Signals - Adyen vs. Stripe: What everyone is getting wrong

Stripe, once the payments-processing disruptive darling of Silicon Valley, has dominated tech and VC-related headlines the last few months as the company recovers from a RIF, and and has successfully navigated a funky fundraising situation with its recent down-round (the TL;DR is that Stripe faced a weird perfect storm of expiring stock options, tax obligations, and a not ideal IPO environment).

Now that these two headline-grabbing events are in the rearview mirror, Stripe is buckling itself back into the drivers’ seat about their own narrative, and published their annual letter this past week. Outside analysts, of course, have been twisting themselves into quantitative pretzels assessing Stripe’s financials from the tea leaves (see: All In Podcast episode 117, associated follow ups). These analysts generally attempt to triangulate comparisons like Stripe’s would-be valuation using the only realistic competitor in the space - Adyen. For comparison, here is Adyen’s annual letter, which, as of this writing, was only mentioned a couple times on Twitter, a sharp contrast from the RT party regarding Stripe’s letter.

Buzzy is not a word frequently used to describe the Dutch payments giant.

Full disclosure: As I am a former Stripe employee who was impacted by the RIF (which I wrote about for the Chicago Tribune) and a co-founder/CEO of a payments consulting company called Yeeld with a Stripe practice, I am intertwined in multiple ways!

From a pure metrics perspective, Adyen is a reasonable company to compare financials with as Adyen is publicly-traded, and on paper - has a similarish value proposition and product offering as Stripe. “Let us take care of your payments so you can take care of your business” – and I mean, that is a solid proposition. Any company would reasonably aspire to focus on doing what they actually do well, and the ability to allocate resources towards their core value is worth paying some premium to processors like Stripe and Adyen that take care of the commodity of payments. After all, a credit card swipe is a credit card swipe, right? Investors and journalists seem to see things this way, at least.

These analysts deserve respect and are worth a read - quantitative triangulation is hard, but unfortunately, in this case, wrong. Payments, it turns out, is not a commodity.  

How can that be? The apples-to-apples lens does reveal some startling disparities. In 2022 Stripe’s processed volumes of $817B represents 26% growth year over year, versus Adyen’s $817B, representing 49%. Pocket change, right? Stripe’s valuation is now $50B versus Adyen’s market cap ~$47B (note: the author tips her hat to Adyen’s public market price discovery versus Stripe’s “room where it happened” recent valuation grokked by Stripe’s recent Series I investors). Probably the most shocking one of all is Gross Payment Volume per employee… brace yourselves… Stripe’s is $116M with 7k employees versus Adyen’s of $251M with merely 3.3k employees.

Now, while these numbers can certainly paint a picture, notably - they do not take into account each company’s overall net margins, which are not public for Stripe, but will undoubtedly not be homogenous between the two companies based on their client mix. Adyen’s love of all-things-big-business means they play nicely and rub shoulders with the Fortune 500, earning their megabucks and megaeuros in processing volume through their large sales channels. However, these larger companies have significant pricing leverage, driving down Adyen’s take-rates for the right to earn such business. On the contrary - Stripe’s proliferation in startups and SMB’s seems to result in higher take rates, though the operational cost of supporting such a large quantity of lower payments volume is likely non-trivial and showing up in the numbers shared above.

Although Stripe is technically dual-headquartered in Dublin and San Francisco, it is still by and large an American company, culturally speaking. It got its start as a YC-funded startup, and is a product of the rapidfire, move-fast-and-break-things style execution of Silicon Valley. Its co-founders, the Collison brothers, are intellectually curious, exceptionally intelligent, and tend to take a long view, making big bets on the future. Even despite the current woes and slew of objectively Bad Press (see: “ Stripe Cuts Valuation, Stripe faces Tax Bill, Are Stripe Employees Overpaid?) Silicon Valley royalty such as Paul Graham continue to sing their praises.

