John Collison founded Stripe with his brother Patrick in 2011 © Bloomberg

Why does Stripe, the most valuable US fintech start-up, want to move into small business lending? Market signals suggest a growing chance of recession. Offering loans to risky borrowers should raise objections from investors, even as senators warn Stripe against involvement in Facebook’s cryptocurrency project, Libra.

Stripe’s boldness is emphasised by the fact it got a $35bn valuation, in a funding round last month, as a bet on the expansion of online retail, not borrowing. The company is best known for offering start-ups such as Shopify a way to accept online payments. Ecommerce is growing, but is still just 11 per cent of US total payments.

There is plenty of room to expand. Branching into loans seems an unnecessary risk.

Stripe’s response is to point to data. It will only offer loans to existing customers and can use the information it has on payment processing to help determine eligibility. This will give it more to go on than traditional credit scores. Moreover, Stripe should also be able to make decisions faster than traditional banks.

If that sounds familiar, it is because Amazon does the same thing with its own vendors. So do payment companies PayPal, Square and listed rival Adyen, whose €20bn market value is a huge 83 times expected earnings.

Stripe, which was created by brothers Patrick and John Collison in 2011, has shown caution in the past. Last year it stopped accepting bitcoin, noting the high transaction fees and long confirmation times. The San Francisco-based company has already expanded from its initial business by offering credit cards and payment terminals. Lending to small business customers should help them grow and ultimately do more business with Stripe.

But the rationale for offering extra services is also loyalty. Margins on online payments are likely to fall as the market gets bigger and more tech companies and banks such as JPMorgan try to compete. Offering a universe of services will help Stripe keep its customers on side as both they and the online payments market grow.


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