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Breakingviews - Stripe lobs chum into Wall Street’s turbid waters

A Wall Street sign is pictured in front of the New York Stock Exchange, open during Winter Storm Juno, in the Manhattan borough of New York January 27, 2015. REUTERS/Carlo Allegri

NEW YORK (Reuters Breakingviews) - Wall Street has a complicated relationship with companies like Stripe. The upstart digital payments firm is a threat to the once-cozy world of consumer banking. But it’s also a potential source of new business, which explains the crowded line-up of banks who announced new partnerships with Stripe on Thursday. There’s an extra appeal: One day one of those institutions might just get to bring Stripe to market – or maybe even buy it.

Stripe, founded by brothers Patrick and John Collison, has become one of Silicon Valley’s largest private companies. The company operates the back channels of online payments for growing e-commerce firms like Amazon.com and Shopify, and its valuation is ballooning. Stripe raised money in April at a valuation of $36 billion, and may now be worth twice that, according to Bloomberg. That would put it close to Goldman Sachs’s $81 billion market capitalization.

As a result, the Collisons’ dance card is getting crowded. Goldman, Citigroup and Barclays are the latest to join, offering cash management, bank accounts and debit cards for businesses who sell through Stripe’s biggest e-commerce clients.

For Goldman, the partnership with Stripe looks like a land grab. The Wall Street firm just launched its first foray into transaction banking. While details are nebulous, the idea is Stripe’s clients will funnel deposits and fees Goldman’s way. While the customers won’t deal with David Solomon’s firm directly, their money could add to Goldman’s $28 billion of transaction bank deposits and provide cheap funding for other activities.

Other banks may be making a more defensive move. The likes of Citi and Barclays already hold small-business deposits, which Stripe is effectively threatening to poach. Getting a seat at Stripe’s table means sharing fees, but at least retaining some customers, or winning new ones.

While the banks have one eye on Stripe’s merchants, they undoubtedly have another eye on Stripe itself, which may one day consider an initial public offering. Moreover, Stripe may make a good future merger partner for a bank with dreams of being a technology giant in its own right. Given the rate at which its valuation is increasing, the Collisons’ new best friends have no time to waste.

Breakingviews

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