Overachieving, Underappreciated : The Stripe Story.
Building the roads of the internet.
In a time where every little achievement by a company can be widely overstated and the men and women sitting at the helm of these organizations can be touted as deities, Stripe has really flown under most of our radars especially considering the fact that they are an unlisted company worth over $95 Billion. They are widely known and revered in the technology and e-commerce community, but, people still don’t fully grasp the impact they have had on the internet.
The year was 2016, when I first learnt of Indian payments giant RazorPay. I was marveled by what they were setting out to achieve, and whilst digging deeper to understand what inspired them to fix a problem so trivial, I came across a little company called Stripe. Stripe, the inspiration behind the creation of RazorPay was founded by the Collison brothers — Patrick & John. The company was worth approximately $36 Billion at the time with investments from some of the top VC firms across the globe ranging from the likes of YC, Sequoia, KKP, Khosla and Tiger to big players like Thiel and Musk.
Child prodigies and now two of the world’s youngest self made billionaires, Patrick and John, owe their humble beginnings to their birthplace — Dromineer, a small village in Ireland with a mere population of 102. Having accomplished all that Dromineer had to offer, they left their hometown and set out to America to pursue their higher education with Patrick at MIT and John at Harvard. Little did they know that in their attempt to hack together a couple of iPhone apps to earn some extra money to help pay their tuition they would found the company Auctomatic at the age of 18 & 16.
Auctomatic
The brothers began building a SaaS platform for eBay power sellers to track inventory and traffic and after applying to YC, they merged with Kulveer and Harjeet Taggar to build Auctomatic. They moved into an apartment in San Francisco, raised angel funding, and went to work. After launching and getting initial user traction, the company was acquired by Live Current Media and the founders moved to Vancouver to build the product. From start to finish the company’s pre-acquisition life span was just 10-months. During this time the brothers formed a great relationship with Y Combinator’s founder and esteemed head, Paul Graham. This relationship with YC would prove critical to the growth of Stripe over the years (YC was part of Stripe’s seed round.)
Buenos Aires
After a $5 Million exit from Auctomatic the Collison brothers went back to college and during their time there, tried to hack together other mini projects and were blown away by how the entire process of accepting payments on the web was cumbersome and archaic. They saw a real opportunity to fix something that should have been fixed a long time ago. Taking inspiration from the popular tools of the time like EC2 and Slicehost the Collison brothers wanted to build a tool that would literally ease the process of accepting payments for online merchants with an intuitive user-flow and a slick GUI. Paul and John, influenced by a fellow blogger, took leave from their universities and headed to Argentina, Buenos Aires taking advantage of its cheap standard of living and the fact that the entire city operated on a hacker’s schedule. After about a month of hacking things together they finally arrived at an MVP. They quickly reached out to their contacts in the payments industry and had them process their first transaction. Over the next 6-months they shared it with their circles , watched people interact with it, and iterated as fast as they could.
Is it like PayPal?
I’ve been raving on and on about the origins of Stripe but I never got to the actual point. What exactly is it? . A quick visit to the Stripe about page would lead you to a banner in bold which reads “Our mission is to increase the GDP of the internet”. Now how exactly does one go about that? Typically, when a company wanted to accept payments online, it had to set up a merchant account — a complex process involving legacy infrastructure and manual tasks that could take days or even weeks. This process involved hurdles like regulations, fees, compliance standards, and payment card issuers, all of which became increasingly complex for international transactions. Additionally, the company had to underwrite risk and was on the hook in the event of fraud or returned items. Online merchants also faced challenges around verifying the buyer’s identity with “card-not-present” transactions. This risk is reflected in processing fees, which are higher for online transactions.
This predicament allowed companies like Stripe to quickly underwrite and onboard new merchants. They assumed risk for losses associated with chargebacks, fraud, KYC (Know Your Customer), or AML (Anti Money Laundering), while also providing support, dispute management and reporting. Elon Musk, Peter Thiel and Max Levchin founded PayPal in 1998, which was bought by eBay in 2002 for $1.5 billion. The fintech ‘revolution’ that followed, however, wasn’t much of an uprising. The various restrictions levied by Paypal and the legacy bank infrastructure in place frustrated most Developers while setting up these systems.
/Dev/Payments
Believe it or not Stripe started out as “/Dev/Payments”, a geeky name for a company founded by a couple of geeky Irishman but at the same time captured its ethos. They intended to build something that would appeal to their core audience, which to this day is the developer community. Stripe’s early success in acquiring customers was largely due to its mass appeal to developers. Today, it works with companies in over 120 countries spanning every industry, company size, and business model. In their nascent stages, the alum network at YC was a blessing in disguise to the Stripe team as it allowed them to tap into that network and receive valuable feedback and insight into making improvements.
It was common practice to allow the CFO of the company to select their payment processors which made it extremely hard for the tech team to work around the integration issues with their own code base. Stripe has taken that choice from the CFO and given it to the Dev team; their initial product was simply 7 lines of code that had to be integrated with the company’s codebase. The pricing structure has been consistent since the company launched, the standard being 2.9% + 30¢ per successfully executed payment transaction. Other services like Payouts, Billing, Connect, Radar, and Terminal, carry additional costs. Through the years they have continued to keep the developer community at the center of their thought process which has enabled them to launch a myriad of products and services. Diving into each one of these products would take forever so I’ll just drop a link and talk about my favorite one :
Stripe Atlas
Stripe Atlas aides online entrepreneurs to easily register their companies in the United States, obtain a bank account and, through Stripe, process payments for a very attractive price of only $ 500. According to the information listed on their website, they also intend to offer registration in other jurisdictions, but at the moment you have to settle for a C Corporation in Delaware. Delaware is widely known throughout America as a tax haven and is the place of incorporation for 60% of the Fortune 500 companies. The extensive history of Delaware in corporate law and its special court (Court of Chancery) also provide favorable conditions to the companies and greater legal security to the founders. In Delaware, for example, it is possible to involve the employees themselves in the company (convert them into investors) and easily obtain investors from any country.
C Corporation’s are like LLC’s (Limited Liability Company) which means they are considered more an association rather than a company. This allows them to further avoid taxes especially if they are a foreign company incorporated in the US with hopes to go public in the future. LLC’s are considered fiscally transparent, which means that the partners are subject to the income tax of the place where they reside. This can be particularly beneficial for people residing in countries without taxes or territorial taxation. Personally, I believe products of this sort open up doors to global entrepreneurs and markets while also helping them to operate in countries where a lack of infrastructure and governance can be a hindrance to your next big idea.
To IPO or to not IPO
Stripe has been the payments facilitator of choice internationally for some time now. In fact, the company claims that 89% of all credit cards have been processed on a Stripe network at some point. With the ability to handle 135 currencies, it’s a common solution for companies that do business internationally. You wouldn’t even be aware that you were using Stripe as your payment processor while making a purchase unless the merchant chooses to highlight their branding. Considering their rapid growth and adoption most companies might have opted for an IPO, especially when Wall Street experts project them to be worth anywhere between $70-$120 Billion. In a recent interview with Bloomberg’s Emily Chang, John was asked the same question and he dismissed any chances of an IPO in the near future stating that they still have a lot left in the tank and are not done innovating yet.
What Stripe has planned for us in the future with new products and their ever growing reach into new countries remains to be seen, but nobody could deny the impact they have made on how we as citizens of the internet interact with each other. The Stripe ideology can be perfectly summarized by a quote from Patrick Collison “Most companies are building cars while we are building the roads”.
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