What is Stripe and How Does it Work? [Stripe Explained] - YouTube

Unless you’re really paying attention,  Stripe can almost seem like a conspiracy:  

it’s everywhere — but not always in plain sight. The truth is, Stripe is a “full-stack payment  

processor,” which is a fancy way of saying  that it serves as both a third-party payment  

processor and a payment gateway. What this means is that Stripe allows  

your business to process credit and debit  cards, as well as automated clearing house  

transactions, both online and offline. Stripe was founded in 2010 and powers the  

transactions of some of the biggest  brands out there, including Lyft,  

Under Armour, Blue Apron, and Pinterest. In fact, the company claims that  

eighty-nine percent of all credit cards have  been processed on a Stripe network at some point. 

With the ability to handle a  hundred and thirty-five currencies,  

it’s a common solution for companies  that do business internationally. 

Stripe has a tremendous amount of  potential power under its hood,  

but not every business will have the resources,  or the need, to make use of everything it can do. 

Now, let's take an in-depth look into how Stripe  works and what it can offer your business. 

The simplest way to think of Stripe Payments  is as 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 or debit card transaction. Stripe can be used for all kinds of transactions,  

but odds are you’re considering it because  you’re looking for an eCommerce solution. 

So let's dig into how Stripe  works in an online retail setting. 

To process online transactions you need both  a payment gateway and payment processor. 

The gateway securely captures and  transmits the customer’s credit card  

payment information to the processor, which  then actually processes the transaction. 

Funds from the customer’s bank are then  temporarily routed to a merchant account. 

In the case of Stripe and other third-party  processors, it’s an aggregated account. 

We'll talk about that more in a little bit. That's where credit card-related fees are  

deducted from the sum. The payment is then  

routed to the merchant’s bank account. If you want to dive into the details, it's  

actually a lot more complicated than that, but for  our purposes, this works as a general overview. 

Stripe does both. It combines gateway  

functionality and payment processing, making it a  convenient way to handle eCommerce, although not  

necessarily the cheapest way. Now, let’s take a look  

at how Stripe makes it happen. Stripe bills itself as a developer-friendly  

solution, that solves problems with elegant code: Stripe's online developer resources are certainly  

impressive and, unlike many of its competitors,  they’re completely public, so you can get a  

sense of the work involved in setting it up. 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 up for Stripe is actually pretty  

simple and, if you’re using a pre-built checkout  like Stripe Checkout, is probably manageable for  

developers with limited experience; we’re talking  less than 15 lines of code to test the API call. 

The first thing you’ll need to do is install  the language-appropriate Stripe library. 

You can do this with package managers  like 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 the receipt will be sent to. If you’re successful, Stripe will return  

an object containing transaction details. From here, Stripe stops holding your hand  

quite so tightly and instead offers a few  different paths you can take to build an  

eCommerce page, or, in the case of Stripe  Checkout, integrate it into your own page. 

The guides are all as concise as the basic setup  guide, with plenty of code snippets and links to  

other relevant parts of the Stripe Docs. If you don’t want to start from scratch,  

you can clone one of many existing  boilerplate projects through GitHub. 

Did you find yourself nodding off  through all that? That's understandable. 

Not everyone codes, and not every  business has access to a developer. 

While Stripe itself is developer-focused, there  are ways to work it into your payment processing  

pipeline without having an in-house tech team. The two basic ones are: 

Contract with one of Stripe’s  partnered developers, and 

Use a pre-built eCommerce solution  that supports Stripe integration. 

You’ll see a lot of familiar names  if you consider the second option. 

Let’s use WooCommerce as a case study. The exact process with other integrations  

may be a little different, but the big  commonality is that you’ll need to enable  

Stripe via two keys provided by the processor. WooCommerce exists both as a WordPress theme  

and an integration that can be  plugged into other WordPress themes. 

Make sure you’ve installed WooCommerce’s  Stripe Payment Gateway plugin. 

Once you have, you’ll find the necessary  settings under—wait for it—WooCommerce,  

Settings in your CMS sidebar. Click over to the Checkout tab  

and then look for the Stripe submenu link. You’ll then have the option to Enable  

or Disable Stripe and make custom  fields for your shopping cart. 

At this point, you can Enable Test Mode to try  out the test credit numbers provided by Stripe. 

You’ll need your Test Secret Key  and Test Publishable keys to do so. 

If you disable Test Mode, the plugin  will instead ask for the Live versions. 

From here, there are a few options you can  enable or disable to your taste, including  

the ability to automatically capture credit card  information or have to manually authorize it. 

Beware, though: you have  a limited window to do so. 

You can use Stripe Checkout’s  prebuilt fields and assets,  

enable Apple Pay, enable payment  via saved cards, and set languages. 

Note that card data is saved to Stripe’s servers,  not yours, which should be a relief to you. 

And that’s about it. You can start accepting  

eCommerce payments with Stripe! While this  kind of set up doesn’t involve any coding,  

be aware that you’ll still need some familiarity  with navigating your website’s CMS and submenus. 

