We’re building business infrastructure. As with other kinds of infrastructure (like hosting or electricity), we'd like to make it available to as broad a set of users as possible. While we may personally like some businesses on Stripe and disapprove of others, we want to make as few judgements as possible as a company. The world doesn’t need more gatekeepers.
That said, we provide financial services, and there are consequently a non-trivial number of restrictions regarding the use of our products. These restrictions have always been outlined in our Services Agreement, which we’ve tried to make as readable as possible. Given that they’re often a source of confusion, though, we figured it could be useful to try to explain some of the broader context around them and to describe the approach we want to take.
Why can’t we work with some businesses?
Behind the scenes, we work closely with payment networks (such as Visa and Mastercard) and banking partners across more than two dozen countries. Each institution has strict legal regulations that govern them and specific rules about the types of businesses they do and do not work with. Through our partnerships, we are bound to uphold those requirements. In addition, we must also—of course—uphold the laws of the countries we operate in. Lastly, we need to be careful regarding the financial risks that different businesses may pose to their customers or to Stripe.
In software terms, this is a leaky abstraction. In our ideal world, businesses using Stripe needn’t worry about how payment systems are implemented underneath the hood. In practice, however, every payment involves multiple financial companies whose restrictions may manifest themselves in Stripe.
As a result, the decision to support a business is not solely up to Stripe; it involves the various financial companies in the credit card processing chain. Their restrictions tend to be broad and, as a result, often pretty confusing.
Why are entire business categories prohibited or restricted?
Rather than evaluate each business in isolation, many financial institutions choose to make decisions around broad categories of business. Below are a few categories that are often restricted or prohibited from accepting payments. As you can see, the restrictions can function more like hammers than scalpels—tools designed to bluntly manage risk, not support the maximum number of businesses possible.
This one’s pretty straightforward. Quite simply, Stripe can’t support businesses selling or supporting illegal products or services. Many financial institutions enforce a blanket-ban on products that are legal in some states but not others.
Some businesses exploit short-lived legal loopholes: for example, trivial drug variants that aren’t illegal yet. These are generally more hassle than they’re worth for everyone involved.
Some businesses live in heavily-regulated spaces and are only legal if compliant with the industry-specific rules. These rules can at times be difficult to verify and enforce online: for example, are we confident that an online pharmacy is checking prescriptions or whether a liquor store app is carding people? (How do you even card people online?)
We can often support these businesses! It just takes more work. More on this later.
The credit card industry is successful because consumers are confident that using their credit cards will be safe and predictable. By extension, they expect that the product or service they purchase will be of high quality and delivered as promised. Businesses that consistently leave their customers unhappy are bad for the overall integrity of the payment network. Because of that, some consistently-troublesome categories are restricted even though they may be within the law.
We assess these businesses individually by looking at how the business is marketed, analyzing what is being sold, and by monitoring ongoing dispute rates by customers. We don’t support businesses that consistently deceive customers or leave them unhappy.
If a business becomes insolvent and fails to deliver goods or services it has already sold, Stripe loses money: the business’s customer can initiate a chargeback and Stripe covers the loss. This is a bigger risk in businesses with a very long wait time between purchase and delivery, or in pre-sales of highly speculative or pre-production products.
We look at businesses individually to determine the overall level of financial risk based on industry, stage of product development and shipment, and overall exposure. We’re familiar with newer business models (like crowdfunding) and do our best to be permissive. If you’re going to be accepting large amounts of money for a product or service that’ll be delivered much later, it’s always better to get in touch with us first.
Businesses that attract money-laundering or fraud
Most service providers aren’t required to closely police usage of their services. Financial institutions, however, are obliged under US and international law to actively monitor usage to prevent money laundering and other criminal activity.
Some types of businesses attract more fraud than others; others accidentally or deliberately mask the origin of funds, making them an easy venue for illegal dealings. Businesses in these categories are not inherently problematic, but might need extra scrutiny or extra help in preventing fraud.
Businesses that pose a brand risk
Financial institutions and payment networks care about the brand and reputational risk that associated businesses pose. There are a set of businesses that our financial partners do not want to be associated with even if there is market demand for them. Stripe doesn’t independently reject businesses based on brand risk—we have many unpopular businesses and causes on Stripe—but we’re at times obliged to enforce the restrictions of our partners. This category is highly subjective and therefore the one we like enforcing least.
We don’t think Stripe should be accepting or rejecting businesses based on a subjective determination of brand impact, and we feel the current brand restrictions (such as on sex toys) are often outdated and overly moralizing. We have only had limited success in supporting businesses in this category; there are many legitimate businesses we can’t support. Over time we hope to broaden the set of businesses in this category that we can support.
We want to grow global online commerce and support as many businesses as possible—especially those based on new business models or founded by first-time entrepreneurs. Wherever possible, we eschew risk assessments based purely on categorical labels. Instead, we use a combination of transaction history, machine learning, supplemental business information, and common sense. We want to understand the actual risks posed by a specific business, with the fundamental goal to support as many businesses as possible, rather than just looking at the industry or category. We work with our financial partners to relax restrictions or remove prohibitions wherever possible.
