Technology

Stripe Aims to Reinvent E-Payments


Would you trust these guys with your credit card?

Photograph by Jake Stangel for Bloomberg Businessweek

Would you trust these guys with your credit card?

When Patrick Collison began trying to sell Marc Andreessen on the need for a drop-dead simple way for website owners to accept credit cards, the venture capitalist and creator of the Netscape browser cut him off. “I know!” Andreessen said excitedly before launching into a story about how he and the original Netscape team had wanted to make payment processing as fundamental to the Web as the ability to e-mail or display pictures. They were foiled by the complexity of working with banks, credit card companies, and other essential partners.

Stripe aims to pick up where Andreessen left off. Founded by Collison and his brother John, both Irish emigrés and college dropouts, the four-month-old service is winning praise from Web developers. E-commerce sites typically accept credit cards online by connecting with PayPal (EBAY) software, which some say is hard to use, or by spending time and money to set up a merchant bank account and build a network for storing card information. Big companies such as Amazon.com (AMZN) have already mastered this; Stripe lets Web developers of any size do the same thing in minutes. “Using Stripe is almost as easy as embedding a YouTube video into a website,” says Mike Moritz, a venture capitalist with Sequoia Capital. The Collisons expect that ease of use to inspire entrepreneurs to proceed with ideas they might have scuttled due to the hassle of getting paid. Making payments easier “doesn’t just make it more pleasant. It also changes what gets done,” says Patrick.

The idea is big enough to make Stripe one of the most highly valued early-stage startups in years. In early February, Sequoia led an $18 million investment at a valuation of about $100 million, according to the venture capital firm. Andreessen invested, as did three PayPal founders—Peter Thiel, Elon Musk, and Max Levchin—say the Collisons.

To a consumer, a Stripe-powered website looks ordinary, with the same credit card submission forms seen anywhere else. Developers love it because Stripe handles the dirty work. They simply sign up for an account and enter a few lines of JavaScript into their site’s source code. When users enter their card information, it goes straight to Stripe’s servers, so site owners don’t have to worry about securely storing sensitive data. Stripe processes the payment, checks for fraud, and takes a fee of 2.9 percent plus 30¢. The merchant gets a deposit in its bank account with the proceeds seven days later.

The brothers Collison, who hail from tiny Dromineer, Ireland, built Stripe because they wanted something like it for their own projects. The pair stand out even in an industry known for precociousness. Patrick, now 23, 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. At the Massachusetts Institute of Technology, he majored in math and physics. John, 21, received the highest score ever on Ireland’s nationwide college entrance exam, then headed to Harvard. While in Boston, the pair built an Ebay competitor called Auctomatic and sold it less than a year later for $5 million.

The idea for Stripe came when Patrick realized that although the brothers had created a number of programs, the only ones they’d charged for were iPhone apps that rely on Apple’s (AAPL) easy-to-use payments infrastructure. The Web software they ended up distributing for free. “We’d looked into various payment options, but they all seemed like way too much of a hassle,” Patrick says. Just complying with government regulations would have required hiring payments experts, he says.

The most common alternative is PayPal, which has a mixed reputation with merchants. Some dislike that PayPal whisks customers off to its own site to complete a transaction, reducing the merchant’s control over user experience. And the pricing of PayPal’s many features mystifies some. “It was very hard to tell how much PayPal would cost,” says Russell Quinn, digital media director for McSweeney’s, a San Francisco publishing company that ended up using Stripe. PayPal spokesman Anuj Nayar says that over half a million small businesses started using it to collect payments in 2011, and “we are already light-years ahead” of startups just developing their technology now.

The Collisons started building Stripe in January 2010 and dropped out of school that summer. The service launched in late September of last year. “It’s cheaper than PayPal,” says Arthur Cinader, executive vice president of engineering for Sugar, a news site for women. “I don’t know how all of this payments stuff works, and I just don’t care. If the money is ending up in the bank, what more could I want?”

Stripe has a long way to go to live up to expectations. The seven-day wait time before businesses get their money (which Stripe requires for its fraud-checking process) could create a cash crunch for some small companies. While it processes payments worth millions of dollars a month, that’s a rounding error to PayPal, which processed $118 billion from more than 100 million consumers in 2011. And Stripe has decided to focus only on the Web and ignore the mobile apps market where rival startup Square is making headway.

The Collisons say they’ve been impressed by the diversity of businesses that signed up for Stripe over the last few months: yoga studios, Midwestern newspapers, tax preparers—even a nonprofit that donates goats to African families. “There are very few ideas that aren’t worth exploring,” says Patrick.

The bottom line: Stripe raised $18 million in a recent round of funding from A-list investors to simplify online credit-card use.

Burrows is a senior writer for Bloomberg Businessweek, based in San Francisco.

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