The Industrialist's Dilemma: Patrick Collison, CEO of Stripe

Summary

In this insightful conversation, Patrick Collison, CEO and Co-Founder of Stripe, discusses the inception and evolution of Stripe, emphasizing its role in simplifying online transactions for businesses. He highlights the initial challenges faced in the payments industry and how Stripe's APIs have democratized access to online payment solutions. Collison also touches on the company's growth, its impact on the digital economy, and the importance of staying lean and innovative as it scales.

Takeaways

• 😀 Patrick Collison, CEO of Stripe, co-founded the company to simplify online business transactions, focusing on businesses where purchases are mediated through the Internet.
• 🔍 Stripe's initial motivation stemmed from the founders' frustration with the complex and outdated processes for setting up online payments, which seemed implausible in the modern digital age.
• 💡 The company began with a simple idea—to make it easy for developers to integrate payment systems without the cumbersome process associated with traditional banking infrastructure.
• 🚀 Stripe's growth was fueled by the realization that a significant portion of consumer spending was moving online, presenting a vast opportunity for businesses to digitize their transactions.
• 📈 Stripe has experienced significant growth, processing billions of dollars and expanding its services to include more sophisticated payment options and instant payouts.
• 🛠 The platform's competitive advantage lies in its ease of use, allowing businesses to quickly set up and manage their payment systems, which has been a major draw for developers and startups.
• 💼 Patrick emphasizes the importance of not over-intellectualizing product development, focusing on creating better products that are easier to use and integrate into existing systems.
• 🏦 Stripe's approach to the financial services industry has been collaborative rather than confrontational, aiming to expand the market and bring new transaction volumes to existing systems like credit card networks.
• 🌐 The company sees itself as a catalyst for the digitization of the economy, enabling businesses to offer new types of customer experiences that are only possible through digital platforms.
• 🤖 Patrick discusses the challenges of maintaining a lean and agile organization as it grows, acknowledging that larger organizations often become risk-averse to ensure their survival.
• 🔑 The script highlights the importance of network effects in the developer community, where the ease of finding skilled developers familiar with Stripe reduces integration costs and time.

Q & A

What is Stripe and what problem does it solve?

Stripe is a company that builds APIs to simplify the process of setting up and running an Internet business, especially for transactions that are mediated through the Internet. It was founded to address the lack of an easy-to-use, developer-friendly tool for charging credit cards online.

Why did Patrick Collison and his brother start Stripe?

Patrick Collison and his brother started Stripe because they were developers who were frustrated by the complexity and inefficiency of existing payment systems. They were surprised that no simple, developer-friendly solution existed for accepting online payments.

What was the initial reaction to Stripe's concept and how did it evolve?

Initially, Stripe's founders didn't think their idea was a big deal and continued working on other projects like iPhone apps. However, after about eight months, they realized the potential of the Internet as a platform for commerce and decided to focus on Stripe.

What is the significance of Stripe's growth statistic that 27% of Americans bought from a Stripe user in the last year?

This statistic indicates that Stripe has become a significant player in the e-commerce space, powering a substantial portion of online transactions in the U.S., and it shows the rapid adoption of Stripe's services by businesses.

How does Stripe's business model differ from traditional banking and payment processing systems?

Stripe's business model is differentiated by providing a more streamlined, technology-focused service that is easier for developers to integrate into their platforms. It removes the complexity and high barrier to entry associated with traditional banking and payment processing systems.

What is the 'network effect' in the context of Stripe's business?

The network effect for Stripe refers to the growing community of developers who are familiar with Stripe's API, making it easier for new businesses to adopt Stripe because of the availability of skilled developers and the reduced friction in integration.

How does Stripe approach its relationship with incumbents in the financial services industry?

Stripe approaches its relationships with incumbents by focusing on collaboration and recognizing the value of existing financial infrastructure. It aims to complement rather than compete directly with these entities, providing an easier interface for developers to access these services.

What challenges does Stripe face as it scales and grows its business?

As Stripe scales, it faces challenges in maintaining its agility and responsiveness, which are key to its success. It must ensure that it does not become risk-averse or bureaucratic, which could hinder innovation and slow down its ability to adapt to the rapidly changing digital landscape.

How does Stripe view the importance of data in its business model?

