The Stripe innovation stack

Stripe was born out of a classic American drop-out story. In 2010, the Irish Collison brothers, Patrick and John, dropped out of MIT and Harvard to start Stripe. They had already sold their first Y-combinator startup, Auctomatic, for $5million in 2008 when they were just 19 and 17.

Stripe is one of the most well-funded private Fintechs. With a $36billion unicorn valuation in a sector that is in growth mode, it seems unstoppable. Global e-commerce is currently estimated to be a $4trillion sector with huge upside potential, as it currently accounts for only 8% of total commerce (eMarketer stats reported by CB insights).

Of course, there is incumbent and Fintech fierce competition that cannot be ignored. Think Paypal, Square, Brex, Marqeta, Google,… etc.

Stripe (much like Square) continues to build a fuller stack towards creating a magic glue that keeps together a sustainable ecosystem. The fuller stack goes beyond the core service which is focused around making payments easy for small businesses that want to transact online. Stripe Connect, for example, facilitates more complex transactions for marketplaces, from subscriptions to virtual cards, and loans. Stripe Atlas, makes it fast and cheap to setup a US corporate entity in the US and has had great successes especially for foreign entities. Stripe is actually already very international and plans to use its recent funding ($600mil, April 2020) to expand to Southeast Asia and Latin America.

Stripe`s stack is growing and CB insights gives a detailed overview with facts and figures for the private company, in its August report.

Stripe is in payments, in e-commerce, and in banking services for small and large businesses.

https://www.datadriveninvestor.com/2020/04/28/global-trends-in-fintech-technology/

Stripe`s clients include the likes of Amazon and Salesforce, Grab and Booking.com, Zillow and Zoom, and solopreneurs like myself.

Stripe is focused on retaining a balance between large customers that may exert pricing pressure on Stripe, and small businesses in addition to being the go-to place for setting up new businesses.

With services like simple & complex payment processing, virtual cards, loans, processing business operations, billing etc., you would think that their institutional salesforce would be focused on CFOs that are selecting vendors to support their companies’ financial needs. Stripe, however, differs considerably from Paypal or Google Checkout and Microsoft Passport, in that it works without the need of a huge salesforce, customer support. Most importantly, Stripe integration does not result in diverting the company`s website traffic into the Stripe ecosystem, as Google and Paypal do.

Stripe`s innovative approach and secret sauce is based on their focus on the developer community from Day 1. The mindset is that payments is code and therefore, let’s build tools for the developers to make any kind of integration simple and seamless.

This choice has shifted the vendor selection process, away from the CFO (typical) and towards the developer community. In other words, Stripe is a DIY service that developers love. It is self-hosted and it seems that VCs love Stripe too as they continue investing.

I checked the Github activity of Paypal, Square, and Stripe. Stripe has triple commits than Square and 16+x more than Paypal on the Github. Stripe has 6million commits, Square has 2million and Paypal just 360million. The gap is wide, which shows the power of a self-hosted system in a purely digital world. The word-of-mouth effect is also very strong in favor of Stripe. The only question mark is the lack of transparency from Stripe (being a private company) regarding its revenues and profit margins. CB insights reports estimated payment processing volumes which are just part of the picture. From the client-side, Stripe has managed to cut operational costs (on average) by 24%. It claims to have roughly 50bps-100bps margin from payment processing.

Stripe is the most valuable privately held Fintech in the US — $36b. Ripple and Coinbase are valued at $25b and $8billion, respectively. It recently changed its website and motto, from `the new standard in online payments` to `Payments infrastructure for the internet`. This means that Stripe wants to be instrumental in enabling online business.

Source of images:

https://www.cbinsights.com/research/report/stripe-teardown/

https://www.nasdaq.com/articles/stripe%3A-the-internets-most-undervalued-company-2020-09-01

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