Here are a few examples of niches where we’ve successfully worked past unnecessary restrictions:
Historically, many payment companies have been leery of marketplaces that "aggregate" funds on behalf of other sellers due to the possibility of fraud or money-laundering. But avoiding marketplaces would mean failing to support many of the most exciting businesses of the last decade: new business models like crowdfunding (Kickstarter, Indiegogo), commerce platforms (Shopify, Squarespace), and on-demand services (Lyft, Postmates). Multi-sided marketplaces are clearly legitimate businesses providing useful coordination services for consumers. Stripe built Connect, one of the first products that serves as a compliant way for marketplaces (including all of those mentioned) to operate at scale and ensure that any money collected on one side was paid out to the correct parties on the other sides.
The 21st Amendment to the U.S. Constitution left the responsibility of repealing the 18th Amendment (Prohibition) to individual states. The result has been a dizzying array of local, state, and federal laws, as well as a 3-tier system (producers, distributors, retailers) where each has different regulatory responsibilities. As more commerce moves online, customers and businesses are interested in buying and selling alcohol online. Stripe saw legitimate businesses (like Broc Cellars and 750 Commerce) unnecessarily impeded by the effects of antiquated local alcohol regulations.
750 Commerce is a platform that provides website design, development, and direct-to-consumer wine order management for upscale wineries. Stripe worked with 750 Commerce to address specific regulatory concerns including state-to-state shipping and age verification at delivery. Broc Cellars ran into similar complications for its wine club and we addressed concerns including confirmation of licenses, marketing, and importantly, age verification at delivery. In each case, we enabled direct to consumer online alcohol sales.
The payments industry has traditionally assumed that "internet pharmacy" was code for illegal business, often operating cross-border, selling highly-controlled prescription drugs such as Vicodin, Valium, and Viagra without prescriptions or without appropriate medical supervision. As such, credit card networks imposed stiff restrictions that led to an exceedingly high bar to starting a technology-enabled community pharmacy.
PillPack is a startup that delivers a better full-service pharmacy experience over the web. We worked with our partners to determine the necessary qualifications to support online pharmacies including qualifying exceptions, licenses and certifications, internal controls, and VIPPS registration. Once we identified the necessary requirements, we partnered with PillPack to verify and get approval for the business. Since then, we’ve advocated for several other online pharmacies: ScriptDash and NowRx both run on Stripe. Supporting on-demand community pharmacies is still a work in progress and we’re working to make this process faster, easier, and more transparent.
femMED was founded in 2007 to empower women to take a more natural approach to health and wellness. femMED has a nine-year history of helping women and has created 24 different licensed natural health products. Pseudo-pharmaceuticals are another historically-restricted category because of untested or unapproved products and exaggerated claims that often accompany the products. But we saw a business that had superb customer satisfaction, proven track record, and honest marketing claims. We highlighted the processing history and product approval by Canada’s natural health regulatory body that directly addresses key concerns of this industry and our financial partners agreed. femMED is the first (of hopefully many legitimate) supplement businesses that we can support.
Technology companies like OpenJet run into the same objections that banks tend to raise for airlines: customers book far in advance and the credit risk is significant. Travel is a broadly-prohibited category because airlines and cruise lines present enormous credit risks in payments due to a history of bankruptcies and insolvencies of U.S. airlines. (TWA, Pan Am, United, American Airlines, and many others have all gone bankrupt at some point.)
We recognized that the private jet market is different and analyzed financial statements, payment flows, customer profiles, and more to fully understand the underlying mechanics of the business. We modeled OpenJet’s business and determined that the credit exposure was within an acceptable range. We engaged our banking partners with concrete financial analysis, put in controls to monitor risk as the company grows, and OpenJet successfully launched on Stripe.
Adult products and services
OMGYes is a sex-ed startup that conducted the first-ever large-scale research about women’s sexual pleasure in partnership with researchers at Indiana University and The Kinsey Institute. OMGYes decided that instead of writing another book with the results of the study, they’d create a website to provide honest, actionable information about sex and women’s pleasure. The website was endorsed by Emma Watson and was recently featured in Elle, Forbes, and Wired. The business approached us and we were eager to work with them, but after a month of deliberations, our financial partners did not agree. Instead, because the website has explicit tutorials, it still falls under the umbrella of unsupportable businesses. While we were not able to persuade our financial partners this time around, we will continue to holistically look at and advocate for businesses that sell adult products and services.
What this means for you
While Stripe lives in a tangled thicket of regulations and restrictions, we want to support as many businesses as possible. We have a dedicated team of friendly risk and compliance analysts, support personnel, and financial partner experts for this very purpose.
We’re here to make it easier for great new ideas to be implemented. If you’re building something cool and innovative, we want to help support you. If that idea ostensibly falls into one of our restricted categories, please get in touch with us! We’ll do whatever we can to help.