Stripe's view on the importance of data is nuanced. While data can be valuable, it is not always the primary source of competitive advantage. Stripe seems to be skeptical of the overemphasis on data by incumbents and focuses more on providing a better product and service.

What is the potential impact of Stripe on traditional industries as they digitize?

Stripe has the potential to significantly impact traditional industries by enabling them to digitize their payment processes and create new customer experiences. This could lead to a restructuring of these industries, favoring companies that can leverage technology to offer more convenient and efficient services.

How does Stripe's approach to product development contribute to its competitive advantage?

Stripe's approach to product development focuses on ease of use, functionality, and meeting the evolving needs of businesses in the digital economy. By lowering the activation energy for businesses to start using its services and providing a suite of advanced features, Stripe creates a competitive advantage that is hard to replicate.

Outlines

00:00

😀 Introduction to Stripe's Origin and Philosophy

Patrick Collison, CEO of Stripe, begins the conversation by discussing the fundamental concept behind Stripe, which is to simplify the process of setting up an Internet business through easy-to-use APIs. He highlights the frustration he and his brother experienced as developers due to the lack of a straightforward solution for online transactions, leading to the creation of Stripe. Patrick also emphasizes the significant untapped potential of the Internet in consumer spending and the decision to leave school to pursue Stripe full-time. He concludes by cautioning against the narrative of disruptors versus the disrupted, noting that even successful companies can fail and be forgotten.

05:03

📈 Stripe's Growth and Impact on the Digital Economy

This paragraph delves into the growth metrics of Stripe, including the volume of transactions processed and the company's expansion to around 350 employees. Patrick shares that a significant portion of Americans have made purchases through Stripe within a year, indicating its wide reach. He discusses the types of businesses Stripe serves, which are primarily new tech companies, and touches on the competitive advantage of Stripe being its superior product offering. Patrick also addresses the broader impact of Stripe on the digital economy, including the shift from advertising-based models to transactional business models prevalent in traditional industries.

10:06

🛠️ Stripe's Disruptive Advantage and Product Strategy

Patrick explains how Stripe's primary competitive advantage lies in its product's ease of use and functionality. He contrasts the traditional, complex process of setting up online payments with the streamlined experience Stripe offers. The discussion also covers the evolution of the Internet from primarily advertising-based revenue to a broader range of businesses that require more sophisticated payment solutions. Stripe's ability to adapt and expand its services to meet these needs is highlighted, positioning the company as a facilitator of advanced payment options that are not readily available elsewhere.

15:08

🤝 Navigating Relationships in the Payments Ecosystem

In this section, Patrick discusses Stripe's approach to building relationships with established players in the financial services and payments industry, including major card networks. He refutes the notion of a zero-sum game, arguing that the economy can expand to accommodate new entrants without necessarily harming existing businesses. Patrick also addresses the importance of recognizing and leveraging the strengths of existing financial infrastructure while improving upon it with Stripe's technology.

20:13

🚀 Enabling the Digital Transformation of Traditional Industries

Patrick explores how Stripe is positioned to power the digital transformation of various industries, providing examples of companies that have leveraged Stripe to create seamless digital experiences for customers. He emphasizes the convenience factor of mobile transactions and the potential for Stripe to facilitate entirely new types of customer experiences that were not possible before. The discussion also touches on the broader economic implications of digitization and the role of technology in restructuring traditional business models.

25:16

💡 Maintaining Agility and Embracing Disruption

The final paragraph focuses on the challenges and strategies for maintaining a lean and agile organization as Stripe grows. Patrick acknowledges the inherent risks in taking bold bets for growth but also recognizes the importance of doing so to ensure the company's longevity. He reflects on the industry shift towards technology and software in金融服务, positioning Stripe as a leader in this transformation. Patrick concludes by reiterating the company's commitment to staying responsive and avoiding the pitfalls of calcification that can plague larger organizations.

🔮 The Role of Data and Network Effects in Stripe's Strategy

Patrick contemplates the role of data and network effects in building a competitive advantage within Stripe. He expresses skepticism about the overemphasis on the importance of data by incumbents and suggests that the concept of network effects needs more specificity. He distinguishes between different types of network effects, such as those found in social networks versus marketplaces like eBay or Airbnb. Patrick hints at a developer network effect for Stripe, where the widespread knowledge and adoption of Stripe's platform lower the barrier to integration and contribute to its growth.

