CASE: E-601
DATE: 12/12/16
STRIPE: INCREASING THE GDP OF THE INTERNET
As of 2016, brothers Patrick and John Collison had created a software company valued at $9
billion with no signs of slowing down.1 Their start-up, Stripe, started out by making it simple for
companies to send and receive money around the world.2 Instead of navigating the convoluted
global financial system—setting up merchant accounts, ensuring data security, transacting across
borders in multiple currencies, and figuring out how to enable complex financial transactions like
recurring payments or multi-sided marketplaces—companies could use Stripe’s services to
bypass these payment hurdles. In turn, Stripe’s customers could focus their resources on
growing their businesses instead of managing payments.
By the middle of 2016, Stripe had expanded far beyond an online payment mechanism. Fueled
by a belief that the Internet and developers would drive rapid economic growth across the world,
Stripe created tools for social commerce and online marketplaces, as well as products to facilitate
the creation and management of new businesses (see Exhibit 1 for a summary of Stripe’s
products and Exhibit 2 for a summary of Stripe’s pricing). In addition, Stripe had secured
several flagship customers and partners, including Facebook, Twitter, Lyft, Salesforce, and
Shopify. Stripe worked with all major credit and debit cards, bitcoin, and digital wallets, such as
Apple Pay and Alipay, China’s massive online payments provider.3
While Stripe was processing billions of dollars’ worth of transactions per year, the company still
had ample growth tailwinds. Coinciding with a rise in Internet adoption and online shopping,
worldwide e-commerce was expected to grow at more than 20 percent per year for the
1
Rolfe Winkler and Telis Demos, “Stripe’s Valuation Nearly Doubles to $9.2 Billion,” The Wall Street Journal,
http://www.wsj.com/articles/stripes-valuation-nearly-doubles-to-9-2-billion-1480075201?mod=ST1 (December 10,
2016).
2
Marcus Wohlsen, “Stripe’s Bold Bid to Make Money as Easy to Send as Email,” Wired, April 21, 2015,
https://www.wired.com/2015/04/john-and-patrick-collison/ (September 22, 2016).
3
Ibid.
Ryan Kissick (MBA 2014) and Robert Siegel, Lecturer in Management, prepared this case as the basis for class
discussion rather than to illustrate either effective or ineffective handling of an administrative situation.
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Stripe: Increasing the GDP of the Internet E-601
p. 2
foreseeable future.4 The proliferation of smartphones, coupled with vastly improved mobile
applications and a rise in social media usage, enabled myriad opportunities within mobile
payments far beyond the traditional desktop e-commerce shopping experience. Moreover, in an
increasingly global and digital economy, companies had instant access to consumers across the
globe. Prior to Stripe, companies had difficulty reaching many of these consumers, given the
friction associated with conducting business across countries.
Having raised nearly $450 million, Stripe was sufficiently funded and well positioned to take
advantage of these trends. Yet in a world with seemingly endless opportunities, Stripe would
have to be ruthless in prioritizing its product pipeline, geographical expansion, and partnerships,
while continuing to provide value for Stripe’s existing customers.
BACKGROUND
How Do Payments Work?
In the 2010s, the vast majority of transactions (both offline and online) in the United States
involved credit or debit cards. According to a 2012 study by Javelin Strategy & Research, debit,
credit, and prepaid cards comprised 66 percent of all in-person sales in the United States in
2011.5 According to a 2014 study by credit card service company TSYS, credit and debit cards
were Americans’ top choice for online shopping as well, with 48 percent preferring to use credit
cards and 30 percent using debit cards.6 These types of “plastic card” transactions, whether
offline or online, involved several players and steps.
First, a merchant contracted with an acquirer to accept payments through a point-of-sale terminal
or online gateway. A payment gateway then received the card transaction request and submitted
it to the merchant bank’s processor using a secure site connection. Third, the merchant bank’s
processor sent the transaction request to the credit card or payment network, who then forwarded
the transaction request to the issuing bank for the customer’s credit card. The issuing bank then
accepted or refused the transaction based on the transaction and the customer’s available funds,
and sent the results back to the credit card network. From there, the credit card network
transmitted the results to the merchant bank’s processor, which then sent the results to the
payment gateway. At this stage, the results of the transaction were saved and available to the
merchant and the customer. If the transaction was approved, the customer’s credit-card issuing
bank would send funds to the credit card network, which would then send funds to the
merchant’s bank. The approval process for transactions often took less than three seconds, and
all funds were typically deposited within two to four business days (see Exhibit 3 for a diagram
4
“Worldwide Retail Ecommerce Sales: EMarketer’s Updated Estimates and Forecast through 2019,” EMarketer,
http://www.emarketer.com/public_media/docs/eMarketer_eTailWest2016_Worldwide_ECommerce_Report.pdf
(September 22, 2016).
5
Catherine New, “Cash Dying as Credit Card Payments Predicted to Grow in Volume: Report,” Huffington Post,
June 7, 2012, http://www.huffingtonpost.com/2012/06/07/credit-card-payments-growth_n_1575417.html
(October 6, 2016).
6
Tamara E. Holmes, “Payment Method Statistics,” CreditCards.com, June 15, 2015,
http://www.creditcards.com/credit-card-news/payment-method-statistics-1276.php (October 6, 2016).
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Stripe: Increasing the GDP of the Internet E-601
p. 3
of the payments ecosystem, Exhibit 4 for a diagram demonstrating Stripe’s role in simplifying
the ecosystem, and Exhibit 5 for a visual representation of the competitive landscape).7
A Rapidly Evolving Digital Payment System
Coinciding with the rapid expansion of the Internet, e-commerce grew rapidly in the 2000s.