In contrast, Adyen is a Dutch company and runs a tight ship with about half the employees as Stripe, executing their business plans in a seemingly more methodical, and perhaps less cerebral manner. As such and as noted, Adyen has emerged as a strong payments technology option for some of the world’s largest companies, who tend to be more risk-averse and… shall we say… stoic about just how “innovative” they really expect a dang payments system to be in order to consider them for a megabucks/megaeuros RFP.

This contrast between the companies is much as the contrast as Europe to America itself. It only takes one revisiting of the 2016 smash hit Hamilton to understand the deeply-rooted way that Americans view themselves – and our biggest, boldest companies such as Stripe embody the rugged individualism, anti-authoritarianism that shocks some of our European counterparts. But - one visit to a place like Vienna, Austria - with the quiet, orderly public transport and centuries-old architecture makes one wonder if a European-style company like Adyen is just better set up to win big business longer-term. Adyen could then perhaps win hearts and volume with the buttoned-up, old-monied companies of the world. Let’s not forget the fable of the tortoise and the hare, in which the steady Eddy movement of the tortoise eventually laps the fast-moving but soon-exhausted hare. In terms of employee DNA - Adyen’s largely European-based employees also compensated less well than Stripe’s and with a much lower percentage of total comp in stock-based compensation. Could this naturally attract a more risk-averse, “My job doesn’t define me” employee population, and therefore also inherent product philosophy and execution style?

Payments alone increasingly does not define either company - and so it’s frankly getting harder and harder to use payments-related metrics alone to pit the companies against each other. Stripe’s product includes core payments of course, but notably - includes the innovative Connect product line, recurring revenue with Billing, Revenue Recognition, and Tax, and increasingly - financial services such as Issuing, Capital, and Treasury. The last three embody a growing trend in Fintech called Banking-as-a-Service, or sometimes “embedded finance.”

But, hold the phone.

Adyen also appears to be making bigger bets in some of these areas as well, as they’ve shared in a December 2022 blog. Notably, this writing also appears to tout the opportunity of offering these product lines to SMB customers (who can adopt such products more quickly and off-the-shelf). Is Adyen making an SMB/startup play with something so experimental as embedded finance? This would be surprising given Adyen is not self-serve whatsoever; unlike Stripe, it’s not possible to set up one’s startup business on Adyen without formally engaging with their commercial team. What seems more likely is Adyen is positioning itself as a player in the SaaS platform space – offering their payments infrastructure to platform-like companies that essentially resell payments products and then offer them up to smaller companies, more directly in competition with Stripe’s Connect product.

One thing is clear - when it comes to these two companies, it’s not clear-cut competition in payments only. But for a fast-moving startup who needs to quickly stand up an MVP, it’s hard to imagine such a company selecting Adyen’s technology until they hit some critical mass and can throw their weight into a negotiation. These companies are likely to be on Stripe’s sticker rates until then. Considering how many early stage companies do not survive (but require overhead to acquire and support), this may or may not be a good thing for Stripe.

Implemented properly, payments can be a true strategic differentiator for a firm’s user experience, retention, and ultimately - bottom line. As a consumer, payments matter a great deal. Think about the last time you experienced friction in paying for something, like not being able to use your particular brand of credit card, or used a website’s clunky checkout form that caused unease in typing in your CVC. Conversely - think of the last time you paid for something flawlessly, through a satisfying tap of your Apple watch hitting a slick physical terminal at a coffee shop, or maybe, paying for a larger item like a Peloton Tread in installments using Affirm.

Of course - your consumer experience impacted how you think of that company’s brand. Now think of a bigger picture – if you are building a new business from scratch, such as, let’s say, a marketplace for Fintech writers (ahem) where subscribers could purchase articles and tip creators (double ahem), how much time and money would you care to spend on the underlying money movement infrastructure? Or - let’s say you are the CEO of a Fortune 500 company, who’s brick-and-mortar locations have physical payment terminals that are about to expire, and you wanted to attract more Gen Z clients, how would you think of engaging with a payments technology provider to deliver a solution?

