Stripe's $1.1B Bridge Acquisition: A Step Toward a Crypto-Powered Future

On October 22nd, news broke of Stripe’s $1.1B acquisition of the stablecoin startup Bridge. At first glance this seems like a minor footnote for the $65-100B (depending on where you look) payment processor, but it’s actually a major step to a vastly different payment world.

In this article, we’ll discuss what the Bridge acquisition tells us about the future of Stripe, and why they’re going ahead with it.

A Quick Overview of Stripe

I wouldn’t want to take for granted that readers know what Stripe is. So, really quickly, Stripe is a payment processor. It is a web-first provider of payments APIs that allow companies to easily accept one-time or recurring payments. These payments have expanded beyond the internet, but Stripe is largely a technology backbone for businesses looking to receive money.

Stripe grew so rapidly because it made things simple. A couple of decades ago, accepting payments online wasn’t simple. You’d have to tie a bunch of pieces together and keep those fingers crossed. Then Stripe came along with an API that allowed anyone with basic programming skills to start receiving money.

Things have changed over time, and Stripe has added a number of more advanced features, becoming a fintech behemoth along the way. Still, and as we’ll discuss here, there’s more ahead.

Why Stripe is Embracing Crypto: The Role of Stablecoins in Payments

Crypto is not new, but Stripe’s interest in it is. Last year, the company finally started taking an interest in stablecoins, a type of coin that is designed not to fluctuate in value too much (like you’d see from Bitcoin or Ethereum).

Businesses on Stripe are able to, as demoed by the company’s founder, accept USDC payments that are settled in U.S. dollars in their Stripe balance. Stripe charges a 1.5% fee on the transaction amount.

That 1.5% is where the rest of this story will focus. If you’ve never worked in fintech, or been tasked with facilitating payments before, 1.5% may sound like a decently large fee. It isn't.

The cost for a more "standard" domestic card transaction (Amex, Visa, Mastercard etc.) is 2.9% + 30 cents. There’s another 1.5% for international cards, 1% if you’re doing a currency exchange, 0.5% if you’re manually entering the card details. Those fees quickly rack up.

To quickly illustrate the math, assume a business has $1M in volume today. $200,000 of that international, $800,000 domestic, all paid by cards. We’ll ignore that 30 cent charge to make things a little bit simpler, but without it you’re looking at $31,000 in fees for processing.

Changing half of that to a stablecoin like USDC (and yes, I’ll acknowledge how ridiculously difficult that transition would be) works out to a total of $23,000. $8,000 in savings, and Stripe ends up pocketing more in the process.

What is Bridge? Understanding Stripe’s $1.1B Acquisition Target

Now let’s talk about the acquisition target, Bridge.

“Baby” in the sense that this company has only processed a bit over $5B in volume (Stripe did >$100B in 2023). “Stripe” in the sense that it is an API for accepting payments on the internet--only with stablecoins instead of traditional credit cards.

Bridge offers payment processing and on/off ramps in the stablecoin space. “On ramps” allow users to easily acquire the stablecoin and “off ramps” allow businesses and users to easily get back to USD (or another currency).

Regardless of what crypto maximalists think, we still live in a world where 99% of market participants would prefer to have government backed currencies around. Bridge is a solution that helps make that happen.

There are other companies working on this too. ZeroHash, for example, offers APIs and products making crypto more accessible to all, as does Coinflow. I think that Stripe could have acquired any of the three, the end goal remains the same.

Stripe’s Vision for a Crypto Future: How Bridge Fits Into the Plan

This acquisition makes it clear that Stripe ‌wants to be in a crypto-dominated world. Why? Because they make more money, even when charging customers reduced fees.

Today’s financial landscape is dominated by the likes of Visa and Mastercard. They take a cut of every transaction made on their networks, and there’s quite a lot of cuts to be had.

As we illustrated above though, a stablecoin transaction has fewer hands in the pie. In an ideal world there’d be just three: you, your customer, and your payment processor. By taking the issuing bank and card networks out of every transaction, the overall cost of payments could be reduced by 50-plus percent in some cases.

The illustration above shows an ideal world for Stripe. This “ideal world” is one which is nothing like our own, and there are still plenty of challenges to figure out to even have a fraction of transactions stay in-house. The prize, however, is worth it.

Stripe already has Link - a wallet like application that allows for seamless payments. I believe within the next 12-24 months we’ll see user benefits for using a LinkCoin. That LinkCoin will be accepted by most of Stripe’s merchants and will, for the most part, settle in their currency of choice. In exchange, businesses adopting might save 10-25% of fees with the remaining savings going to Stripe and LinkCoin users in some form.

Stripe will not be the only player in this game. A breakdown I did of Toast talked about the same thing happening there. We’re almost certainly going to see it from Square too given that company’s foothold in the physical payment space.

One thing’s for certain, payments isn’t “complete.” We will see significant changes over the next decade as different players compete to shape the future of transactions.