Keywords

💡Stripe

Stripe is a technology company that provides APIs for businesses to easily accept payments online. It is central to the video's theme as it discusses the company's founding, growth, and impact on the digital economy. In the script, Stripe's CEO Patrick Collison explains how Stripe was created to simplify the process of setting up online transactions, which was previously a complex and cumbersome process.

💡APIs

APIs, or Application Programming Interfaces, are sets of rules and protocols that allow different software applications to communicate with each other. In the context of the video, Stripe's APIs are what make it easy for businesses to integrate payment processing into their online services. Patrick Collison mentions that Stripe's APIs are designed for businesses where customer purchases are mediated through the internet.

💡Digital Economy

The digital economy encompasses all economic activities that result from digital technologies and the internet. The video discusses how Stripe powers this economy by facilitating online transactions. Patrick Collison talks about the potential for the digital economy to grow, with only a small percentage of consumer spending currently happening online, indicating a large area for growth and development.

💡Disruptive Innovation

Disruptive innovation refers to a new product or service that creates a new market and eventually disrupts an existing market, often by offering a simpler, more accessible alternative. In the video, Patrick Collison describes Stripe as a disruptive force in the payments industry, making it easier for businesses to accept online payments and challenging traditional banking and payment processing systems.

💡Developers

Developers are programmers and software engineers who create and maintain computer applications and systems. In the script, Patrick Collison highlights the importance of developers to Stripe's success, as they are the ones who integrate Stripe's APIs into their business applications. The ease of use for developers is a key selling point for Stripe, as it lowers the barrier to entry for accepting online payments.

💡Network Effects

Network effects occur when the value of a product or service increases with the number of people using it. In the video, Patrick Collison discusses the network effect in relation to Stripe, particularly the growing community of developers who are familiar with Stripe's platform, making it increasingly attractive for new businesses to adopt.

💡Economic Incentive Structure

The economic incentive structure refers to the system of rewards and motivations that drive behavior in an economy. Patrick Collison uses this term to describe the apparent contradiction between the ease of collecting and distributing money and the complexity of existing systems before Stripe. He suggests that the economic incentives should have naturally led to a simpler solution like Stripe.

💡Frictionless

Frictionless in a business context refers to processes that are seamless and easy for the user. Patrick Collison describes Stripe's goal to make online transactions frictionless, allowing customers to complete purchases with minimal effort. This concept is central to the user experience that Stripe aims to provide.

💡Consumer Spending

Consumer spending refers to the amount of money spent by households on goods and services. In the video, Patrick Collison estimates that only a small percentage of total consumer spending currently takes place online, indicating a large potential for growth in the digital economy and Stripe's role in facilitating that growth.

💡Integration

Integration in the context of technology refers to the process of combining different systems or applications so they work together. Patrick Collison discusses how Stripe's APIs are designed to be easily integrated into businesses' existing software, enabling them to accept online payments without needing extensive technical expertise.

💡Digital Transformation

Digital transformation is the process of changing a business's activities to make them digital or digitized. In the video, Patrick Collison talks about how Stripe is a bet on the digitization of various industries, allowing businesses to move their operations online and take advantage of the convenience and efficiency that digital platforms offer.

Highlights

Stripe provides APIs that simplify the process of building an Internet business, especially for transactions mediated through the Internet.

Stripe's customers are primarily technology companies integrating APIs to build software-enabled services.

The founders' motivation to create Stripe stemmed from their frustration with the lack of easy-to-use payment processing tools as developers.

Stripe's initial challenge was the complex and time-consuming process of setting up online transaction systems through banks.

Stripe's growth was initially underestimated by its founders, who were also working on iPhone apps concurrently.

The potential market for Internet-based consumer spending was a significant factor in Stripe's decision to focus on its payment platform.

Stripe's competitive advantage lies in its ease of use and ability to lower the barrier to entry for businesses looking to accept online payments.

Stripe has benefited from the shift of traditional businesses moving towards technology and requiring more sophisticated payment solutions.

The company has expanded its services to offer unique features like instant payouts, which are not available elsewhere.

Stripe's approach to the market is to complement existing financial infrastructure rather than to compete directly with it.