Luckily, most of the bigger pre-built shopping  carts have a wealth of tutorials online  

that should get you through the  most commonly encountered problems. 

Stripe has a reputation for taking security very  seriously, and it appears to be well-earned. 

Stripe is a certified PCI Service Provider  Level 1, which means it meets the most  

stringent security standards in the industry. Stripe uses HTTPS for all services using TLS(SSL),  

even for their public website and dashboard. Credit card numbers are encrypted, with decryption  

keys stored on separate machines. That said, nobody’s perfect. 

Stripe offers an incentive program to anyone  who identifies a qualifying security-related bug  

and reports it to Stripe’s security team. Major bugs earn a minimum  

five-hundred-dollar reward. Lesser vulnerabilities may be  

rewarded a minimum of one hundred dollars. If you’re still concerned about fraud,  

Stripe offers an advanced fraud  detection service called Radar. 

Radar will probably be overkill for most  businesses, but it 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 fee,  

or as a four cent per transaction add-on. You can also buy chargeback protection  

for a point zero four percent fee per transaction. You can also utilize standard fraud  

prevention tools like Stripe's address  verification service and CVV checks. 

If you’re considering Stripe over a more  cost-effective solution, there’s a good  

chance it’s because you’re interested  in selling across international borders. 

Stripe markets itself as the premier payment  services company for international business  

and, while its claim to the throne is  debatable, it’s definitely a contender. 

Stripe is available in thirty-four countries. 

That is, it’s available to merchants whose  businesses are based in those countries,  

but it can accommodate over a hundred  and thirty-five different currencies. 

Better still, if the currency you're charging in  differs from the customer’s credit card currency,  

Stripe can convert the payment  to your currency for a small fee  

based on daily mid-market exchange rates. You can avoid the currency conversion fee  

if you have a connected bank account  that uses the credit card’s currency. 

Another nice feature for international businesses  is that Stripe allows you to display the cost of  

your products in the viewer’s native currency. So even if your hipster barber business is based  

in New York, you can sell your whisker  trimmers in pounds sterling in London. 

Finally, Stripe accepts a large number of payment  types, including ones popular in foreign markets. 

We’ll take a look at them in the next section. Stripe supports a large number of payment methods,  

making it a convenient choice for  doing business in foreign markets. 

Stripe even takes the rare approach of supporting  local payment types in addition to the more common  

“universal” ones, with a particular focus on  types that are popular in the EU and China. 

Stripe’s Payments API supports the  following universal payment types,  

which are supported in all markets. That's Alipay, Apple Pay, Google Pay,  

Microsoft Pay, Amex Express Checkout, Masterpass  by Mastercard, Visa Checkout, and WeChat Pay 

Additionally, Stripe supports local payment  types in the markets where they’re popular. 

That includes ACH, Bancontact, EPS,  Giropay, iDEAL, Klarna, Multibanco, P24,  

SEPA, Direct Debit, SOFORT Most payment services, whether due  

to security concerns, legal concerns, or moral  convictions, won’t work with every industry. 

Stripe, it turns out, is no different. Because Stripe is a third-party processor,  

meaning it aggregates all of its  clients into a single merchant account,  

it’s taking on a bit more risk than if each  customer had their own merchant account. 

If you’re in a “problem” industry and still  need to accept card payments, you may want  

to consider getting a merchant account  from a company like Payment Cloud instead. 

So first the obvious: Stripe will not do  business with entities that sell illegal  

products or services, without exceptions. Beyond that, Stripe’s restrictions are a  

little soft: you may be able to plead your case to  Stripe to get them to make an exemption for you. 

Stripe restricts a number of  different activities, including: 

Financial and professional services;  IP Infringement, regulated, or illegal  

products and services; unfair, predatory, or  deceptive practices; and products or services  

restricted by Stripe’s financial partners; They also don’t like to see Stripe used in  

a manner inconsistent with its intended  purpose, or in a manner prohibited by its  

Stripe Services Agreement. For a more complete list,  

see our article on Stripe at Merchant  Maverick dot com, slash how does Stripe work. 

Stripe is a great option for  businesses that do a lot of eCommerce,  

want the best security the industry has to offer,  and do business across international borders. 

If you’re a programmer or have one on your team,  Stripe also provides some of the best developer  

tools in the payment processing industry, period. The prefab integrations aren’t quite as exciting,  

but they’re serviceable if you  need access to Stripe’s features. 

That said, Stripe can be overkill. 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 very possible, perhaps even likely,  that you won’t need or use all of them. 

And, like all third-party processors,  it comes with a heightened risk of  

unexplained account holds and freezes. If you like what Stripe has to offer but  

are a little overwhelmed by its scope,  check out our Stripe alternatives. 

Is your industry not served by Stripe?  Find a payment processor that works  

with your business among our favorite online  payment gateways and credit card processors.