The Untold Story of Stripe (Wired Magazine)

Subtitle: Patrick and John Collision democratize online payments and reshape the digital economy in the process

Mostafa Amin, 29, was talking about bread on a hot summer day in a garden in Cairo just a stone's throw from the Nile. He speaks of bread with a reverence usually reserved for celebrities, football teams, or miracles like manna, which, according to the Bible, helped the Israelites escape from Pharaoh's rule, Bread fell from the sky.

"In Egyptian Arabic, we call bread 'aish', which translates to 'life'," explains Amin. "We are a bread culture - not rice, not meat or potatoes. Most of us eat Egyptian baladi bread for three meals a day. Last year, we were the second largest consumer of flour in the world and we produced 28 billion Baladi loaves. That's important."

Indeed, bread in Egypt is not just food, it is history, glory, anger and revolution. The world's first loaf of bread was baked in Egypt 10,000 years ago, thanks to the quern, a technological innovation that allowed nomads to crush grain. At the height of the Roman Empire, the Nile Delta was the breadbasket of the world. Throughout the 20th century, 45% of Egypt's population earned around $2 a day, and every drop in bread subsidies caused huge public outcry. On January 17, 2011, a baker named Abdou Abdel Monaam set himself on fire in the port city of Alexandria over bread prices, triggering Egypt's "Arab Spring" ( Arab Spring) and brought down the government of Egyptian President Hosni Mubarak.

In this case, launching Breadfast—a home delivery startup that promises to deliver fresh bread by 5 a.m.—was a no-brainer for Armin: the population was huge, the bread was hugely popular, and the service Can quickly grow into Ocado or Amazon Fresh in Egypt and roll it out to the rest of the Middle East.

However, in North Africa, it is not so easy. "The political situation in Egypt is unstable, inflation is soaring, and interest rates remain high," Amin said. “If you go to investors now, they will ask why invest in startups, when they can put the money in the bank and get 15% interest? There are about 10 investors in the whole country, and they want to spend 200,000 Dollars buy 90% of your company. Most of the rest are real estate investors looking for quick returns.”

Amin is not used to this way of thinking. In 2014, he moved to Berlin, where he made some money as a programmer for a few years, where the startup idea was like he said, "Get to the first million in your user base and watch See how you can make money. But in the Middle East, that's not how we work. From day one, investors expect you to come up with something tangible. They don't talk about the next generation, they want to talk about people on the spot will pay for something.”

Young entrepreneurs like Amin have increased dramatically in Cairo since the 2011 revolution. Nearly 30 percent of Egyptians live below the poverty line, while millions linger on the poverty line.

“Egypt is one of the most strategically located countries in the world,” noted Amin, sipping a bottle of cool water by hiding under a tree to avoid the scorching midday sun. “We have 100 million people, and if you give those people the right education, it can make a big difference. This country is a treasure. But we have bad infrastructure, short-sighted investors, zero management and zero vision. These are Our problems.” These problems are pervasive across the region and across the developing world, but there are also many digital entrepreneurs grappling with them.

According to the World Bank's Small and Medium Enterprise Department, there are 365 million to 445 million MSMEs in emerging markets, contributing as much as 60 percent of employment and 40 percent of the country's GDP. The main problem faced by these enterprises is the difficulty of financing. So how can entrepreneurs in emerging countries join global markets and help boost their own wealth? One solution came from the small Irish village of Dromineer, a village of 102 people and home to the world's youngest billionaires , Patrick and John Collision . place of birth.

Dromineer looks like a cute Irish village from a postcard. It was also here that Patrick and John Collision learned to program and started thinking about online payments. Here, they founded Stripe , a payments company that last raised funding in September 2018 at a $20 billion valuation and is responsible for payments across Amazon, Lyft, Deliveroo, Shopify, Salesforce, and Facebook.

“To say Dromineer is rural would be an understatement,” explains John Collision. "We were about a 40-minute drive to school, and there were less than 20 children in each class." The brothers found school boring. Their father, Denis, an electrical engineer, and their mother, Lily, a microbiologist, chatted more at the family dinner table than they learned in class. They are fascinated by both mathematics and physics. By the time they were teenagers, they had nine computers at home and paid 100 euros a month for a satellite broadband connection in Germany.

