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Credit card companies think they have found an ally in the increasingly competitive world of online payments. Its name is Stripe.
Visa has inked a commercial agreement with the payments startup, and has separately made an investment in the San Francisco-based company that values it at $5 billion. The commercial agreement will see the two companies work closely on initiatives around payments security and new product innovation, while the investment is part of a larger round that also includes new investor Kleiner Perkins Caufield & Byers as well as existing investors. Re/code first reported in May that Stripe was securing a new investment at a $5 billion valuation.
Visa would not disclose the size of its investment, and Stripe would only say that the total investment from all participants equaled less than $100 million. With the deal, Stripe now counts two of the three big credit card companies as investors: American Express and now Visa. Stripe CEO Patrick Collison would not comment on the potential of securing an investment or partnership from MasterCard, but said, “Our priority is working really effectively with the card networks in general.”
The tie-up comes at a time in which tech companies, credit card networks, retailers and startups alike are jostling to carve out their own power positions in digital and mobile payments. Stripe is viewed as a friend by credit card companies because its software is popular with developers and allows online businesses and app makers to begin accepting credit card payments quickly. A newly independent PayPal, on the other hand, is sometimes viewed warily because, while it processes a ton of credit cards and owns a Stripe competitor that does, too, it also tries to steer shoppers toward payments via their bank accounts that are cheaper for PayPal to process than card payments.
The commercial pact between Visa and Stripe can be grouped into three areas of cooperation, according to Collison. On the security front, Stripe will work with Visa to get access to its tokenization service, which turns a shopper’s card information into placeholder codes that are useless if intercepted by cyber thieves. Stripe will continue to use its own existing tokenization techniques for payment-data storage in its core business, but could use Visa’s to help build new businesses in the future.
The companies will also work together to make new digital payments experiences possible, though neither side had many details to discuss. Lastly, Visa plans to help Stripe expand more quickly in emerging markets where the credit card company has strong relationships with other financial institutions.
“If your goal is to increase the GDP of the Internet and roll out globally faster … the card networks are the blindingly obvious people to work with,” Collison said in an interview.
One similarly obvious question: Couldn’t the two sides accomplish some of this same stuff without a contract and an investment? Probably. But the thinking is that the deals provide the companies with the alignment, and incentive, to share expertise, tackle projects faster and just go the extra mile to help one another succeed.
This article originally appeared on Recode.net.
