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

 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.