Goods and services that had previously been sold in person were being sold online in increasing
numbers. In 2000, e-commerce accounted for less than 1 percent of total U.S. retail sales; in
2014, e-commerce accounted for nearly 6.5 percent of total U.S. retail sales.8 In 2015, market
research firm eMarketer projected global e-commerce sales to be nearly $1.7 trillion,
approximately 7 percent of overall global retail sales.9 By 2019, eMarketer expected online
purchases to reach more than $3.5 trillion, or 12.4 percent of overall global retail sales (see
Exhibit 6 for global retail e-commerce sales).10
In addition to rapid Internet adoption, the growth of smartphones and mobile applications led to
dozens of new opportunities for online transactions (see Exhibit 7 for global mobile commerce
sales as a percentage of e-commerce sales and Exhibit 8 for mobile commerce sales in select
countries). Any user could access products and services from around the globe in the palm of his
or her hand. Furthermore, mobile applications, coupled with continued improvements in
technology (e.g., cloud storage, location-based services, etc.), led to the emergence of new
software-focused companies that disrupted all types of services and industries. Prominent
venture capitalist Marc Andreessen described this transition in 2011 as “software eating the
world.”11 Examples included Lyft and Postmates; neither of these companies existed before
2010, yet each had raised more than $100 million in their efforts to address real-world challenges
through software.
Yet to take advantage of these opportunities, merchants and new companies alike needed a way
to accept payments. In the early days of the Internet, this was a time-consuming and onerous
process, especially if companies wanted to accept payments from different countries. The
process involved setting up a merchant account, developing a website that allowed customers to
select items and check out, and ensuring data security and regulatory compliance, among other
challenges. For small and medium-sized enterprises, these hurdles often proved prohibitive.
In response to these challenges, companies such as PayPal emerged to provide services across
the digital financial system, including payment processing, peer-to-peer money transfers, single
touch transactions, consumer and merchant credit, risk analysis, fraud prevention, and regulatory
7
“Payment Gateways,” myEcommerce, http://myecommerce.biz/Payment-Gateways.html (October 6, 2016).
“E-commerce as Percentage of Total Retail Sales in the United States from 2000 to 2014,” Statista,
https://www.statista.com/statistics/185351/share-of-e-commerce-in-total-value-of-us-retail-wholesale-trade-sales/
(September 26, 2016)
9
Matt Lindner, “Global E-commerce Sales set to Grow 25% in 2015, Internet Retailer, July 29, 2015,
https://www.internetretailer.com/2015/07/29/global-e-commerce-set-grow-25-2015 (September 26, 2016).
10
Ibid.
11
Marc Andreessen, “Why Software is Eating the World,” The Wall Street Journal, August 20, 2011,
http://www.wsj.com/articles/SB10001424053111903480904576512250915629460 (November 3, 2016).
8
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Stripe: Increasing the GDP of the Internet E-601
p. 4
compliance.12 By the late 2000s, PayPal had emerged as a successful way for smaller merchants
to sell goods and services online. However, there were a number of other pain points within the
world of digital payments. Integrating payment functionality into websites and mobile
applications was a complex task for software developers, while navigating cross-border
commerce stymied many smaller companies. While numerous companies had innovative ideas
as to how they could blend the worlds of online and offline commerce, many of them found it
hard to implement their ideas due to the challenges associated with accepting payments for
complex transactions, such as multi-sided marketplaces or in-application purchases. New
business models, enabled by “software eating the world,” required new tools for accepting
payments. In 2010, brothers Patrick and John Collison believed they could eliminate some of
these digital payment hurdles and unlock even greater growth in online commerce.
FROM PAIN POINT TO COMPANY: STRIPE IS BORN
Born two years apart in Limerick, Ireland, Patrick and John Collison embodied an
entrepreneurial spirit from an early age. After briefly attending the Massachusetts Institute of
Technology (MIT), Patrick dropped out of school to work on a software as a service (SaaS)
company with John called Auctomatic. The two moved to Silicon Valley to participate in the
well-known start-up incubator Y Combinator, and before either brother turned 20, Auctomatic
was purchased for $5 million in 2008.13 Despite the acquisition, they were frustrated by a
challenge they observed as they built the company. John recalled:
As we built Auctomatic, we interacted with dozens of small and medium-sized
businesses, and we learned how hard it was to accept payments as an online
business. People would apply for a merchant account, and it required heaps of
paperwork and an elaborate approval process. Many businesses were rejected
because they didn’t have a history of receipts—but how were they supposed to
have a business history if they couldn’t get a merchant account? And even if they
could get a merchant account, they got one product—the ability to accept credit
card payments in a single transaction. This didn’t allow for recurring payments,
marketplaces, or other complex types of transactions. Nor did it allow businesses
to capture data associated with their transactions. This system didn’t make sense.
People could build services and products that reached people around the world
through the Internet, yet they couldn’t get paid. It got us thinking that there had to
be a better way of doing things.14
As Patrick and John worked on Auctomatic, Patrick simultaneously developed an iPhone
application called Encyclopedia, which allowed users to browse and search the full text of
Wikipedia without access to a wireless network. Before publishing the application, Patrick had
to determine whether he wanted to charge money for the application. With a few simple clicks,
12
For further information, see “PayPal in 2015: Reshaping the Financial Services Landscape,” GSB No. E-572, p.
1.
13
Michael Arrington, “Communicate Acquires Y Combinator Startup Auctomatic, Unveils New Business
Strategy,” TechCrunch, March 26, 2008, https://techcrunch.com/2008/03/26/communicate-acquires-y-combinatorstartup-auctomatic-unveils-new-business-strategy/ (September 23, 2016).
14
Interview with John Collison, May 4, 2016. Subsequent quotations are from author interviews unless otherwise
indicated.
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Stripe: Increasing the GDP of the Internet E-601
p. 5
he was able to charge $3.99 per download, which ended up being a significant decision. John
explained:
Because it was such an easy decision to accept payments across any country and
currency, Patrick decided to charge for Encyclopedia. After launching the app, it
was clear that this could be a big business, especially for a couple of college
students. As the app generated more money, we invested more time and energy
into the app to make it better. There’s no way we would have done this if it
wasn’t so easy to collect payments. Contrasting this experience with Auctomatic,
it was clear to us that the quality of tools available to people—especially the
ability to manage payments—can affect the types and caliber of businesses that
get built.
