Stripe’s Economic Infrastructure Playbook

June 12, 2023

Stripe’s Economic Infrastructure Playbook

Stripe is leading the fintech revolution, empowering a diverse range of businesses globally. Discover the tactics fueling Stripe’s fintech success in our 50-page report. Unravel their strategy including bets on creators’ economy, omnichannel commerce, digital assets & web3, embedded finance, and Generative AI. 

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Key takeaways from the report:

  • A deep-dive into Stripe’s strategic bets on the burgeoning creators’ economy, empowering individual creativity with powerful commerce tools.
  • An exploration of Stripe’s embrace of omnichannel commerce, enabling seamless transactions across various digital platforms.
  • Unpacking Stripe’s interests and forays into the digital assets & web3, charting the new frontier in decentralized finance.
  • Detailed examination of Stripe’s focus on embedded finance, integrating financial services into non-financial applications.
  • An analysis of Stripe’s investment in Generative AI, pushing the boundaries of automated learning and predictive technology.

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Stripe: A massive scale and scope

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enterprises process more than $1B annually on Stripe.
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in payments processed by businesses on Stripe in 2022.
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countries where Stripe is available to businesses.

Code, Convenience, and Commerce: The Stripe Story

2 brothers. 7 lines of code. A multi-billion dollar startup.

While Stripe’s story and growth can be summarized through these numbers, beneath these figures lies the intricate tale of how they revolutionized e-commerce with well-documented APIs that developers could effortlessly utilize. This is where brothers Patrick and John Collison enter the scene, who envisioned a simple and accessible solution that democratized the payment process, empowering individuals to make hassle-free payments in our interconnected world.

Stripe, a disruptive business model born out of personal frustration, has evolved into a leading platform for businesses of all sizes. Its goal of modernizing online financial infrastructure and “increasing the internet’s GDP” has led to expansion into various areas, including Fraud & Risk Management, Card Issuance, Research & Development, Web3, and Lending.

However, the temptation to combine multiple products into one’s roadmap can lead to taking on too much and diverting attention from the original goal of meeting the needs of targeted customers. Adding to the challenge, the overall ecosystem has undergone a shift in recent times, and Stripe has been affected no less. Its internal valuation has fallen prey to the current macroeconomic environment and market dynamics, with its value declining from $95B in March 2021 to $50B during its most recent fundraising round.

With so much going on for this payments unicorn, we examine the events in Stripe’s journey and the prospects as it paves the way for a global money movement.

The Genesis Era (2010-2012)

The Stripe saga began all the way back in 2010 with a $20K seed funding from startup accelerator Y Combinator – when the Collison brothers arrived in the US and embarked on a mission to revolutionize online payments born out of a personal frustration:

Stripe really did come about because we were really appalled by how hard it was to charge for things online.

John Collison

By pioneering Payment Facilitator (PayFac) technology, they aimed to simplify the cumbersome process of accepting payments online by condensing a lengthy list of tasks into a few lines of code. These seven lines of code enabled anyone to add payment functionality to their platform in a snap, sparing them from going through the tedious tasks of setting up payment gateways to ultimately managing banks.

They focused on a developer-centric solution, dedicating six months to refining it through trial and error and incorporating feedback from trusted acquaintances. By prioritizing user experience, they attracted satisfied users who enthusiastically shared their solution, resulting in organic user base growth.

The product-market fit seemed to click right away, and its popularity spread rapidly like wildfire:

Initially, it very much spread through a word-of-mouth process. That was surprising to us because it’s a payment system, not a social network, so it’s not something you’d think would have any virality whatsoever. But, it became clear that everything else was so bad, and so painful to work with, that people actually were selling this to their friends.

Patrick Collison

Bolstered by this very assurance, Stripe launched publicly in September 2011, securing a substantial $20M investment from notable backers like Peter Thiel, Elon Musk, Sequoia Capital, and Andreessen Horowitz. To drive word-of-mouth growth, Stripe implemented a multifaceted strategy, including monthly hackathons, developer meet-ups, and the development of robust tools and documentation. These efforts gained significant traction within the developer and hacker communities.