Stripe has been cautious in its relationship with incumbents, aiming to be a positive sum in the industry rather than a disruptive force.

The company's strategy includes not trying to compete with every aspect of the financial services industry, focusing on areas where it can provide clear improvements.

Stripe's impact is evident in its ability to power a significant portion of online transactions, with 27% of Americans buying from a Stripe user in the last year.

The company's growth and success have been attributed to its focus on product quality and the structural shift in the economy towards digital transactions.

Stripe's challenge is to maintain its agility and responsiveness as it scales, avoiding the pitfalls of large organizations.

Patrick Collison emphasizes the importance of not becoming complacent and continuing to innovate to stay ahead in the competitive digital economy.

Stripe's network effect is highlighted by the growing community of developers who are familiar with and prefer to use its platform.

The company's potential for disruption is tied to its ability to leverage data and network effects to improve its product and maintain a competitive edge.

Transcripts

[MUSIC]

[LAUGH] Patrick Collison, CEO of Stripe, Co-Founder of Stripe.

Welcome to the class.

>> Thank you for having me.

>> Yes.

[LAUGH] Okay, so, we will get into that.

I will have a way of bringing that up at the end.

So just to set context,

we just obviously went over some of the business and obviously the forces at play.

Why don't you level set the conversation of what is Stripe?

Why did you start the company?

And what was like the underlying theory and idea behind it?

>> Okay, so Stripe builds APIs that make it easy to go and

build an Internet business.

And so importantly we are for

businesses where your customer is not there in person, they're in some way

making a purchase, where it's kind of mediated through the Internet.

And so kind of our customers are the businesses, the technology companies who

are integrating those APIs and building some software enabled service.

The reason we kind of started working on it initially was

because we ourselves were developers and

we were sort of astonished by sort of the non existence of something like Stripe.

I remember sort of forlornly googling, looking for kind of the easy to

set up thing that would just enable you to charge a credit card.

I mean, we're not talking about building a self driving car here.

We're talking about charging a credit card and so it's seemed so implausible,

something like Stripe would not exist, right?

I'm going to give somebody money, like collect money and

give it to someone else, right?

>> [LAUGH] >> The economic incentive structure would

seem very conducive to it.

Surprisingly, nothing like it existed.

Now, obviously there were online transactions before Stripe, but

what happened was they were enabled by banks, I guess as you guys described.

The process of going and getting access to the tools and

the infrastructure that would enable you to go and programmatically charge a credit

card, basically involved was kind of mortgage like application process,

for you to go to the bank and try to describe their idea, your idea to them.

And sort of convince them that they should support it, and

then there'd be kind of weeks of set up, and paperwork,

and faxes, and Fray latin and- >> All

latin is- >> So,

anyways it was kind of really high barrier to entry overheard, and

then when you kind of actually got access to it.

I mean you're, it's fundamentally it's a technology service, right.

And It was as good as some of many of the other technology services

offered by banks.

And so, we started working on it literally because

we were frustrated and surprised that it didn't exist.

And, I think, something that's maybe somewhat important

is we actually didn't think it was that big a deal.

We were working on some iPhone apps on the side at the same time and

we kind of kept working on both.

They work on the iPhone apps, then working on Stripe or

as it was known at the time, /debt/payments.

We were.

>> Great brand.

>> Excellent branding.

>> I like the [INAUDIBLE] >> And

it was basically eight months later took.

Kind of majority of the year.

So before we realized that there might be something kind of

substantively interesting there.

And the particular thing that sort of crystalized was the realization that,

I mean it's kind of hard to ballpark and to firm the estimate, but in and

around two, three percent of total consumer spending

takes place on the Internet or through the Internet today.

And so that is to say 98%, 97% does not, and then if you kind of think about

what it looks like in the US, what it looks like for you, what it looks like for

your the direction of all that sort of in turn appears.

It seems so obvious that it's kind of far more that's going to be able,

that's going to be happening, and so

despite the kind of veneer of maturity to online commerce, kind of the who knows?

28%, 48% that will be happening in the future that's kind of yet to be enabled.

So eight to nine months in we started to realize that.

That's when we decided to take leave from school.

>> Good choice, probably?

>> We'll see. Yep.

[LAUGH] Actually that brings me to one other caveat,

there's Just, I guess this is being kind of framed as

the disrupters versus the disrupted, >> Yes.