Another challenge related to technical complexity. Even if companies could navigate the
intricacies of the financial system, it was incredibly challenging for software developers to build
payments into websites or mobile applications. “It was far too hard for the people building
Internet companies to accept payments,” John explained. “So we decided to start building a tool
that software developers actually wanted to use—something that would make it easier for all
sorts of businesses to accept digital payments, and in a way that made developers excited.”
The two began working on the new company, now called Stripe, in the fall of 2009, while both
were enrolled in school—Patrick at MIT and John at Harvard. By January 2010, Stripe had its
first customer, and by the summer of 2010, the brothers realized the potential size of the
opportunity before them. As such, they decided to raise money for their new venture. In the
middle of the summer, Patrick met with Peter Thiel, cofounder of PayPal. Impressed by the
Collisons’ vision, Thiel agreed to lead a $2 million seed investment in Stripe (see Exhibit 9 for a
summary of Stripe’s financings).
After securing sufficient financing, Patrick and John decided to drop out of school (Patrick for
the second time) to work on Stripe in a full-time capacity. Their business model would be
centered on taking a percentage of all Stripe-facilitated transactions. And while Stripe launched
with a focus on payments, Patrick and John would quickly learn that there were opportunities to
build even more tools for online businesses, including assistance with incorporation, fraud
prevention, and social commerce.
EARLY GROWTH: SECURING FINANCIAL PARTNERS AND CUSTOMERS
Financial Partners
One of Stripe’s early challenges was convincing large financial partners, such as Wells Fargo or
American Express, to partner with a small start-up such as theirs. Billy Alvarado, Stripe’s chief
business officer, described the concerns of large financial institutions:
When I joined the company in April 2011, we had a huge vision and some really
smart people on the Stripe team. But at the end of the day, we were still a really
small company. What did this mean for us? It meant that Wells Fargo wouldn’t
work with us just because we told them, “We have a really amazing API, and we
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p. 6
want to be able to accept a credit card where all we know is an IP address from
someone.” Not only did they need to be convinced why this would help them in
terms of new business, they also needed to be convinced why it wouldn’t hurt
them. We knew that we’d have to be extremely thoughtful about how we
approached these companies, and that it would take time for them to understand
what we were trying to do, why this was a huge opportunity, and perhaps most
importantly, why this was in their best interest.15
In addition to educating large financial institutions about why they should partner with Stripe,
the Stripe team had to make it extremely simple for these companies to integrate with Stripe’s
products. Alvarado elaborated:
It’s not just about convincing them. It’s about really showing them the path. That
requires getting to know their company—how it functions, the systems, the
business processes. We needed to say, ‘Here’s how we would build on top of
your infrastructure, and here’s how Stripe fits with your policies and processes.’
If Stripe required any meaningful investment from these financial partners, they
wouldn’t work with us.
Making the integration process simple proved crucial to Stripe’s early traction with financial
partners. With this mindset, Stripe secured partnerships with all of the major banks and credit
card companies in the United States by the middle of 2012. This, in turn, allowed Stripe to focus
on building top-notch products for its customers.
Customers
In the early days, Patrick and John tailored Stripe’s tools to developers building young
technology companies. John explained:
Our thought was that the larger companies could already build custom payment
solutions. We wanted to talk to the Y Combinator companies and the
entrepreneurs in Palo Alto coffee shops. For them, Stripe would be a game
changer—not to mention the fact that as they grew, so would Stripe. And we
built our products with the number one goal of making developers happy. Unlike
PayPal, which built products to please both merchants and end consumers, we
focused all of our energy on developers. With this focus, we learned what
developers wanted, and we gave them the tools to build their businesses.
Through this relentless focus, Stripe attracted thousands of customers who were thrilled about
Stripe’s simple Application Program Interface (API).16 And as more developers became
comfortable with Stripe, the number of Stripe customers grew exponentially; not only did
15
Interview with Billy Alvarado on May 4, 2016. All quotations are from this interview unless otherwise noted.
An application program interface is a set of routines, protocols, and tools for building software applications. An
API specifies how software components should interact. A good API makes it easier to develop a program by
providing all of the necessary building blocks, which are then put together by developers. Source: Vangie Beal,
“API – Application Programming Interface,” Webopedia, http://www.webopedia.com/TERM/A/API.html
(September 23, 2016).
16
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Stripe: Increasing the GDP of the Internet E-601
p. 7
developers share the word amongst their communities, they also used Stripe for future projects.
By July 2012, Stripe had more than 100,000 developer accounts on its platform.17
As developers used Stripe, they became increasingly excited by the numerous doors that Stripe
opened up for their companies. “For us, the real advantage of Stripe is that it makes payments so
easy to implement it changes the types of products we can build,” said Xamarin founder Nat
Friedman. “We’re able to experiment with introducing paid features, marketplaces, and other
ideas that we otherwise wouldn’t even try.”18 Against that backdrop, companies began to ask
Stripe to build products tailored specifically to their businesses. In many cases, it did not make
sense for Stripe to create one-off product features for individual customers. However, the Stripe
team faced an interesting decision in 2012 when they were approached by e-commerce platform
Shopify. Cristina Cordova, head of Stripe’s business development, recalled:
Shopify was already a customer of ours, and they really liked working with us.
However, in 2012, they told us that they wanted to build a new type of payment
platform. Essentially, they wanted to improve the experience for their
customers—they wanted payments to be much more embedded into their ecommerce platform experience. We understood why they wanted to do this, but it
created a dilemma for us. To this point, every merchant that used Stripe had to
create a Stripe account, even if they were doing so through an e-commerce
platform like Shopify. As we talked with Shopify, we realized that they wanted a
white-labeled solution in which their merchants could easily accept payments
without creating a Stripe merchant account. From a technical standpoint, we were
confident that we could build this type of product. The question was should we
build this type of product.19
By the end of 2012, Shopify had more than 40,000 merchants that served more than 7.8 million
consumers around the globe.20 And Shopify had nearly doubled in size that year. There was no
doubt that Shopify was a valuable Stripe customer given their size and growth potential, but was
it worth building a one-off product for them? And would Stripe be sacrificing too much by not
requiring every Stripe merchant to have a Stripe account? After evaluating the opportunity at
length, Patrick and John decided to build a product specifically for Shopify that did not require
Shopify’s merchants to create their own Stripe accounts, believing that the long-term reward
would be worth the investment.
