Since switching on the paid tier of Net Interest eighteen months ago, I’ve processed a lot of payments. On average, I do around 12 a day and have administered around 7,000 in total. They originate from all over the world: 40 states in America, practically every country in Western Europe, and countries as diverse as Colombia, Kenya and Vietnam. Most subscribers pay by credit card, but some use debit and prepaid cards. Net Interest accepts Visa, MasterCard, American Express, Discover, even UnionPay. And a subscriber doesn’t have to have their card with them – around a fifth use Apple Pay.
Fortunately, I don’t have to manage all of this by myself; if I did, I’d be spending more time processing payments than writing—not an especially sustainable business model. Rather, Substack contracts the work to Stripe and Stripe oversees all of it. As existing subscribers know, Stripe creates an invoice, charges your card, emails a receipt and makes sure the funds clear and settle to Net Interest’s account. For new subscribers, Stripe additionally validates the card and assesses fraud risk. Occasionally, there’s a dispute and Stripe manages the process, mediating between me and the customer’s issuing bank towards a resolution.
Stripe’s services come at a cost. Since going paid, I’ve turned over around 3.5% of my gross income to them. Most of it gets passed on to the networks and subscribers’ credit card issuers (some makes its way back to subscribers through rewards) but Stripe gets to keep a bit – probably around 0.60%. At one level, it’s extremely good value. Net Interest simply couldn’t function as a paid newsletter without a service like Stripe; the incremental revenue it facilitates is huge.
At another level, though, it’s 2023 and it still costs more to move money around than data. Even Stripe’s president of business and product sees the conflict. “Why can’t we move money around in the cloud the same way that we can move data?” he asks. “Because isn’t money just data?”
Yet Stripe is in the process of raising prices even after the cost of moving data has plummeted. A couple of weeks ago, I received an email informing me that “starting 10 April, 2023, fees for card processing and disputes will be higher due to increases in network costs…as well as increases in underlying service costs.” Instead of the 2.9% (plus 20p per transaction) I currently pay on international card transactions, in future I will have to pay 3.25% (plus 20p).
While some of the price rise may indeed stem from higher network costs, Stripe’s pricing structure isn’t “cost plus” (unlike competitor Adyen’s) so it’s difficult to gauge. The price hike also comes at a time Stripe is raising funds. Having suffered operating losses of around $80 million last year on slowing revenue, the company is looking to bolster profitability ahead of an ultimate IPO.
Granted, higher pricing is likely a small part of any plan to improve profitability; other drivers may be more productive. Costs were cut hard in November when 14% of the workforce was made redundant, research and development can be pared back and there should be an inherent operating leverage in the business allowing continued volume growth to show up in profits. But as Stripe becomes indispensable to small businesses like Net Interest, pricing is another tool in its armoury.
I’ve wanted to look more closely at Stripe for a while but financial information has been scant. With the pitch deck for the fundraise now floating around, and with its international business – which does publish financial statements – contributing an ever greater share to Stripe’s earnings, we finally have some hard data to look at.
This one’s for paying subscribers only. We’ve bonded through Stripe, so let’s take a closer look at the infrastructure that connects us.