These examples, while trite, help illustrate the point that payments technology is not a simple commodity, and the crude Stripe versus Adyen comparison doesn’t really capture the essence of the two players’ offerings.

As analyzed in excruciating detail, while Stripe’s proliferation in startups and SMBs seems to result in higher take rates, the operational costs and thus, aggregated operating margins implied to support such a large quantity of lower payments volume is likely non-trivial. Adyen’s large-company focus represents the inverse where margins tend to be lower due to the larger negotiating power, but the volume play may make up for that.

Perhaps, then - the true test is which company can dominate in the big chunky middle, where there are thousands of fabulous, forward-thinking mid-market companies looking for a reliable but also innovative payments provider with decent customer service. These companies don’t have the purchasing power of large enterprises to drive down margins, but hypothetically also are less expensive to support per-firm than the long tail SMB’s and Startups who won’t produce meaningful volume but still require some operational support. It is also worth considering the consequences of being over-indexed in one particular sector – like technology startups – whose valuations and revenues tend to ebb and flow with market conditions in the same way one’s own larger technology firm might.

For those who are scholars of cool new, mid-market companies, it shouldn’t be surprising that OpenAI, the company behind ChatGPT, recently went public with details about leveraging Stripe to power their payments. Conversely, Stripe has also shared their plan to leverage GPT-4 to streamline user experience and combat fraud.

Because, of course they have.

One crucial difference between Adyen and Stripe is Adyen’s banking license. Adyen can tout themselves as having obtained a banking license in Europe and more recently, the United States. This seems like it could be a clear advantage for Adyen because it can offer Banking-as-a-Service products directly and on top of third-party banking rails, eliminating the middle-layer costs and operational inefficiencies, and potentially passing those savings onto customers themselves.

Does this really matter? Offerings like embedded finance have been trending for a couple of years - but are they more of a flash in the pan, especially given the somewhat murky situation with global banking more broadly and the weirdness in the macroeconomy? As a B2B company, it might seem like a neat idea to offer products like virtual bank accounts and lines of credit to your merchants – but is the implied risk worth it in times of such uncertainty? Is it actually better to leave the true banking to the professionals?

Perhaps Adyen is just that kind of professional, with their larger market cap, public financials, and steady growth trajectory with the world’s largest companies. If Adyen is holding loans and risk on its own balance sheet rather than banks who underwrite such product lines, is it in fact a trustworthy entity that will have a solid monetization model given the complete end-to-end ownership of these products?

In our excitement to compare these two companies, it’s worth taking a step back and looking at the fintech space from a zoomed-out perspective. It truly wasn’t that long ago that many of us couldn’t imagine using our mobile phone to split a restaurant bill with our friends, or even boot up the internet to accept online payments as a small business owner. Truly, the pace of change in the FinTech sector, and payments itself, is rapid, and will undoubtedly continue to accelerate even more as the AI wave crashes into our daily lives. How could the modern-day space race that is Artificial Intelligence impact online fraud? Could it facilitate exponentially more payments-related startups through plug-and-play code snippets? Will nationalistic interests in the AI wars make cross-border payments more complex?

With payments in particular, it’s harder and harder to say exactly how we might pay for our coffee in a decade or two. What will that experience be like? How will the largest companies in the world play a role in driving that future forward? What role will startups play?

To that end, Adyen and Stripe are both exceptional companies that are giants in their own right, but with critically different businesses and fundamental DNA that will both hinder and help each one win in the coming decades. I suspect the extremely vast horizon of “payments” technology is unlikely to end up being a “winner takes all” market – and will be surprised if a clear category-defining megabrand like Salesforce is in the CRM space.

It is a reasonable comparison to study the financial metrics of both and back into a quantitative analysis as so many are doing - but this is truly, at best, a myopic view of how these companies stack up. One thing is clear - the next year will be telling for both companies given the unpredictable global business climate, and importantly - how technology continues to evolve and affect every aspect of our lives. I, for one, am very eager to see what the future holds for both Stripe and Adyen, and the businesses that rely on them to power their payments!