STRIPE CONNECT: SUPPORTING MARKETPLACES AND PLATFORMS
Shopify’s custom product proved tremendously popular, both with Shopify and outside
companies; in fact, many companies began asking Stripe to build similar products specifically
17
Alexia Tsotsis, “Sexy Payments Startup Stripe Swipes $20M From General Catalyst, Sequoia, Thiel And More,”
TechCrunch, July 9, 2012, https://techcrunch.com/2012/07/09/payments-startup-stripe-swipes-20m-from-generalcatalyst-sequoia-thiel-and-more/ (September 23, 2016).
18
Ibid.
19
Interview with Cristina Cordova on June 1, 2016. All quotations are from this interview unless otherwise noted.
20
Warren Dunlop, “Shopify Year in Review: 2012,” Shopify Blogs, January 16, 2013,
https://www.shopify.com/blog/7178732-shopify-year-in-review-2012 (September 23, 2016).
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Stripe: Increasing the GDP of the Internet E-601
p. 8
tailored for their businesses. Instead of building unique, one-off products for each customer, the
Stripe team decided to create a single product called Stripe Connect, which would serve as a
white-labeled payments solution for marketplaces and platforms that connected multiple buyers
and sellers online. The product had the functionality to support a wide variety of use cases and
helped Stripe focus its efforts on customers with high growth potential. Cordova explained,
“The decision to launch Connect helped us think about who we wanted to serve—Internet
businesses and technology-forward companies. We decided that the average Shopify merchant—
such as Sally’s T-Shirt Shop—would not be our core customer. Shopify, on the other hand, was
exactly the type of company we wanted to target.”
With this emphasis on serving technology-focused companies, Stripe acquired several highpotential customers. Squarespace, an e-commerce platform, used Connect in a similar fashion to
Shopify, ensuring simple and secure money transfers between buyers, sellers, and Squarespace.
Indiegogo, a global crowdfunding platform, utilized Stripe Connect to seamlessly transfer money
between several parties—those raising money for specific projects, those contributing to
projects, and Indiegogo. Instacart, an Internet-based grocery delivery service, adopted Connect
to coordinate payments between customers, stores, and delivery agents. Lyft, a peer-to-peer
transportation service, used Stripe to create an integrated mobile experience when connecting
drivers and passengers.
Each of these companies utilized Connect in slightly different ways, tailoring the product for
their individual business needs. This, in turn, led to the continued evolution and improvement of
the core product. As Connect improved, Stripe was able to attract more and more customers. By
the middle of 2016, several prominent customers used Connect to power their payments,
including Kickstarter, Postmates, and DoorDash, as well as those companies previously
mentioned.
In-depth conversations with these customers not only helped Stripe improve Connect, they also
led to the creation of new products. In the beginning of 2015, for example, Lyft wanted a way to
pay its drivers more quickly. Historically, drivers had to wait several days after working before
they could get paid; Lyft wanted its drivers to be paid on the same day. Stripe immediately
began to develop this capability, and Lyft launched its “Express Pay” in December 2015.21 By
September 2016, Lyft had paid out more than $500 million through Express Pay, and 50 percent
of all driver earnings were powered with this new product.22 Given this positive reception,
Stripe launched the product more broadly as “Instant Payouts” in September 2016.
Yet the success of Instant Payouts teed up a set of challenging strategic questions for Stripe.
With so many customers asking for new product features, how should Stripe evaluate and
prioritize these opportunities? And should Stripe focus on adding product features that would
benefit existing customers, or should they create new products that would enable Stripe to tap
into a fresh set of customers?
21
Miguel Helft, “How John And Patrick Collison Built Stripe Into The PayPal Of The Mobile Era,” Forbes,
January 4, 2016, http://www.forbes.com/sites/miguelhelft/2016/01/04/cashiers-of-the-internet/#3c9edf986afc
(September 25, 2016).
22
Davey Alba, “Stripe Now Lets Any Business Instantly Pay its Workers,” Wired, September 19, 2016,
https://www.wired.com/2016/09/stripe-now-lets-business-instantly-pay-workers/ (November 3, 2016).
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STRIPE RELAY: BEYOND TRADITIONAL E-COMMERCE
As Stripe improved Connect, Patrick and John understood that there were significant
opportunities for the company beyond traditional e-commerce. Given the dramatic rise in
smartphone ownership, mobile application usage, and social media, the two envisioned a world
in which users could purchase goods or services within existing platforms and mobile
applications, such as Pinterest, Facebook, or Twitter. In 2015, mobile devices represented 60
percent of online browsing traffic, but only 15 percent of purchasing.23 Furthermore, of the time
that users spent browsing on mobile devices, 88 percent was in applications compared to 12
percent on the mobile web.24 Despite these statistics, the mobile commerce experience remained
extremely inefficient for customers. John explained, “Making a purchase necessarily requires
links, page loads, and context. On top of that, the purchase load is broken with endless form
fields, validation—nobody in their right mind would want to go through with it; it’s like
intentionally designing [difficult] purchases. It was very clear to us that this needed to be
solved.”25
In 2014, Stripe began to address this challenge through a partnership with Facebook that would
allow users to purchase products directly through the social network.26 After nearly a year of
work, Facebook launched its “buy” button in July 2015 to significant acclaim. With a single
click, users could purchase items directly on Facebook without being redirected to an external
website, a feature that benefited both retailers and customers.
Building on the popularity of Facebook’s buy button, Stripe created a product called Relay in
2015. Relay allowed retailers to sell their products in multiple third-party applications with a
single integration. In addition, Relay provided a set of APIs for developers to build great inapplication buying experiences. Instead of being redirected to a mobile site to finish their
purchasing experience, users could complete transactions within mobile applications with the
simple click of a button. Upon launching Relay in September 2015, Stripe announced channel
partnerships with several large technology companies, including Twitter, InMobi, and
ShopStyle.27 A variety of well-known merchants also participated in the launch, including
Warby Parker, Saks Fifth Avenue, and Wish.28 To Stripe’s partners, Relay enabled additional
commerce without imposing significant risk. John explained, “Relay is not competing with any
23
Siddarth Chandrasekaran, “Introducing Relay,” Stripe Blog, September 14, 2015, https://stripe.com/blog/relay
(September 26, 2016).
