It might come as a surprise that the web’s financial infrastructure is old and slow. For years, the explosive growth of e-commerce has outpaced the underlying technology; companies wanting to set up shop have to go to a bank, a payment processor, and ‘gateways’ that handle connections between the two.
That takes weeks, lots of people, and fee after fee. Much of the software that processes the transactions is decades old, and the updates have been written by banks, credit-card companies, and financial middlemen, none of whom are known for elegant coding.
But in 2010, Patrick and John Collison, brothers from Co Limerick, began to debug this process. Their company, Stripe, built software that businesses could plug into websites and apps to instantly connect with credit-card and banking systems and receive payments.
The product was a hit with Silicon Valley startups. Businesses such as Lyft, Facebook, DoorDash, and thousands that aspired to be like them, turned Stripe into the financial backbone of their operations.
The company now handles tens of billions of dollars in internet transactions annually, making money by charging a small fee on each one. Half of Americans who bought something online in the past year did so, probably unknowingly, via Stripe. That has given it a $9.2bn (€7.8bn) valuation, several times larger than those of its nearest competitors, and made Patrick, 28, and John, 26, two of the world’s youngest billionaires.
But payments is a brutal battleground. Countless startups, big banks, and companies such as Google and Apple, are trying to grab what pennies they can with their own systems. This competition, combined with the industry’s minuscule profit margins, has left pundits asking whether Stripe’s lofty appraisal makes sense.
“We’re a ways out before they can satisfy that valuation,” says Brendan Miller, an analyst at Forrester Research. “They’re valued higher than a lot of players who have been around for years with thousands of employees, tremendously more volume, and clients all over the world.”
There is one way to justify the number, though — Stripe’s new partnership with Amazon, the largest and most sought-after internet customer.
Over the past couple of weeks, Stripe began handling a large, though undisclosed, portion of Amazon’s transactions.
Neither company will address the scope of the deal — which was only revealed by Stripe’s addition of Amazon’s logo to its website — but it could help Stripe greatly increase its transaction volume. (Amazon has made no comment.) Seven years in, however, Stripe’s mission is less to send more books, vacuums, and grooming kits into the world than to “increase the GDP of the internet,” Patrick says.
To do this, the company is moving beyond payments by writing software that helps companies retool the way they incorporate, pay workers, and detect fraud. It’s an ambitious bid to revamp how online business has been conducted for 20 years and to give anyone with a bright idea a chance to compete.
“We think giving two people in a garage the same infrastructure as a 100,000-person corporation, that the
aggregate effects of that will be really good,” Patrick says.
The Collison brothers were born in Limerick and later settled in Dromineer, Co Tipperary. Their parents had scientific backgrounds — father, Denis, in electrical engineering, mother, Lily, in microbiology — then became entrepreneurs. Denis ran a 24-bedroom hotel on the shore of Lough Derg, while Lily operated a corporate training company from the family’s home.
“Entrepreneur is a long, fancy French word, but it didn’t seem like something you aspire to,” Patrick says. “It seemed normal, because whatever your parents do seems normal.”
The boys went to a school that had fewer than 20 children in each class.
When bored in class, Patrick read books. “I would line up the angles, so I was hidden from the teacher’s view,” he says, adding that he found out years later that an enlightened principal had instructed teachers to allow it.
Patrick spent his last year of school studying at home, so he could take his Leaving Cert early, at 16. (“Surely, the smartest redhead in Ireland,” read one headline about 16-year-old Patrick being named Young Scientist of the Year, for developing a programming language and artificial-intelligence system.)
Patrick enrolled at MIT in 2006, based on exams he took at 13; John followed him to America, attending Harvard a couple of years later. In their spare time, they developed iPhone apps.
One of their first hits was an $8 (€6.80) version of Wikipedia that people could search offline — the brothers stripped out superfluous coding, so the whole thing could fit in a downloadable file.
They also helped create a way to manage EBay auctions and sold that company, Auctomatic, for $5m (€4.25m), in 2008.
The brothers dropped out of college and, in late 2009, started teasing out the idea that would become Stripe. They set up an office in Palo Alto, which happened to be across the street from the old digs of transaction titan, PayPal. The Collisons would ride bikes to the office, sweating after trying to set personal bests. Part of this was competitiveness, and part of it was being too cheap to buy a car, says Mike Moritz, one of PayPal’s first investors.
