out facilitation as it seeks to market its SaaS products.
Stripe does bring a few competitive advantages. Leaving PayPal aside, Stripe has the biggest presence in Western nations, and a huge valuation that lets it put capital to work. Its presence in 30 markets, mostly in the West, works both to help Western companies tap Chinese consumers, as well as help Chinese merchants use Stripe to enable payments in North America and Europe.
The second advantage is the nature of Stripe’s customer base. The company deliberately goes after digital companies and fast-growing startups. “We want to grow the GDP of the internet,” Pepper said, reciting the corporate mantra.
The third aspect of Stripe’s business is how it has approached payments. It is focused on small enterprises, startups, and digital companies. Its global competitors have different emphases: Adyen services large enterprises, Square relies on consumers making low-value purchases, and PayPal – the industry’s big gorilla – may be omnipresent but it’s also hard to customize and it charges merchants more.
Stripe also tends to remain focused on infrastructure and API connectivity, rather than cater directly to consumers. This makes it easier to partner with, say, credit-card companies. Stripe enters a market with basic pay-in, pay-out services, and then works with its users to build software services on top.
In the US, this approach has enabled Stripe to roll out a range of services, including subscription management (DigFin used this tool, back when we charged for subscriptions); invoicing and billing services; and help with taxes and accounting, including “revenue recognition”, providing a dashboard to help users make sense of their income streams.
It just introduced RevRec this month worldwide, showing the company continues to be good at commercializing ideas. And it has a track record of leveraging its users to spread its latest innovations. Stripe uses its core payments and bundled services to enable its customers to become de facto payment platforms to their train of merchants.
The company will want to encourage as much transactions in and out of China as possible so it can begin to offer these SaaS products to merchants in China, or develop new product ideas for them. The same holds true of other markets.
More recently in the US, the company has launched Stripe Capital, providing cash loans based on merchant data. Stripe isn’t a bank – despite its high valuation, it lacks the capital to easily obtain a license – so it relies on external parties for balance sheet.
Cash loans are unlikely to make it to Asia-Pac soon. The company hasn’t provided figures about this business, but it requires a critical mass of users and user data to make credit decisions. That’s going to be harder to come by in APAC given its fragmented nature.
Otherwise, though, Pepper makes a virtue of the region’s diversity. He says it is these sort of frictions that create ways for Stripe to add value to its users. More friction, more ways the company can help, he argues.
Pay-in/pay-out is an extremely low-margin business, however, with plenty of competitors. Scale is required, especially if it will take time to develop SaaS clients – and those SaaS services may well have to be built market by market.
Stripe will therefore be competing against more than its familiar competitors in the US and Europe. Asia’s digital payments usage is booming, slated to hit $3.7 trillion in 2021, and $5.5 trillion by 2025, according to Statista. But that big pie is sliced up among many markets. It’s going to be hand-to-hand combat in each payments arena.
We want to grow the GDP of the internetNoah Pepper, Stripe
Although Stripe is partnering in some places with big tech companies like Grab, it will inevitably find it is competing for Asia’s biggest internet companies – and against them.
Stripe is hardly alone in wanting to do business with the region’s fast-growing internet companies. Virtual banks are being founded with the same goal. Incumbent banks are also restructuring in a bid to cater to these clients.
There are the local payment players such as NIUM and Airwallex. And more keep coming: Tazepay recently launched in India with big-name VC backing; one of the payment startup’s co-founders is Rahul Shinghal – formerly Stripe’s head of APAC sales.
Asia’s internet frenemies
But the biggest challenge isn’t winning business from attractive companies: it’s managing them as competitors too. Asia’s e-commerce giants have been building their own cross-border payments and fintech capabilities. It’s what eBay did with PayPal…but that was in the 1990s, and the West hasn’t seen anything similar.
The likes of Shopee (of Nasdaq-listed SEA Group), Alibaba-backed Lazada, and Grab have had to become payment or fintech players – complete with licensing and bank partnerships – just to scale and survive. There’s a host of middle-tier players just below them in every market.
In the US, Amazon is a Stripe user; the Amazons of Asia are Stripe’s competitors.
What gives these Asian players an added advantage is they are building directly for businesses and consumers who aren’t using credit or debit cards. Stripe’s model evolved in developed markets where cards are ubiquitous; its integrations rely on cards.
This fit Stripe’s entry into Singapore, and for serving China’s cross-border market. These are markets that rely on debit and credit cards (because even AliPay and WeChat Pay require users link to a bank account). In markets such as Indonesia where card usage is low, Stripe already faces numerous local fintechs building payment and software services for the underbanked.
Stripe says it is working at a deliberate, methodical pace in Asia, instead of rushing to make deals for their own sake. This sounds wise. And because of Asia’s size and growth, there’s room for everyone.
But whereas Stripe forms a neat triumvirate in the US, along with Square and PayPal, success in Asia Pacific may be defined by carving out niches where its style of innovation will flourish. The China UnionPay deal will help Stripe figure out SaaS products that fit the region, but the company will need to scale that as quickly as possible. It may have less time than it thinks.