What Stripe Has Done Wrong with Their Crypto Payment Solution

An anonymous but trusted source told me that Stripe just acquired Bridge, a crypto / fiat conversion API solution, for 900M dollar last week. It all makes sense now.

Today is October 9th 2024 and Stripe finally launched their Crypto Payment Solution. The nihilistic, memetic “On-Chain Summer” of 2024 has finally gotten a breeze of fresh air. 

An anonymous but trusted source told me that Stripe just acquired Bridge, a crypto / fiat conversion API solution, for 900M dollar last week. It all makes sense now. 

I’m not here to shit on Stripe’s newly launched product. Stripe is a company that I have immense respect for and the Collison brothers’ way of operation is something I’ve been obsessed with since my days of reading about startups in the corners of my high school classrooms. However, I see this launch as far from the end-game of crypto payment. A lot has changed since former CTO Greg Brockman’s first post on Bitcoin in July 2014 and a lot will change moving forward. 

What’s New 

First, a summary on their new payment solution, which you can learn more here.  

1. Allow online merchants to accept crypto and receive fiat without the hustle of managing a crypto wallet; 

2. Users can connect their browser-extension wallet (eg. Metamask, Coinbase Wallet) and pay directly with stablecoin; 

3. After KYB, the merchant experience is the same on Stripe Balance no matter customers pay with credit card or crypto; 

4. They charge 1.5%, which is much lower than the current 2~3.5% credit card take rate when customers pay with credit cards. This is attractive to merchants, especially those in low-margin businesses; 

5. They help merchants with issuing refund which directly refund to customers’ wallet;

6. Currently only supporting USD settlement for online businesses in the US; 

What’s Wrong

1. In terms of making crypto more mainstream, I don’t think this product will achieve that. This is useful for crypto-natives, with self-custodial wallet and stablecoins, who don’t want to bother with off-ramping. Currently this group uses Bitrefill, which charges extremely high fees (~5-7%) but generates ~10 million annually; 

2. I argue as crypto goes more mainstream, browser extension wallets will go away but this product only supports browser extension wallets. New waves of users need secure, self-custodial solutions with familiar ux such as email login, scan / tap to pay, and direct on-ramp with Apple Pay without filling KYC forms. No more on-ramping through centralized exchanges, managing seed phrases, or sign transactions - which is completely normal for crypto-natives but very unintuitive for others;    

3. 1.5% fee is quite predatory and will get competed away. It currently costs 0.1% of on / off-ramp fee to support crypto payment. However, since Stripe has existing relationships with online merchants as a moat, I think this fee is reasonable for the current market;  

4. Traditional payment rails such as Visa / Mastercard enjoy significant network effect, because they are the only two rails that’s connected with all the “wallets” (aka. bank accounts). On-chain payment is permissionless. As anyone can set up a wallet and automatically be able to transact with any other wallet, there’s no network effect around neither the rail (aka. chains) or the wallets (assume cross-chain solutions will be seamless). Thus, neither consumer wallet apps nor merchant’s payment solution will be able to charged large fees in the future as high take rates will be competed away by everything that’s launched on the permissionless network; 

5. I doubt this product as it is now will be widely adopted as expected. Although accepting crypto is great for merchants, most consumers won’t bother with trying to pay with crypto for the benefits of merchants unless there’s a strong enough incentive - either Reward Points, Discounts, Cash Back, or Loyalty Programs; 

6. With Stripe’s current product, “online shopping in the US” is the only use-case. However, I doubt (and hope not) that online c2b / irl c2b crypto payment will have different flow and through different apps in the future. It’s very difficult for browser extension wallet to grow beyond online c2b, but easier for scan-to-pay flow to grow towards online c2b. Thus I bet the latter will eventually dominate in the future; 
   

   

Predictions 

1. With embedded wallets solutions (eg. Capsule, Turnkey, Privy) and scan / tap-to-pay become more prevalent, there will be many consumer wallet apps paying to many merchant’s payment solutions. They will all be developed by different teams so the interface need a standardization which hasn’t come into full form yet;  

2. To compete with the robust Amex / Chase rewards program funded by interests payment on revolving credit card debt, crypto payment solutions need to tap into the token capital market to make rewards more attractive while charging lower fees. Think Stepn, Blackbird — let the speculative energy push for consumer behavior shifts;  

3. It’s better to give merchants more control over how to give out rewards to better serve their customers. Make reward points more of a free-market token than a currency managed by the centralized issuers; 

4. Since there’s no network effect in neither payment rails or wallets solutions, Reward Points ironically will have the most network effect. The more merchants adopt, the more merchants and consumers will adopt. This is best demonstrated by all the point cards prevalent in Japan, except points and payments are bundled together for on-chain payment;  

5. End-to-end, in-network pay without doubt will have the strongest network effect, but that’s too hard to grow in the early days so I don’t think (and don’t hope) a dominant network on top of the chain will appear. The best example for end-to-end, in-network payment is Alipay. In the early days, you have to simultaneously get both merchants and consumers to exclusively adopt. But once they are both on-boarded, it’s very difficult for anything new to appear in the ecosystem;  

6. Existing crypto P2P payment apps like Payy, Daimo, and Code currently only support scan-to-pay for QR codes generated by their own app. I bet they would have to support scanning any QR code to pay in the future;  

Regardless, this is a great steps towards the future of making transacting 50-95% cheaper. I’m excited for a future where payment happens on open, permissionless networks with all sorts of apps creating novel experiences for the benefits of their users.