24
Ken Yeung, “Stripe Launches Relay to Help Stores Sell on Mobile, Partners with Twitter,” VentureBeat,
September 14, 2014, http://venturebeat.com/2015/09/14/stripe-launches-relay-to-help-stores-sell-on-mobile-andtwitter/ (September 26, 2016).
25
Matthew Lynley, “Stripe Unveils A New Tool To Help Retailers Build Native Buying Experiences In Apps,”
TechCrunch, September 14, 2015, https://techcrunch.com/2015/09/14/stripe-unveils-a-new-tool-to-help-retailersbuild-native-buying-experiences-in-apps/ (September 25, 2016).
26
Alice Truong, “Payments Company Stripe To Power Facebook’s Buy Button,” Fast Company, September 26,
2014, https://www.fastcompany.com/3036310/fast-feed/payments-company-stripe-to-power-facebooks-buy-button
(September 26, 2016).
27
Lynley, op. cit.
28
Christopher Heine, “Warby Parker and Saks Fifth Avenue’s Mobile Commerce Just Got More Interesting,”
Adweek, September 14, 2015, http://www.adweek.com/news/technology/warby-parker-and-saks-fifth-avenuesmobile-commerce-just-got-more-interesting-166913 (September 26, 2016).
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p. 10
existing product; it’s competing with entropy in the world.”29 For merchants that already
experienced strong digital sales, Relay served as a means to expand their online shopping
presence quickly and efficiently. And for retailers who sold primarily through brick-and-mortar
stores, Relay was a simple tool that could immediately increase their online sales volumes.
Within a year of launch, merchants had created millions of product listings using Relay in an
effort to improve the efficiency of the mobile browsing experience.
Although Relay was received warmly, Patrick and John knew that it was just one of many
opportunities that they could pursue. Social media, smartphones, artificial intelligence, machine
learning, and the proliferation of data all created possibilities for Stripe to power more types of
digital transactions. And given the vast amount of data Stripe was processing, they could also
evaluate opportunities beyond payments. Cordova elaborated on some of the potential avenues
that Stripe could explore:
We started by addressing opportunities directly related to e-commerce with
partners like Squarespace and Shopify, and products like Payments and Connect.
We then enabled transactions in places where e-commerce hadn’t traditionally
occurred—places like Facebook, Twitter, and Pinterest—with Relay. But as we
helped our customers with payments and commerce, it was clear that there were
even more ways that we could provide value. For example, imagine taking your
Stripe account and partnering with Microsoft Power BI to better understand your
consumers—knowing where they came from, what they looked at, and what they
purchased. There were lots of opportunities within analytics, accounting, and
business intelligence, let alone the continued opportunities to expand digital
payments.
Will Gaybrick, Stripe’s CFO, expanded upon the possibilities for Stripe: “We started strictly
with online payments, but as we’ve grown, we’ve started to look much more like Amazon Web
Services than a merchant acquirer. Whether it’s payments, inventory management, or marketing,
we have the ability to serve as the underlying infrastructure for running online businesses around
the globe.”30
STRIPE ATLAS: HELPING BUSINESSES AROUND THE GLOBE
In addition to the myriad opportunities enabled through advances in technology, Stripe
considered how it could expand its business internationally. The company recognized
tremendous potential in supporting entrepreneurs in geographies that lacked access to the
financial infrastructure needed to launch new ventures. As such, Stripe developed product
capabilities to make this a possibility. Alvarado explained:
During the first few years, there was a lot of work associated with building out
our financial operations. We had to understand the regulatory aspects of different
countries, find financial partners who could help us scale geographically, figure
out a number of issues related to compliance—this was all necessary to enable our
29
30
Lynley, op. cit.
Interview with Will Gaybrick on June 1, 2016. All quotations are from this interview unless otherwise noted.
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p. 11
customers to serve new markets. With our existing set of financial partners,
Stripe serves geographies that encompass about 80 percent of the world’s ecommerce [as of 2016]. But if you look at the number of people who could
actually start a business on top of Stripe, there are billions of people who couldn’t
do this. For example, I know that in my native country of Honduras, many people
had great ideas, but did not have access to the tools needed to start an online
business. We wanted to solve this problem, so we built a product called Atlas.
Launched in February 2016, Atlas helped entrepreneurs around the globe incorporate their
businesses in the United States, open U.S. dollar-denominated business bank accounts with
Silicon Valley Bank, accept payments from customers in more than 100 currencies, and find
proper tax and legal guidance. “Start-ups in these markets can be up and running in a matter of
days,” Patrick said. “They can do things that matter rather than struggling to overcome barriers
to entry.”31 In March 2016, Stripe worked with the U.S. government to provide Atlas to
entrepreneurs in Cuba, and Patrick joined President Obama’s historic trip to Cuba (the first by a
U.S. president in 88 years).32 By the end of June, Stripe had received Atlas applications from
almost every country in the world.33
Despite the immediate demand, Atlas raised several questions for Patrick and John. In what
geographies should they focus their efforts? What types of companies should they target? What
product features should they build into Atlas? Competitors like PayPal already offered a suite of
services to online businesses, including loans, invoicing, and in-store payment options. And how
should Stripe prioritize Atlas vis-à-vis its existing products as well as new product development?
COMPETITION: NAVIGATING THE RAPIDLY CHANGING ONLINE PAYMENTS SPACE
Payments Landscape
Stripe was not alone in its mission to increase digital commerce. Much like Stripe, Braintree
offered a platform of white-labeled tools for mobile application developers to easily and securely
accept payments within their mobile applications.34 Founded in 2007, Braintree was purchased
by PayPal for $800 million in 2013.35 In 2015, the company processed more than $50 billion in
31
Ingrid Lunden, “Stripe Expands Startup Tools With Atlas, For Foreign Companies To Incorporate In Delaware,”
TechCrunch, February 24, 2016, https://techcrunch.com/2016/02/24/stripe-expands-startup-tools-with-atlas-a-wayfor-global-companies-to-incorporate-in-delaware/ (September 26, 2016).