Patrick - the red-haired older brother, now 30 - often peeks through science and history books in the duller classes , "You can try banging your head against the wall and come up with something ingenious. Ideas...or you can cheat by reading books."

At the age of 16, Patrick won the "Esat BT" Young Scientist of the Year award hosted by the Royal Dublin Society of Ireland for his coding language Croma. In 2006, he entered MIT based on his SAT scores at age 13.

John Collision - black-haired brother, 28, is close behind. He spent a Transition Year in the US with Patrick - 15-year-olds had the option to leave the Irish education system - and started their first ventures at 17 and 15 Company: Auctomatic - a software-as-a-service platform that tracks inventory and traffic for eBay's powerhouse sellers, and an iPhone app that offers an offline version of Wikipedia, which the brothers are positioning as the Hitchhiker's Guide to the Galaxy on the iPhone

“It was incredible for us that two Irish kids could start a business with clients from all over the world,” explains John Collision. "Our dad ran a hotel for a while and our mom started a business to train employees, but they're just starting out - they're not entrepreneurs, so we don't have anyone to ask what we're doing. We're fast Just found out that the hardest part of starting an internet business isn't coming up with the idea, turning the idea into code, or getting people to know about it and pay for it. The hardest part is finding a way to take money from customers. You can do this at Share a photo on Facebook, but you can’t move money the same way. It feels like you’re in the dark ages.”

In 2007, when the brothers were writing an API, online payments were supposed to be solved. PayPal was founded in 1998 by Elon Musk, Peter Thiel and Max Levchin. In 2002, eBay acquired PayPal for $1.5 billion. However, the fintech "revolution" that followed was less of an uprising and more of a diversification of some banks' portfolios, laying the payment rails for any company eager to start a business. Banks still verify identities, have credit card and payment card accounts.

“The problem has always been layers of intermediation,” explains Chris Higson, professor of accounting at the London Business School. “The annual cost of financial intermediation in the U.S. is about 2 percent — the same as it was at the end of the nineteenth century. There has been no improvement in the efficiency of the U.S. financial industry over the past 130 years.”

Over the years, e-commerce has grown faster than the underlying payment technology : To open a store, a business has to go to a bank, which processes the payments and builds a gateway to connect the two. It takes weeks, many people, and bill after bill. Much of the software in existence is decades old and written by banks, credit card companies and financial intermediaries.

Paypal, designed to simplify payments, actually made things worse. The company's restrictions have angered startups - once transaction volume reaches a certain level, Paypal automatically puts business on a rolling reserve of 21 to 60 days, meaning up to 30% of a company's revenue could be locked in at most two months. Developers had to choose between Paypal and the complex legacy systems built by banks.

"For us, it's an intuitive feeling: these products don't meet the needs of our customers, so let's build something better, " argues John Collision. "In old-fashioned legacy businesses, it's the CFO who chooses the payment system. They think all systems are the same, so they just sort the vendor bids. But if you're a developer building the next Kickstarter, or The next Lyft, and you have a team of one or two people, both of you writing relatively complex code, solving complex infrastructure problems, you need a simple payments API that — once installed — doesn’t keep changing.”

In 2008, Patrick and John sold Auctomatic to Canada's Live Current Media for $5 million, making them young millionaires before returning to MIT and Harvard, respectively. They started thinking about focusing on software developers, those who actually build websites and apps. They came up with 7 simple lines of code that anyone can plug into any app or website to connect to a payment company within a day. What used to take weeks is now a cut and paste job.

In 2010, the brothers dropped out of college to start Stripe in San Francisco with seed funding from accelerator company Y Combinator. The company provided 7 lines of code and promised that no other changes would be required. Developers integrating the Stripe API will not have to touch it for several years. In the early days, the brothers rode their bikes to the office to save money. In 2011, they found Peter Thiel and Elon Musk.

