When Apple launched its new payment service last October, it boasted of support from major partners such as American Express, Chase, and Macy’s. But Apple had also spent months ahead of the launch working with a relative minnow in the world of financial technology: a four-year-old San Francisco startup called Stripe.
Stripe got started in 2010 selling tools that make it easy for businesses to add credit card payment functionality to a website or mobile app. It quickly earned a reputation for being friendlier to coders than more traditional payment processors, making it popular with app makers and a natural choice for Apple when it began designing Apple Pay.
Today, Stripe’s products have expanded to include subscription billing services and an online checkout system. Customers include Walmart, Twitter, and the ride-sharing app Lyft. The company has received $190 million from venture funders including PayPal cofounders Peter Thiel, Elon Musk, and Max Levchin.
In an interview with MIT Technology Review’s San Francisco bureau chief, Tom Simonite, in the cafeteria at his company’s headquarters in the Mission district of San Francisco, CEO and cofounder Patrick Collison explains how he is trying to increase the small fraction of spending that takes place through e-commerce.
Payments processing seems like a fairly simple function. What makes it important?
Today the most exciting technology companies are the mobile marketplaces, companies like Airbnb and Lyft. Software is suffusing every industry and sector and market. As technology companies expand into more markets that have been traditionally offline, it’s natural that business models are more about payments. Stripe is providing the infrastructure for the next wave of these companies.
Only 2 percent of commerce worldwide is e-commerce today. Why is that share so small?
There are major infrastructural deficiencies. If you’re in Latin America or China and go to a website, it’s almost guaranteed that you can’t buy from it. By only accepting credit cards, which is what the majority of websites do, they’re essentially restricting themselves to selling to North American and Western European buyers.
Even in the U.S., e-commerce only accounts for just over 6 percent of all retail. Is that a business problem or a technology problem?
It’s absolutely a technology problem. Think of the places where you’re likely to discover something that you want to purchase. You no longer stumble across it when you’re walking down the high street; you find it in your Facebook or Twitter feed, on your phone.
But think about what you’re supposed to do on a mobile device: click on the link, get bounced to some random e-commerce website, click “add to cart,” zoom in, peck in your address and credit card number, and click on checkout. It’s a 10-step process, and it might not even work at the end of it all. I can hand a dollar to somebody really easily in the store; it’s really difficult for me to digitally hand them a dollar.
Apple Pay, which you worked on, seems to work well, and there are a lot of partners. But it’s not very radical, is it?
I think Apple was quite aggressive on a number of points. Giving merchants a “token” versus your credit card number is a very important shift. If that business is compromised, you’re not liable to anyone in the world stealing from you. The privacy changes are not insignificant. It would have been very natural for Apple to try to aggregate all this data and use it for ad targeting, but they haven’t.
There’s no point proposing some utopian vision that doesn’t come to pass. A new, successful, behavior-altering payments product is a big deal and represents a crack in that frozen ice of the industry and the way things are done.
Bitcoin is kind of a financial Rorschach test; everyone projects their desired monetary future onto it. What we care about is making digital transactions and commerce more universal. There is the element to Bitcoin of just being a universal means to transport value.
Bitcoin has some user experience issues. Transactions take minutes to clear. There’s the difficulty of obtaining bitcoins. With Stellar you can use real, normal currencies in addition to digital ones. Transactions clear instantly. We backed this because we’re in favor of anything that seems it might help us build a more ubiquitous, useful commerce infrastructure for the Internet.
Can you really make as much money as other high-margin software startups by taking a small slice of transactions you handle?
The economics of the business generally work better than people think. Look at PayPal’s income statement and margins—they’re really good. We’re a technology provider and happen to bill for that as a function of the transaction volume, but that’s an implementation detail of the pricing. Do you price it as a percentage of the transaction or as a monthly fee or an annual fee? There’s no reason why the margins should be that different.