32
Miguel Helft, “Ahead of Historic Obama Trip, Stripe Lends Hand to Cuba’s Tech Entrepreneurs,” Forbes, March
18, 2016, http://www.forbes.com/sites/miguelhelft/2016/03/18/ahead-of-historic-obama-trip-white-house-tapsstripe-to-help-cubas-tech-entrepreneurs/#7cc0ced6cb7a (November 3, 2016).
33
Ellen Huet, “Why Some Global Tech Startups are Offshoring to Delaware,” Bloomberg, June 21, 2016,
https://www.bloomberg.com/news/articles/2016-06-21/why-some-global-tech-startups-are-offshoring-to-delaware
(November 15, 2016).
34
For further information, see “PayPal in 2015: Reshaping the Financial Services Landscape,” GSB No. E-572, p.
6.
35
Ingrid Lunden, “Braintree To Break $50B In Payment Volume In 2015, Now Has 154M Cards On File,”
TechCrunch, September 17, 2015, https://techcrunch.com/2015/09/17/braintree-to-break-50b-in-payment-volumein-2015-now-has-154m-cards-on-file/ (September 26, 2016).
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p. 12
authorized payments and had 154 million payment cards on file across 46 markets. 36 As of
September 2016, Braintree’s major customers included Uber, Hotel Tonight, and TaskRabbit.
Another competitor was Amsterdam-based Adyen. Founded in 2006, Adyen enabled merchants
to accept payments online, in applications, and offline. Adyen’s prominent customers included
AirBnb, Netflix, and Spotify. As of September 2016, Adyen had raised more than $250 million
to continue its growth.37
However, Braintree and Adyen functioned primarily as payment gateways for most of their
users; this meant that their customers sometimes needed to work with other providers for
payment processing and merchant accounts if they wanted to provide additional services (e.g.,
selling within applications) or expand to new countries. Gateways did not solve some of the
more complicated pain points of building an online business, such as setting up subscription
billing, managing the pay-ins and pay-outs of marketplaces, or even incorporating a company—
all challenges that Stripe’s products addressed.
Financial Incumbents
In addition to its direct competitors, Stripe needed to be vigilant of the financial industry’s
incumbents, especially given the rapid change in the payments space. This list included banks,
credit card providers, and digital wallet providers. As Stripe continued to grow, Patrick and John
were adamant that Stripe work with these massive companies rather than displace them. Patrick
explained:
With what we’re doing, it’s possible for things to be positive sum, and the
existence of winners doesn’t necessarily mean that there will be losers. Our goal
is to take the few percent of transactions that are currently happening online and
turn that number into 40 or 50 percent. There aren’t a whole lot of companies
who are directly threatened or imperiled by this goal. We’re also conscious of not
trying to think that we can ignore everything that was built over the past 50 years
in the financial world. Our strategy has been to avoid competing with too many
of the big players, and to make sure this doesn’t become a zero sum game.38
In 2014, Stripe partnered with Ant Financial’s Alipay, China’s largest digital wallet, so that
merchants could accept payments from Chinese consumers.39 Later that year, Apple introduced
Apple Pay, its mobile payment and digital wallet.40 Coinciding with the launch, Apple
announced that Stripe would serve as one of Apple’s preferred partners, enabling hundreds of
mobile applications to work with Apple Pay.
36
Ibid.
“Adyen,” Crunchbase, https://www.crunchbase.com/organization/adyen#/entity (September 26, 2016).
38
Robert Siegel, “Restructuring the Financial Infrastructure — Patrick Collison, CEO Stripe,” Stanford GSB: The
Industrialist’s Dilemma, January 17, 2015, https://medium.com/the-industrialist-s-dilemma/restructuring-thefinancial-infrastructure-patrick-collison-ceo-stripe-3a4c1fae3254#.izz55jlih (September 26, 2016).
39
Leena Rao, “Stripe’s New Funding makes it a $5 Billion Company,” Fortune, July 28, 2015,
http://fortune.com/2015/07/28/stripe-visa/ (September 26, 2016).
40
Olga Kharif and Serena Saitto, “Stripe Lands Apple in Quest for $720 Billion in Payments,” Bloomberg
Technology, September 17, 2014, http://www.bloomberg.com/news/articles/2014-09-17/stripe-lands-apple-in-questfor-720-billion-in-payments (September 26, 2016).
37
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Stripe: Increasing the GDP of the Internet E-601
p. 13
In 2015, Stripe raised nearly $100 million from several investors, including American Express
and Visa. Along with the clear financial benefits, the investment provided several strategic
advantages. Aligning with two of the largest players in the financial industry brought significant
credibility to a start-up like Stripe, which profited in terms of recruiting, press, and customer
acquisition. In addition, American Express and Visa served as potential collaborators for new
product development. Shortly after the investment, American Express partnered with Stripe to
build Amex Express Checkout, a feature that allowed cardholders to pay for goods and services
across the Internet, mobile, and in applications with a single password.41 Similarly, Visa
announced a strategic partnership with Stripe to support new technologies for merchants,
developers, and consumers around the globe.42 A year later, Stripe and Mastercard announced a
partnership related to Mastercard’s latest innovation, Mastercard Send, which enabled people
and businesses to send and receive funds securely and nearly instantaneously.43
As these companies developed new products in an effort to adapt to technological change, Stripe
wanted to ensure it remained their payments partner of choice. Yet partnering with and
accepting investment capital from these types of financial incumbents was not without risks.
Patrick and John wondered how they would respond if American Express or Visa decided to
build their own payments products in an effort to compete directly with Stripe. Alternatively, if
Stripe focused too much time and energy on its relationships with the large financial incumbents,
it risked falling behind in the development of other important products and product features.
This, in turn, could create openings for Stripe’s competitors.