“They have the advantage of coming to California without being tainted and polluted by what’s in the water supply and air of Silicon Valley,” says Moritz, a partner at Sequoia Capital and a Stripe board member.
“They’re more humble and well-rounded. There’s such an improbability to their story, that these brothers from a little village would come to build what could well be one of the most important companies on the internet.”
Stripe debuted in 2011, with Patrick as chief executive and John as president. The Collisons had spent two years testing their service and forming relationships with banks, credit-card companies, and regulators, so customers wouldn’t have to. With Stripe, all a startup had to do was add seven lines of code to its site to handle payments: What once took weeks was now a cut-and-paste job. Silicon Valley coders spread word of this elegant new architecture.
The genius of Stripe’s approach was twofold. Typically, finance managers decided what payment system to use. But Stripe appealed to developers, which was important for a startup. And its technology was crafted for the internet’s newfangled business models.
Marketplace builders, such as Shopify, needed to divvy up payments between vendors and consumers, and sharing-economy upstarts, such as Lyft, had contractors and riders to move money.
Setting up an accounting platform to pay Lyft drivers and charge millions of customers would have taken six months to build.
“You have to keep track of who’s earning what, and the schedule they should be paid out on, and then you get into weird regulatory stuff,” John says. “The work that all these businesses had to do to manage payments was a shared toil. We could take on much more of that and leave running the business to them.”
Although startups appreciated what Stripe was doing, most potential investors did not. How was a small group of young engineers going to alter the
internet’s financial structure? Hadn’t they heard of PayPal? Ironically, it was Moritz and PayPal co-founders, Peter Thiel and Elon Musk, who wanted in. They got that PayPal’s technology hadn’t kept pace.
“The propeller of the good ship PayPal was pretty encrusted, and a lot of barnacles had formed on the hull, since we invested in the company more than a decade earlier,” Moritz says. “The observation that accepting payments was still too difficult rang very true.”
Today, Stripe is the financial engine for 100,000 businesses. It stores key financial information, such as credit-card numbers, deals with fraud, and adds support for new services, such as Apple Pay, as they arise. Stripe charges a 2.9% fee on credit-card payments in exchange for its services, though the fee can be lowered with higher volumes.
Stripe won’t disclose the number of transactions it processes, but analysts estimate it’s getting close to handling $50bn (€43bn) in commerce annually, which would translate to about $1.5bn (€1.3bn) in revenue.
Stripe’s profit is what’s left over after banks charge it fees for their services. Generally, banks can take as much as 2.5%, but Patrick says that Stripe has better margins than people assume, without providing further clarity.
The low margins point to an industry adage: There’s no money in payments. Stripe is in a vicious universe dominated by banks and credit-card companies and larded with regulations. Still, it’s in competition to own nothing less than the flow of global trade, which is why there’s no shortage of participants.
Stripe continues to attract startups. It intends to be behind the next Uber or Airbnb, to cash in on its meteoric growth.
“If you think about the broad trajectory of the internet, most of the breakout successes are still to come,” Patrick says.
But Stripe is also trying to make deals with Target, and Under Armour, and other merchants, to snag money available outside the startup scene, partnerships made more possible by the trust Amazon is showing.
In 2016, Stripe moved into offices next door to AT&T Park, in San Francisco’s startup-heavy SoMa district. The previous tenant, file-sharing company, Dropbox, had fitted out the place with a bar, a music-recording studio, a Lego room, and sofa swings.
The Collisons got rid of all that. The kitchen, where Dropbox employees dined on individually plated meals, is now a standard cafeteria.
“It’s slow and indulgent to wait for food,” Patrick says.
Pop music plays in the white-orchid-lined lobby. Coffee tables are layered with eclectic reading material, including the Paris Review and the Twelve Tomorrows sci-fi anthology.
There’s an open floor plan — of course — and workers change desks every few months to become friendlier with colleagues. An algorithm will select a lunch buddy for you to dine with at communal benches.
A placard on the bathroom door reads: “We believe that gender is non-binary. Please use the restroom that feels most comfortable to you.” Patrick’s desk is covered in books. There’s a copy of The Dream Machine, about JCR Licklider, the technologist who conceptualised and funded the early internet. The volume was out of print, but Patrick loves it so much he bought the rights and paid to publish hundreds of copies for employees and guests.
The wallpaper on his computer displays a countdown clock for his life: He has 52 years and a few days left.
