How the mobile payment service Stripe defies the power of PayPal


(Published in The Produktkulturmagazin issue 2 2015)

The story of Stripe reads like a classic tale from Silicon Valley. The founders, the brothers John and Patrick Collison from Ireland, were just 19 and 21 years old when they got the start-up off the ground in 2010. Since then, they have made a name for themselves in the industry and collected funding from top investors.

Around 120 million dollars have been poured into the company by Silicon Valley game changers like Andreessen Horowitz, the Founders Fund, PayPal co-founder Peter Thiel and Elon Musk of Tesla, to name but a few. And that, despite the notion that the digital payment sector is difficult to access due to the dominance of global player PayPal. 

The Stripe founders are not only smart and talented, they are also no beginners when it comes to start-ups: in 2008 for example, they sold their first company Automatic, an auction management system, for five million dollars to a Canadian media company. The two brothers, who say they taught themselves how to programme in Ireland, now prove once again that smart and agile solutions may well compete with the big players. While not only PayPal, but also the major banks had underestimated the importance of mobile payment solutions or simply overlooked them completely, the start-up Stripe targeted exactly those B2B solutions for smart phones and tablets.

The solutions the brothers came up with were so good that soon large business customers like Visa or Apple became interested in the new service and integrated it into their ApplePay alliance. However, the way was paved by other start-ups such as the ride sharing app Lyft or the crowdfunding platform Kickstarter first. Both companies were faced with the major challenge of providing appropriate payment solutions suitable for international expansion. Stripe offered just these solutions ‒ and they worked. Even Facebook and Twitter quickly became aware of the smaller provider following the introduction of its ‘Buy’ buttons.

It looks like Stripe is ticking all the right boxes. For online retailers, the product offers a small yet major improvement during check out: as Stripe’s payment system can directly be integrated into the website, customers must not (as with many similar providers) be redirected. The elimination of the potential cancellation during the purchase and the respective time savings are invaluable to the shop owner. In return, Stripe demands a 2.9-percent share and charges 30 cents per transaction. Furthermore, the all-inclusive service takes care of all other relevant details regarding the payment (i.e. exchange rates, fraud prevention etc.).

Currently, Stripe supports payments in 138 currencies. In addition to the ApplePay integration, payments can be made via Alibaba’s Alipay and even with bitcoin. With this open approach, Stripe not only proves user-friendly for end users but developers as well. Programmers praise the application’s code as clear, transparent and highly efficient. Many developers of online shops and apps prefer the snippets Stripe offers over the less accessible interfaces of PayPal. Those who, despite the mockup environment, are still left with open questions can quickly get the right answers from the Stripe development team.

An investment that seems to be paying off. The company value of the mobile payment service is currently estimated at 3.5 billion dollars. While the founders keep silent about the actual turnover, it is likely still far below those of its competitors ‒ PayPal had announced an annual yield of 7.9 billion dollars in 2014. The good news: the entire global market for e-commerce payment solutions is currently estimated to be worth 1.5 trillion dollars. It seems there is room for potential development, which the Stripe founders are well aware off. While competitor PayPal obviously does not want to be contested and is now pushing into the European market with PayPal One Touch, Stripe plans to spend its newly found funding on its global expansion. It is a race that is likely to remain exciting and in which many factors could work in favour of the nimble new entrant. Stripe is proof that even highly complex and seemingly monopolised industries can be broken open with smart solutions.

Picture credits © Stripe

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