Online and mobile commerce no doubt would continue to grow rapidly, and the competition
would be fierce. Global spending on commerce via mobile devices was expected to reach $720
billion in 2017, up from $300 billion in 2014.44 In this attractive market, Patrick and John would
need to compete with companies such as Braintree, PayPal, and Adyen. But beyond that, they
would need to ensure that their financial partners continued to benefit from the value they
created, lest they develop payments solutions of their own.
41
Ingrid Lunden, “Amex Negs Digital Wallets To Build Its Own Checkout, Pairs With Stripe To Spread It Wide,”
TechCrunch, July 9, 2015, https://techcrunch.com/2015/07/09/amex-negs-digital-wallets-to-build-its-own-checkoutpairs-with-stripe-to-spread-it-wide/ (September 26, 2016).
42
“Visa and Stripe Partner to Expand Online Commerce Globally,” Visa, July 28, 2015,
http://investor.visa.com/news/news-details/2015/Visa-and-Stripe-Partner-to-Expand-Online-CommerceGlobally/default.aspx (September 26, 2016).
43
Alex Samuely, “Mastercard’s Newest Mobile Platform gives Stripe Sellers Instant Payout Access,” Mobile
Commerce Daily, September 21, 2016, http://www.mobilecommercedaily.com/mastercards-newest-mobileplatform-gives-stripe-sellers-instant-payout-access (September 26, 2016).
44
Olga Kharif and Serena Saitto, “Stripe Lands Apple in Quest for $720 Billion in Payments,” Bloomberg
Technology, September 17, 2014, http://www.bloomberg.com/news/articles/2014-09-17/stripe-lands-apple-in-questfor-720-billion-in-payments (September 26, 2016).
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Stripe: Increasing the GDP of the Internet E-601
p. 14
THE ROAD AHEAD
As of November 2016, Stripe had grown to a $9 billion company with more than 500
employees.45 In 2016, nearly half of Americans had purchased something through Stripe,
compared to just 3.8 percent two years prior.46 And despite the existence of similar product
offerings from competitors, Stripe’s products stood out based on the ease with which developers
could integrate Stripe’s code.47
Along with the company’s progress to date, Patrick and John were excited about the massive
opportunities in front of Stripe. With nearly $450 million in venture funding and a strong set of
partnerships—and deep expertise across developer tools, cross-border incorporation, currency
management, and mobile user interface—Stripe was well positioned to take advantage of the
numerous opportunities within digital payments and online businesses.
Certainly, there would be challenges along the way. Maintaining product velocity and focus—an
area where Stripe thrived in its early years—would be difficult as the organization continued to
grow. There would surely be competition from start-ups and financial incumbents alike. And
given the rapid pace of technological change, new forms of digital commerce were likely to
emerge that had yet to be conceived as of 2016. Yet regardless of the specific obstacles ahead,
the Collison brothers were hopeful that Stripe could continue to expand the GDP of the Internet.
45
Rolfe Winkler and Telis Demos, “Stripe’s Valuation Nearly Doubles to $9.2 Billion,” The Wall Street Journal,
November
25,
2016,
http://www.wsj.com/articles/stripes-valuation-nearly-doubles-to-9-2-billion1480075201?mod= ST1 (November 28, 2016).
46
Miguel Helft, “How John And Patrick Collison Built Stripe Into The PayPal Of The Mobile Era,” Forbes,
January 4, 2016, http://www.forbes.com/sites/miguelhelft/2016/01/04/cashiers-of-the-internet/#3c9edf986afc
(September 26, 2016).
47
Olga Kharif and Serena Saitto, “Stripe Lands Apple in Quest for $720 Billion in Payments,” Bloomberg
Technology, September 17, 2014, http://www.bloomberg.com/news/articles/2014-09-17/stripe-lands-apple-in-questfor-720-billion-in-payments (September 26, 2016).
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Stripe: Increasing the GDP of the Internet E-601
p. 15
Exhibit 1
Summary of Stripe Products as of November 2016
Payments (2011)
Payments made it easier for businesses to accept payments online—whether that was on a
website, iPhone application, mobile site, or desktop application. Prior to Stripe, software
developers who wanted to accept money online had to spend weeks navigating the financial
bureaucracy to set up a merchant account and a payment gateway. With Stripe, developers could
add a few lines of code, and in as little as five minutes could begin accepting payments from
anyone, anywhere in the world. Key product features included customizable checkout
experiences, multicurrency support, subscriptions and recurring payments, fraud prevention, and
data security.
Connect (2012)
Online marketplaces, which connected networks of buyers and sellers, grew rapidly in the 2010s.
Stripe helped these types of marketplaces manage the complex flow of pay-ins and pay-outs. In
addition to receiving payments, Connect verified the identity and bank account information of
the sellers who ultimately received money; ensured sellers were paid the right amount of money
at the right time; and helped with tax reporting requirements. Furthermore, Connect allowed
marketplaces to operate internationally; for example, even if a marketplace was headquartered in
Tokyo, Connect could enable a transaction between a buyer in Cairo and a seller in London.
Relay (2015)
As of 2016, mobile devices accounted for approximately 60 percent of Internet browsing but
only 15 percent of Internet purchases. Stripe’s Relay attempted to bridge that gap by making it
possible for merchants to list and sell products across a network of applications, websites, and
social feeds. Relay was the first product of its kind to do two things:

Sell Button for the Internet: Merchants, such as Adidas or Macy’s, could upload products
to a single place, and use Stripe to list and sell those products directly inside third-party
applications, such as Twitter or ShopStyle. Relay also connected directly with
companies’ existing inventory and order management software.

Direct In-App Purchasing: Relay helped platforms, such as Twitter or Spring, bring
commerce directly into their applications and present users with a buy button to complete
purchases with a single tap, rather than sending users to mobile websites where they
might have a poor purchase experience.
Atlas (2016)
In 2016, the majority of the world’s population did not have access to high-quality banking or
payments infrastructure. In many countries across Africa, Latin America, Asia, and the Middle
East, developers and entrepreneurs were not on an equal playing field with people in more
developed economies. Atlas aimed to level this playing field by giving anyone, anywhere, the
ability to build a global business. It gave entrepreneurs access to the building blocks needed to
start a company: an incorporated U.S. business entity; a U.S. bank account and tax ID number; a
live Stripe account to receive payments from anywhere in the world; tax and legal guidance; and
tools and resources from Amazon Web Services to scale their businesses. With Atlas, all of this
took days instead of months and cost a fraction of what it would have cost previously.