“This is a very coarse estimate, but it’s a reminder that you get old quickly,” he says, a touch of gray now in his red hair. “When you talk to people who are old, some wish they had enjoyed themselves more, but not many wish they had wasted more time.”
The brothers share a love for books and an apartment. They describe things in computing lingo. Patrick explains their lack of pop-culture knowledge, saying: “It’s not that I don’t enjoy TV. If I had infinite time, I would watch it. This might be the entirely wrong optimisation.”
On weekends, John pays for a Stanford student to tutor him in law, and Patrick has a physics tutor. Conversations with them tend to move from Turkish politics to San Francisco’s water supply to the joys of aviation (they’re pilots).
When they’re not flying, they’re running and posting their times on Strava, a social network for people who like to brag about exercising. During company runs, Patrick lags behind to hang with the slowest person. Sometimes, John hands out pancake bundles at the end of early-morning jogs.
Three years ago, Stripe had 80 employees. Now, it has 750. The company continues to cultivate its enlightened reputation among developers. Recently it hired Susan Fowler, whose blog alleging a corporate culture of sexual harassment at Uber set off an internal investigation. (Ultimately, Uber CEO, Travis Kalanick, resigned.) At Stripe, Fowler oversees a quarterly publication, ‘Increment’, that collects stories on how engineers at other companies solved problems.
Stripe also acquired Indie Hackers, a site that specialises in case studies about apps and software tools.
The Collisons’ plan is to bundle new tools into the core product to make that 2.9% fee seem ever-more reasonable. One feature, Radar, is a fraud- detection system. Stripe uses AI software to analyse payments on its network and identify suspect activity.
By looking at such a large data set, Stripe says it can spot patterns better than a single company reviewing its own transactions.
Radar comes free, but Stripe wants to find ways to charge monthly fees for add-ons, such as customer support for larger clients.
The goal is for this side of the business to look more like a traditional software company, with services helping high-profit payments roll in month after month.
In May, Patrick went on a five-day tour of Israel to meet with investors and young entrepreneurs and tout these products. Much of the trip felt like he was still in Silicon Valley: At Google’s Tel Aviv office, he talked to startup founders amid ‘Tech It Easy’ posters and potted plants with stickers reading ‘You are outstanding!’
Midway through the trip, he went to Ramallah, in the West Bank. About 50 people were at the offices of Leaders, a Palestinian organisation that runs the region’s only technology park. The mid-afternoon call to prayer had just gone out, and a few men smoked on the balcony of the third-floor conference room, which overlooked tan buildings, fields strewn with rubbish and rocks, and a shepherd goading sheep. Patrick hopped up on a stool to address the crowd, saying, “I, unfortunately, don’t speak Arabic,” and apologising for his rapid-fire brogue.
Much of the talk centered on Atlas, Stripe’s year-old service. For $500 (€420), a business can incorporate in Delaware, get a taxpayer number and US bank account, and receive legal and tax advice on forming a company.
Typically, this would require months of work, visits to the US, and lawyers. As it did with payments, Stripe simplified the process to a few clicks. A large number of Atlas customers are US companies that want a quicker way to get up and running. But the majority of its clients are overseas, where the service helps with credibility, lower fees, and access to American customers and venture capital.
In Ramallah, entrepreneurs trying to build tech companies have had to contend with travel restrictions, a 2G cellular network, and poor access to investors. Odeh Quraan, 30, one of the Leaders attendees, runs Mostawda, a Middle Eastern version of Etsy, which links artisans and consumers from Morocco to Oman. Quraan uses Stripe to manage cross-border payments and help online merchants fill stores with hijabs, labneh, and mosaics.
He turned to Atlas to incorporate and is trying to attract foreign venture capital. “When I found Stripe, it seemed unbelievable,” Quraan says.
During his talk, Patrick explained to Quraan and the others that he could identify with feelings of isolation,
because of his upbringing in rural
Ireland. “There is that sense of comparative inferiority,” he says. “You are clearly much less significant than the bigger forces around you.”
Audience members told him they were set to deliver a petition, with more than 100,000 signatures, to PayPal, chiding the company for allowing Israeli settlers to use the service, but not allow Palestinians. Patrick countered that Stripe wants to expand its business in Palestine and anywhere else entrepreneurs need help, adding, “we are drawn by places that the rest of the world tends to underestimate.”