"Going to the founder of PayPal and saying that payment on the Internet is full of loopholes is a bit impulsive." John said with a wry smile. "But you see, you can use WhatsApp anywhere in the world, and it's free. It's an amazing act of coordination between the telcos and the internet service providers and the people who own the submarine cables that create this global communications network. And then , if you look at the economic infrastructure, we haven't even started."

The two brothers set out a vision for more Internet commerce, driven by more connectivity and ease of use. "That was PayPal's original vision, but they haven't really realized it, so I think they'll understand us better than anyone else," John said.

Peter Thiel raised a $2 million Series A with Sequoia Capital and Andreessen Horowitz. The company has grown rapidly, largely by word of mouth among developers. Marketplace builders like Shopify and sharing-economy rookies like Lyft need to manage payments between large numbers of small suppliers, homeowners or drivers, and thousands of customers in the time it takes to push an on-screen button. It took 6 months to build an accounting platform to manage these income and expenses. Stripe processes payments through its own servers, allowing payers and providers to connect with minimal hassle .

In a short amount of time, Stripe has signed deals with companies like Lyft, Facebook, DoorDash, Deliveroo, Seedrs, Monzo, The Guardian, Boohoo, Salesforce, Shopify, Indiegogo, Asos, and TaskRabbit. The company would not disclose its payment volume, but said it processes billions of pounds a year in payments for millions of companies.

65% of UK internet users and 80% of US users have purchased something from a Stripe-backed company in the past year, even though few of them knew they were using it. PayPal emerged during the checkout process, and Stripe worked like a white-label merchant account, processing payments, checking for fraud, and taking a small commission. Buyers see the seller's name on their credit card statement, and unless the merchant specifically chooses to use the Stripe logo, they only see the seller's name.

"Stripe isn't the cheapest provider, but it does cut out all the other intermediaries, so that's the only thing you'll pay," explains Hodges. "If that's what they did, they'd be interesting. What they did next was revolutionary. "

"Stripe has been trying to figure out how to address this seemingly obvious opportunity for many years," explained Stripe's chief commercial officer, Billy Alvarado. Alvarado grew up in Honduras, he recalls. "If you go to any country, you'll see entrepreneurs everywhere. A lot of these entrepreneurs want to do internet business on a global scale. They find it difficult to transact in world markets - but There are literally millions of startups. We're just trying to figure out how to simply help them get there."

On February 24, 2016, the company launched the Stripe Atlas platform , designed to help entrepreneurs start businesses anywhere on the planet. This invitation-only platform allows companies from the Gaza Strip to Berwick-upon-Tweed to register as U.S. corporations in the U.S. state of Delaware — a state with business-friendly courts, tax systems, laws and policies, U.S. 60% of Fortune 500 companies such as banks, Google and Coca-Cola are incorporated here for as little as $500.

In a sense, such an idea can only come from a place as far away as Dromineer, Ireland, and clearly feels far from reality. According to Patrick's speech at the launch of the Mobile World Congress in Barcelona in February 2016, its core is " increase the GDP of the internet". He explained that Stripe is targeting entrepreneurs from Africa, Latin America, the Middle East and parts of Asia. "Most of the growth over the next decade will come from underserved markets," he explained. "That includes about 6.2 billion people that we haven't reached yet, and it's a huge opportunity."

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Not everyone agrees. "In the context of the developing world, Stripe Atlas has its benefits for disruptive SMEs located in the most favourable growth markets, for which the business case is clear." Associate Director of the Social Innovation and Entrepreneurship Programme at the London School of Economics Dr. Nadia Millington said. “However, most SMEs cannot handle the complex issues associated with registering and maintaining a U.S. C corporation . Challenges include double taxation, cumbersome repatriation regulations, and the inability to establish the control structures required to operate a multinational business. From Philosophy The internet concept of GDP is interesting, but the underlying assumption that it will benefit many SMEs in emerging markets is far-fetched. There are a number of structural, institutional and social barriers that must be addressed simultaneously. ”

One of the solutions is platform mode . Over the past five years, businesses including Amazon and Uber—both Stripe customers—have built billion-dollar businesses, disrupting one after another with open, connected, and rapidly scalable platform business models. An industry that allows them to create a complete ecosystem of developers, customers and suppliers.

