Critical Thinking Case

Stripe Revolutionizes Digital Payments

Raised in Ireland, Patrick and John Collison were precocious, inquisitive youngsters who taught themselves computer coding at an early age. By the time they were teenagers, the brothers were developing iPhone apps and eventually became college dropouts after a few semesters at MIT (Patrick) and Harvard (John). During this time they started a company called Auctomatic Inc., which created an online marketplace management system for companies such as eBay, and then sold the company for $5 million in 2008.

After selling the business, they continued to work on simplifying the payment process for startup businesses that use the internet to sell goods and services. As the internet entered its second decade and more and more entrepreneurs were using the web to do business, the Collisons recognized that the payment transaction process for online purchases needed an overhaul. In 2011, they opened their new company, Stripe, after testing their service and building relationships with banks, credit card companies, and regulators, so clients could focus their energies on building their businesses—and not building a payment infrastructure from scratch.

Using Stripe, businesses only need to add seven lines of coding to their websites to handle payments—a process that previously could have taken weeks to perfect. Word spread quickly among developers that the Collison brothers’ simple coding architecture could indeed disrupt the payment processing industry. As more and more marketplace companies and other online services needed to divvy up payments between vendors and consumers, Stripe became the go-to company to figure out how to move money online quickly and to get people (and companies) paid. The company’s engineers determined how to separate payments for some of the internet’s startups such as Lyft, which needed consumers to pay for rides and drivers to be compensated quickly. Stripe engineers worked their magic to bypass typical banking protocol and linked payments to Lyft drivers via their debit cards, which allowed them to be paid promptly.

After seven years in business, Stripe is now the financial “back office” for more than 100,000 businesses that take mobile payments—some of them startups and some of them big businesses such as Amazon, Salesforce, and Target. The company charges a 2.9 percent fee on credit card payments in exchange for its services. Although Stripe’s sales data is confidential, analysts estimate Stripe handles more than $50 billion in commerce annually, which translates to nearly $1.5 billion in revenue.

With more than 750 employees, Stripe continues to expand its product offerings in an effort to give customers and potential clients new tools they can use to help grow their business. For example, Radar, Stripe’s fraud detection service, uses artificial intelligence to analyze payments on its extensive network to identify suspicious activity. By looking at such a large data set on its own network, Stripe can spot patterns better than a single company reviewing its own transactions. The company recently rolled out another tool called Atlas, which can help a local or overseas startup incorporate, get a taxpayer ID number and U.S. bank account, and receive legal and tax advice on forming a company—for a fee of $500 and a few simple clicks. Typically this process would take months, many visits to the United States (if a foreign business), and large legal fees.

Stripe continues to disrupt the payment processing industry, and its Irish cofounders believe they have what it takes to continue building a simple internet infrastructure that will allow startups across the globe to do business and handle mobile payments efficiently—giving entrepreneurs more time to focus on growing successful businesses.

Sources: “About Us,” https://stripe.com, accessed September 12, 2017; Matt Weinberger, “$9 Billion Stripe Has a Master Plan to Take Over the World—or at Least, Open It Up for Business,” Business Insider, http://www.businessinsider.com, August 10, 2017; Ashlee Vance, “How Two Brothers Turned Seven Lines of Code into a $9.2 Billion Startup,” Bloomberg Businessweek, https://www.businessweek.com, August 1, 2017; “Stripe CEO Patrick Collison on Recode Decode (Podcast transcript),” Recode, https://www.recode.net, June 13, 2017; Marguerite Ward, “Meet the 20-Something Stripe Founders Who Are Now Worth More Than $1 Billion Each,” CNBC, https://www.cnbc.com, March 20, 2017; Rolfe Winkler and Telis Demos, “Stripe’s Valuation Nearly Doubles to $9.2 Billion,” The Wall Street Journal, https://www.wsj.com, November 25, 2016.