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p. 16
Stripe: Increasing the GDP of the Internet E-601
Exhibit 1 (continued)
Summary of Stripe Products as of November 2016
Radar (2016)
Unlike their brick-and-mortar competitors, online stores were financially liable for fraud, which
cost them tens of billions of dollars per year. Most legacy fraud tools required time-consuming
manual reviews and were based on rules—overly blunt settings that blocked many legitimate
orders. To help businesses fight fraud, Stripe launched Radar, a set of machine-learning
algorithms that learned from the hundreds of thousands of businesses processing transactions on
the Stripe network every second. Fully integrated into users’ Stripe accounts, Radar required no
integration or setup work, protecting businesses from the moment of their first charge.
Source: Stripe materials.
Exhibit 2
Summary of Stripe Product Pricing
Product
Payments
Relay
Connect
Atlas
Radar
Price
 Credit and Debit Cards: 2.9% + $0.30 per transaction
 Automated Clearing House (ACH) and Bitcoin: 0.8% per transaction; all
payments above $625 capped at a $5 fee
 Included in standard pricing
 Instant Payouts cost 1.5% of funds paid out, with a minimum of $0.50
per payout
 $500
 Included in standard pricing
Source: Stripe materials.
Exhibit 3
Payment Ecosystem Diagram
Merchant
Payment
Gateway
Merchant
Processor
• Contracts with
acquirer for
payment
services;
accepts
payment with
POS terminal
or online.
• Signs up
merchants for
card
acceptance
services;
establishes
pricing
agreement.
• Processes
payment
processing,
authorizing,
settlement and
clearing
services.
Payment
Network
• Connects
processors and
issuers; routes
transactions
and establishes
network fees.
Issuer
Processor
• Processes
payments for
issuing bank;
provides
authorization,
settlement,
clearing,
reports, and
settlements.
Bank/Issuer
• Card issuing
entity. May or
may not
outsource
issuer
processing.
Source: For further information, see “PayPal in 2015: Reshaping the Financial Services Landscape,” GSB No. E572, p. 29.
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Exhibit 4
Diagrams Demonstrating Stripe’s Ability to Abstract away Traditional Payment Hurdles
Source: Stripe materials.
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Source: Stripe materials.
Stripe: Increasing the GDP of the Internet E-601
Exhibit 5
Competitive Landscape Diagram
p. 18
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Stripe: Increasing the GDP of the Internet E-601
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Exhibit 6
Global Retail E-Commerce Sales ($ Trillions and Percent of Total Retail Sales): 2015-2020
Retail E-Commerce Sales Worldwide, 2015-2020
(Trillions, Percent of Total Retail Sales)
$5.0
100%
$4.5
90%
4.058
$4.0
80%
3.418
$3.5
70%
2.86
$3.0
60%
2.352
$2.5
50%
1.915
$2.0
40%
1.548
$1.5
30%
$1.0
$0.5
7.4%
8.7%
2015
2016*
10.0%
11.5%
13.0%
14.6%
20%
10%
$0.0
0%
2017*
Retail e-commerce sales
2018*
2019*
2020*
Percent of total retail sales
*Projected
Source: “Worldwide Retail Ecommerce Sales will Reach $1.915 Trillion this Year,” eMarketer, August 22, 2016, https://www.emarketer.com/Article/WorldwideRetail-Ecommerce-Sales-Will-Reach-1915-Trillion-This-Year/1014369 (November 17, 2016).
p. 20
Stripe: Increasing the GDP of the Internet E-601
Exhibit 7
U.S. Mobile Retail Commerce Sales as a Percentage of
Total Retail E-Commerce Sales: 2015-2020
U.S. Mobile Retail Commerce Sales as a Percentage
of Retail E-Commerce Sales, 2015-2020
60%
48.5%
50%
44.0%
39.0%
40%
30%
34.0%
29.1%
23.6%
20%
10%
0%
2015
2016*
2017*
2018*
2019*
2020*
*Projected
Source: “U.S. Mobile Retail Commerce Sales as a Percentage of Retail E-Commerce Sales from 2015 to 2020,”
Statista, https://www.statista.com/statistics/249863/us-mobile-retail-commerce-sales-as-percentage-of-e-commercesales/ (November 17, 2016).
Exhibit 8
Mobile Commerce Spending as a Percentage of Total E-Commerce Spending in Select
Countries in 2015
Country
United Kingdom
Germany
United States
Sweden
France
Netherlands
Canada
Spain
Poland
Italy
Smartphone
16.5%
16.2%
14.4%
15.4%
11.1%
9.6%
8.7%
8.1%
7.8%
5.1%
Tablet
12.1%
11.5%
12.4%
11.7%
8.1%
8.7%
7.5%
7.5%
6.1%
5.0%
Total Mobile
28.6%
27.7%
26.8%
26.2%
19.2%
18.3%
16.2%
15.6%
13.9%
10.1%
Source: “Mobile Commerce Spending as a Percentage of Total E-Commerce Spending in Select Countries in 2015,
by Device,” Statista, https://www.statista.com/statistics/281256/mobile-commerce-as-percentage-of-e-commercesales/ (November 17, 2016).
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p. 21
Stripe: Increasing the GDP of the Internet E-601
Exhibit 9
Summary of Stripe’s Financings
Round
Seed
Series A
Series B
Series C
Series C
Series C
Series D
Date
March 2011
February 2012
July 2012
January 2014
December 2014
July 2015
November 2016
Lead Investor
No Lead
Sequoia Capital
General Catalyst Partners
Founders Fund
Thrive Capital
Visa / American Express
CapitalG /
General Catalyst Partners
Amount
$2 million
$18 million
$20 million
$80 million
$70 million
$100 million
$150 million
Source: “Stripe,” Crunchbase, https://www.crunchbase.com/organization/stripe#/entity (November 17, 2016).
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