Apple's list of partners for its new Apple Pay service reads like a Who's Who of the payments world, including Visa and First Data. Then there's Stripe, founded by brothers Patrick and John Collison.
Getting included on Apple’s list was a coup for the five-year-old start-up, which will enable mobile applications to work with Apple Pay. It’s the latest success for Stripe, which is also powering an e-commerce feature for Twitter, working with Alibaba’s Alipay, and helping thousands of other companies process online and mobile payments.
The challenge for San Francisco-based Stripe is fending off eBay’s PayPal and traditional financial companies that are barreling into mobile payments.
The burgeoning market – with global spending on commerce via handheld gadgets set to reach $720 billion in 2017, up from $300 billion this year, according to IDC – has brought on a crowded field of competitors.
"We're hugely excited about the Apple announcement, but this is just another step along the way," said Patrick Collison, 26, who along with his brother, John, 24, founded Stripe in 2009.
Stripe's partnerships with Apple and Twitter now catapult it onto a bigger stage, cementing its elite spot among Silicon Valley startups. In a sign of its trajectory, the company, which is widely regarded as a potential initial public offering candidate or acquisition target down the road, landed a $1.75 billion valuation this year, up from $100 million less than two years ago.
Standing out
At first glance, Stripe doesn't look too different from other payments startups. The company offers processing services for online and mobile transactions, which customers such as ride-sharing provider Lyft can integrate into their apps. Stripe typically takes a 2.9 per cent fee, plus 30 cents, of each successful transaction.
Yet Stripe stands out from rivals for the amount and ease of code it offers, which lets software programmers quickly incorporate the payment features into their apps. Stripe lets businesses start processing credit-card payments in 139 different currencies, bank transfers, bitcoin and Alipay in less than five minutes, according to the company.
“They execute very quickly on new features, and they’re always ahead of the curve,” Lyft chief executive officer Logan Green said.
He said his San Francisco-based company began using Stripe in early 2013 and liked how it could automate features such as proving the validity of charges that consumers don’t immediately recognize.
“We would have needed a team of 20 people just stamping envelopes” to do that, Green said. Stripe has the backing of investors including Sequoia Capital and Andreessen Horowitz, as well as PayPal co-founders Peter Thiel, Elon Musk and Max Levchin.
It has raised about $140 million in funding, with its $1.75 billion valuation pegged to a financing in January. Stripe’s workforce, housed in an office in San Francisco’s hip Mission District, now numbers 160 people, up from 90 at the beginning of the year.
The company declined to disclose revenue or say whether it’s profitable.
“This company has been capturing the hearts and minds of developers responsible for making online payments possible for their companies,” said Mike Moritz, a Sequoia venture capitalist who sits on Stripe’s board.
Roots
Stripe's roots go back to the small town of Dromineer, Ireland, where the Collisons were raised. The brothers showed geeky propensities early on. Patrick won an Irish national science award in high school for creating a new version of a 50- year-old artificial-intelligence computing language called Lisp.
He later majored in math and physics at the Massachusetts Institute of Technology. John received the highest score ever on Ireland's nationwide college entrance exam, then headed to Harvard University.
While in the Boston area, the pair built an e-Bay competitor called Auctomatic and sold it less than a year later for $5 million. The pair started Stripe in Boston in 2009, and then left their respective colleges – they are still on leave from the institutions – to focus on the startup full time. In 2010, they moved to the San Francisco Bay Area to build the business.
Future growth
The opportunity ahead is large. Stripe may be able to snag a share of not only online but also offline in-store transactions, for which consumers may pay with phones, James Wester, an analyst at researcher IDC, said in an interview.
Another startup seeking to benefit from the mobile-payments boom is Square, which has a device attachment that lets small merchants accept customers’ credit and debit cards.
The company has been in talks to raise financing at a $6 billion valuation, people with knowledge of the matter have said. Stripe’s hurdles remain high, including facing competitors like Google and PayPal.
E-Bay last year acquired mobile-payment service Braintree for $800 million, and dozens of other startups have been bought by the likes of Google and Intuit .
Stripe’s growth will also depend partly on whether Apple Pay and Twitter’s commerce efforts take off. “Twitter has to first break the code on how to sell things, and Stripe is instrumental to that,” Richard Crone, CEO of Crone Consulting LLC, said in an interview.
“If they do it right there, then any social media can be monetised. All the other players will beat a path to the door, and they could follow the same trajectory as PayPal.”
Twitter’s head of e-commerce, Nathan Hubbard, said earlier this month that the San Francisco-based company uses Stripe because it wants to make payments frictionless. With Stripe, when people enter credit-card information into Twitter, “it’s stored and trust and safety and security are paramount to us,” he said in an interview.
With Apple, Stripe spent the past two months working with the iPhone maker on Apple Pay, according to a company founder and investors. Apple Pay will let consumers buy items in brick- and-mortar stores by tapping phones on cash registers.
It will also simplify buying online through mobile phones, said Chris Dixon, a partner at Andreessen Horowitz. “Buying things on the Internet from your mobile phone is still very clumsy and complicated,” said Dixon, who has also personally invested in Stripe.
“Apple Pay can solve this issue and accelerate Stripe’s and mobile payment growth.”
Bloomberg LP is an investor in Andreessen Horowitz. Trudy Muller, a spokeswoman for Cupertino, California-based Apple, didn’t have a comment.
Prospects
As for Stripe's prospects, Patrick Collison declined to comment on an IPO, saying the company's focus is "100 percent on building that platform." He said potential acquirers "ping you wanting to talk all the time," adding that the startup has been clear that it isn't interested in a sale.
For now, Patrick Collison said he recognizes Stripe has more work to do. “We are less than 10 per cent of the way there,” he said.
“Building a platform that others can build a meaningful business on top of, we are talking about a multi-decade horizon.” - Bloomberg