As Stripe focused on advancing online financial infrastructure, it became crucial to support businesses dealing with complex payment procedures. Originally designed for individual websites and vendors, Stripe’s Payments product evolved in response to demand, resulting in the launch of Stripe Connect in late 2011 – a platform and marketplace solution that enabled seamless credit card payment acceptance on any website.

Momentum and Metamorphosis (2013-2016)

From its inception until 2014, Stripe focused on refining its core offerings instead of expanding into new product development. It meticulously examined each customer’s product implementation and gradually introduced complexity to its backend systems while keeping its APIs developer-friendly. Adding to this, Stripe emphasised agility by constantly publishing updates to its core API 16 times per day.

In 2014, Stripe achieved unicorn status, a remarkable feat accomplished at an early stage. Its rapid and extensive growth can be partly attributed to yet another strategy of early engagement with startups, growing alongside them. Initially targeting an already crowded audience of startup engineers, Stripe differentiated itself by prioritizing simplicity and speed, following a strategic progression from startups to enterprise-level clients, and eventually expanding its audience.

Stripe’s impressive growth in its early years stemmed from its meticulous alignment of product vision, strategy, and principles with the needs of its key customers. The company’s success lies in the simplicity of its developer-friendly API, which underwent rigorous testing and revisions to ensure Payment Card Industry (PCI) compliance.

Dedicated to their core offerings, Stripe spent nearly four years refining and expanding their existing products. However, they recognized the need to venture into new product development to address emerging challenges and cater to different user personas.

In February 2016, Stripe introduced Stripe Atlas, a pioneering platform that allowed entrepreneurs worldwide to incorporate their businesses and accept payments through Stripe. This strategic move facilitated the geographical expansion and established Stripe’s brand presence early on among startups. Later that year, Stripe launched Stripe Radar, a globally available product that utilized machine learning to combat fraud and manage risk associated with Stripe transactions.

The Epoch of Expansion (2017-2021)

This was only the beginning, as the years that followed saw the company continue to release a stream of high-margin offerings to build a robust ecosystem of products, including:

  • Stripe Billing (2018): to simplify the recurring billing process for SaaS and subscription-based companies.
  • Stripe Issuing (2018): to help online businesses and platforms create their own credit and debit cards with just a few lines of code.
  • Stripe Terminal (2018): to enable developers to build custom payments experiences for in-person transactions just as easily as they can for online purchases.
  • Stripe Treasury (2020): to enable platforms to embed financial services, enabling their business customers to send, receive and store funds easily.

Alongside these advancements, Stripe undertook various growth initiatives – including expanding into new markets like Hong Kong, enabling businesses to activate popular payment methods like Alipay and WeChat Pay directly from their online dashboards. In 2017, Stripe partnered with Xero, introducing automated reconciliation to assist small business owners in getting paid faster. By late 2019, the company had extended its global presence to include Mexico and Malaysia, demonstrating its commitment to collaborating with innovative businesses and creating functionalities tailored to their requirements in emerging markets.

Timing is critical when expanding product offerings, and Stripe found the right balance by carefully introducing new products while gathering feedback. This involved thorough documentation design, API reviews, user testing, and early releases to the public.

In April 2020, Stripe secured a $600M extension to its Series G funding round from prominent investors, valuing the company at $36B. This timing aligned with the surge in online shopping during the pandemic and Stripe’s aim to expand into new regions, as seen through its acquisition of African payment processing services provider PayStack for over $200M.

At the dawn of 2021, Stripe achieved remarkable funding success, benefiting from investors’ enthusiasm for fintech and the growing demand for digital payments and cutting-edge technology. It secured a triumphant $600M in a Series H round, valuing the company at an astounding $95B. Additionally, Stripe focused on expanding its European presence, enhancing its Global Payments and Treasury Network, and addressing user needs by acquiring TaxJar for sales tax navigation.

