Adyen Boots Stripe from Olo While Legacy Processors Aren’t Even Relevant

Adyen recently announced that it had partnered with Olo to serve as their backend payment partner, a year after Olo launched Olo Pay with backend partner Stripe.

Uh oh.

That’s not how it’s supposed to work.

Why did things go south so fast for Stripe?

A few thoughts.

First, let’s talk about the changing payments landscape: we are seeing Stripe and Adyen in more enterprise payment RFPs. If there’s a strong card present component, Adyen is there while Stripe is notably absent (more on that later).

Why?

Stripe and Adyen are truly international payment companies at this point. They have the newest payments technology, invest in R&D, and therefore have very elegant APIs.

Things just work as expected. 

A 2018 article pointed out that Adyen spent $1B in R&D.

You know what legacy payment processors spend?

A rounding error. 

Technology matters, despite what the legacy processors think.

Legacy processors prioritize (as measured by their public disclosures and our bottom-up analysis) jamming fees on merchants over investing in a better customer experience. And since they’ve all been acquiring each other for the past decade, they have piles of technical debt to work through, even if they wanted to fight against their culture and fix shit.

Second, legacy processors are losing virtually all of these RFPs if there’s a semi-competent technologist on the customer’s team.

Yes, Adyen and Stripe might look nominally more expensive on the surface, but when someone with a brain (hard to find in retail, trust us) peels back a few layers of the onion they see the advertised rate isn’t what they’re getting.

Garbage fees: legacy providers feast on them.

Chargebacks: Adyen and Stripe invest in data science to lower and prevent fraudulent transactions.

Reauthorization: Adyen and Stripe use data science to automatically run transactions again and that increases the success rate of a transaction

Cross-border unification: Adyen and Stripe allow merchants to settle in local currencies to avoid FX fees.

A great, simple write up on some of these features here.

And a good visual for Adyen’s unified platform strategy (like Apple’s) from Colossus below:

Third, Adyen beats Stripe whenever there’s a card present component, and that’s likely what won Olo over. 

We don’t think it’s a secret that Olo is going head-on into in-store commerce. They will need to offer their own POS offering to be viable, thus they acquired Omnivore as a stepping stone.

Publicly, Olo has announced the availability of in-store payments processing with Olo Pay, another requirement for offering in-store POS.

All of this expands Olo’s TAM, which Olo now needs to defend/explain if you’ve watched their stock price and listened to their earnings calls over the past few quarters.

Stripe is nowhere near Adyen when it comes to card present capabilities.

From those in the industry that deal in the enterprise card present market segments, Stripe is simply not enterprise-ready. There are too many payment modalities that exist in-market, and Stripe doesn’t integrate as required.

Yes, Stripe acquired BBPOS, but Stripe has cut a ton of people, and internally folks will tell you that Stripe isn’t prioritizing card present payments.

Those with knowledge on the matter view BBPOS as a short term bandaid, with no long term investment.

There’s a feeling that Stripe is waiting on consumer phones to be the payment devices and isn’t paying much attention to hardware investments in the meantime.

The problem with this is that there are still significant limitations, including things like working without wifi, accepting manual entry, and supporting all the necessary payment modalities.

These are real issues in enterprise segments.

Fourth, Adyen has reached the maturity curve where they’re offering non-scalable, low margin (if any) services for large accounts. Stripe’s approach, which is generally look-we-have-an-API-thats-all-you-need, is different from that of Adyen, which dons the white gloves to get deals in a successful place. 

Stripe does offer service, but it’s a tier below Adyen.

And for better or worse, service is part of what’s needed to serve larger customers.

Stripe can acquire this capability, but it’s not sexy.

Still, it’s necessary.

A great litmus test in the Adyen and Stripe saga will be in watching Lightspeed. Lightspeed was on Finix, who shit the proverbial bed. Lightspeed then switched to Stripe, and now we wouldn’t be surprised if Adyen took control of the entire payments relationship.

Side note: Finix has now become a registered processor like Adyen and Stripe, writing directly to the card schemes. While it probably shaves 10 bps off their transaction costs, Finix would needs at least $10B of volume to justify this work.