The platform enables everyone to transact on essentially neutral terms - connecting millions of sellers around the world. A quarter of Stripe payment platform sellers are from abroad. For the brothers, this is just the beginning. In July, Stripe got into the credit card business — helping their corporate customers issue credit cards to employees using their existing Mastercard and Visa credit cards. Their devotion to the founders of the Internet meant that they were going to correct a terrible mistake made in building the entire Internet .

When you arrive at Stripe's offices in San Francisco's former waterfront SoMa district, you're seated at the front desk at a coffee table crammed with magazines and books. There's the Paris Review, engineering magazines, Twelve Tomorrows, research journals, a handful of novels, and a few scattered copies of Increment , Stripe's quarterly magazine, published by Susan Foe. Founded by Susan Fowler.

It's a nice introduction to the company's thoughtful culture. The books Patrick sneaks into the classroom include biographies of many computer pioneers, such as Stanford Research Institute engineer Douglas Engelbart, who by 1968 invented the mouse, real-time collaboration, videoconferencing, and real-time synchronization documentation, etc.; and MIT professor John McCarthy, who coined the term "artificial intelligence" in 1955 and published the coding language that would drive AI data searches in 1958.

In 2015, Patrick said in a class at Stanford University : "So much earlier research work is better than what we have today. Of course, we've solved problems of all sizes, deployments and technologies, but helping The core issue of people working together got more thought back then. Their idea of technology was to empower humans.”

Today, his bookshelves are crammed with books ranging from War and Peace to The Wealth of Nations. He lists nearly 600 books on his " recommended reading " list on his personal website. Among them, he identified 70 "above average" books, including some on China, Africa and the Middle East; books on technology and climate change; Betty Friedan's 1963 Feminism Classics "The Feminine Mystery"; "Spacetime and Geometry"; and "Dracula" and "The Count of Monte Cristo".

There are also 20 books called "particularly great" - including books on imperialism, engineering and democracy, as well as Nick Bostrom's Anthropic Bias and Rebecca Goldstein )'s philosophical novel The Mind-Body Problem. Of these 20 books, one is special: The Dream Machine. This particular book, which shaped the soul of Stripe, was out of print for several years until Patrick bought the rights and republished it for free distribution to every staff member and anyone visiting Stripe's corporate headquarters.

This book is about the long history of ideas and individuals, from punch cards to personal computers, from Alan Turing to Tim Berners Lee and others. Introduces Licklider, a psychologist from Missouri who mentored Robert Taylor, Douglas Englebart and many others during his time at MIT and the Pentagon The man who created computing as we know it.

“Reading The Dream Machine, what we can be sure of is how serendipitous the whole thing seems ,” John explained, sitting in a glass-fronted office at Stripe’s corporate headquarters. " How easy it did not happen, how it relied on a very motivated group of people who really believed in this long-term idea and pushed for it to come to fruition. That's an important lesson - it's affecting so many people so much. ...is it inevitable? It's not obvious."

When Tim Berners Lee and his team built the World Wide Web and designed the HTTP and HTMP standards, they put error codes like "500: Internal Server Error", or "404: Page Not Found" etc. code is included. In the early '90s, they tried to realize Licklider's vision and set the rules for how we interact on this web of information. A long-standing error code is "402: payment required" . The original intent - 402 is reserved for future use - this code will be used to process digital cash or micropayments. It's never been enforced -- and John Collision believes that's why the tech industry is moving from an equal opportunity to an oligopoly controlled by five companies now worth more than $3 trillion.

"The idea behind the 402 was that it was clear that supporting payments should be a first-class concept on the network, where there should be a lot of direct transactions," John said, "and in fact, there was a single dominant business model that emerged and that was Advertising. That leads to a lot of centralization because you get the highest cost per click and the largest platform. A big part of what we do at Stripe is to keep making new business launches and new businesses more successful Easy. Making commerce and direct payments successful on the internet is a very important part of that. It's the last piece of the dream machine. ”

Compiled from: Wired Magazine article - The untold story of Stripe, the secretive $20bn startup driving Apple, Amazon and Facebook

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