In the same year, Stripe leveraged geographic expansion to fuel its growth, launching its core payments products in 11 new countries, including the UAE, tapping into untapped markets. Additionally, Stripe strategically pursued acquisitions and partnerships to expand its network and reach:

  • By the close of 2021, Stripe acquired India-based Recko to offer internet businesses the ability to automate payments reconciliation and better track their financial health. 
  • It then joined forces with the BNPL firm Klarna, empowering Stripe users in 20 countries to supercharge their conversions and ramp up revenue by granting consumers the option of Klarna’s flexible payment plans.
  • To cap off an impressive year, Stripe snapped up OpenChannel, signalling its intent to collaborate on ecosystem integrations for the benefit of its users.

  At the same time, Stripe didn’t rest on its laurels, forging ahead with a raft of new additions to its product lineup, which included:

  • Stripe Tax (2021): to let businesses automatically calculate and collect sales tax, VAT, and GST in over 30 countries and all US states.
  • Stripe Identity (2021): to enable online businesses to securely verify users’ identities worldwide, thereby preventing fraud, simplifying compliance, and increasing trust.
 Although Stripe basked in the glory of these strategic moves and a financial windfall during its record-breaking March 2021 funding round, which valued the company at a staggering $95B, and processed a jaw-dropping $640B in payments volume that same year, the payments titan has faced a humbling setback of late.  

Weathering Market Blues (2022-present)

2022 brought a noticeable shift pertaining to market headwinds after the successful fintech boom of 2021, prompting Stripe to adjust its approach and embrace products from diverse sectors, including:

  • Crypto Payouts (2022): to allow businesses to send cryptocurrency payouts to sellers, freelancers, creators, and service providers globally.
  • Financial Connections (2022): to let businesses establish direct connections with their customers’ bank accounts that power various financial processes, including verifying bank accounts, checking balances, and confirming account ownership.

However, despite its lofty beginnings, the payments giant has since had to reassess the value of its shares, first plummeting to $74B in July 2022, accompanied by a layoff of 14% of its workforce in November 2022, before taking another hit and sinking even lower to $63B in January 2023.

Notably, these recent valuations of Stripe were determined through a 409A internal valuation process, which is regulated by the Internal Revenue Service and conducted by an independent appraiser. This process sets a fair market value without influence from venture capitalists or other investors. Interestingly, Stripe conducts these evaluations more frequently than the usual annual norm.

Nevertheless, Stripe continues to make significant progress and introduce exciting new developments. In March 2023, it rolled out its Tap to Pay feature on Android, giving businesses in six countries the ability to accept contactless in-person payments via a compatible phone or tablet. More recently, Stripe raised $6.5B in a Series I funding round at a $50B valuation to provide liquidity to employees and address tax obligations related to equity awards. They have also ventured into artificial intelligence, partnering with OpenAI to integrate the GPT-4 model into their products and services. In turn, OpenAI will leverage Stripe’s payments platform to power payments for ChatGPT Plus and DALL·E.

The Stripe Strategy: Bold Ambition or a High-Stakes Game?

Stripe’s product strategy is undeniably impressive, driven by a new guiding framework that is both bold and ambitious. However, with the addition of building for numerous engineering teams, there is a risk of overreaching and launching a product that needs more impact.

Although Stripe has an extensive payment network that spans 197 countries, offering ample opportunities to contribute to global commerce, build a loyal customer base, and explore new revenue streams such as BaaS and Financial Connections, there are still many challenges on the horizon for this payments provider. 

In the competitive payments industry, pricing pressure and the rise of open banking’s account-to-account payments pose further challenges to traditional card payment models. Several startups, such as Adyen, Razorpay, are also replicating Stripe’s successful approach in their home markets, while tech platforms are building their own payment systems to reduce fees and increase control.

Amidst new ventures, Stripe seems to be seeking lucrative revenue streams. The question looms large: Will they pursue an IPO or delay it? Facing a significant tax bill in 2023 from restricted stock units (RSUs) distribution and rumours of a quest for profitability, Stripe’s balance in the competitive fintech landscape will be captivating to observe.

Stripe’s Economic Infrastructure Playbook

Stripe is leading the fintech revolution, empowering a diverse range of businesses globally. Discover the tactics fueling Stripe’s fintech success in our 50-page report. Unravel their strategy including bets on creators’ economy, omnichannel commerce, digital assets & web3, embedded finance, and Generative AI.
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