>> But I think it is kind of important to remember that, I don't

know if you guys have heard of Wang, >> [LAUGH]

>> Or Osbourne or

sort of Silicon Valley is well known as being sort of a cradle of

entrepreneur ship and new companies, but it is just as successful in being a grave.

Wang grew to billions of dollars in annualized revenue.

Like Osbourne grew to billions of dollars in annualized revenue,

tens of thousands of employees.

And not only do these companies subsequently fail,

Wang had an ignominious bankruptcy in 1992.

But not only did they fail but you hadn't even heard of them, right?

And so I would just basically take everything I say with a grain of salt.

>> Mm-hm.

That was your, like disclaimer of joining a technology company.

>> Yes. >> Yep.

What, so,

I can attest to how hard it was to add billing software before Stripe existed.

When we started Box, the, I'd say about one third of our entire code base that we

had to initially write, had to just deal with getting payments from our customers.

So, you can imagine all the wasted time and innovation there.

And a lot of Latin, and a lot of faxes.

So, maybe just fast forward to today.

Just key stats of the company.

How big is it?

How much have you guys raised?

How many customers?

Set us up for where we are now.

>> Right.

So [CROSSTALK] >> Right.

[LAUGH] So.

>> Read the article we circulated last night or the night before,

you might have seen what's been written in the press that it's been estimated of tens

of billions of dollars being processed by the company.

>> Is that a fair estimate?

>> That's the estimate that was in the article.

>> [LAUGH] >> We're 350 people-ish and

I guess our age is publicly observable, that's around

five years old and And, we actually- >> Probably

be really fun to hang out with, right?

>> [LAUGH] >> Always answering questions.

[LAUGH] >> What other one do we

>> So actually true story but

I went to kick Aaron out of my house at 4:00 am and he started to describe to me

how enterprise software is better than consumer software.

>> Yes. >> I think equally fun.

But no one other stat that we did reveal for that article that

27% of Americans bought from a Stripe user in the last year.

>> Oh, that's cool.

>> Which is up from I think it was 3.8% in the year preceding,

two years ago and so that's.

>> What percentage of people know that Stripe was behind that transaction?

>> We don't measure that.

>> Okay. >> And it's up to the merchant.

>> Like what percentage of websites keep your brand and your sort of-

>> Right, we don't even know that..

>> Okay.

In theory, a third to a half of this room has used Stripe.

>> Oh no, for this kind of coord- >> 90%.

>> Right. >> Okay.

What kind of on-demand services do you power, that people might

>> Kickstarter, OpenTable, Lyft.

>> Okay. Got it.

>> It's a lot of services.

Cool.

So, actually, on that though,

are your customers primarily the new tech disruptors, or are you starting to

sell to some of the big online retailers that have been around awhile.

Who does it look like?

>> So the vast majority of Stripes customers

are relatively new technology companies.

So we are on the- >> So you're like pro-start ups right?

>> Yes. >> Got it, cool.

>> [LAUGH] >> Great, and so

when you think about the core competitive advantage of Stripe.

>> You mentioned in the founding story, kind of in there,

I mean, the answer was in there.

But just so we get to the essence of what is Stripe all about.

Why are you guys so disruptive?

How do you think about that?

When you think about product decisions,

when you think about why developers use you, what is the bottom line?

So I think there's all tendency when sort of describing the product ventures or

the business ventures or whatever to kind of overintellectualize it.

And actually I think Kaden Christiansen is kind of a prime example of this.

Course if you're always looking for

the structural reason why this kind of stuff is necessarily so, and

Christensen has struggled so much to get his head around Apple,

where it's not that complicated, these are systematically better products.

I think IOS and Android is another great example of this, where I mean, feature for

feature they're essentially a parody,

or kind of the differences between them are kind of inconsequential, but

there's no kind of rigorous structural framework for describing polish or smooth

animations or ambient superiority or sort of whatever it is that distinguishes them.

And yet it really matters.

I mean, I would wager that in this room probably 90% of people use iPhones.

>> Since I teach the Android case.

Silicon Valley reality distortion field.

How many of you have iPhones versus Android phones?

There you go.

>> [LAUGH] >> How much do the profits of mobile apps

go into that iOS ecosystem?

>> I think it's 60, 50, 60, 70%.

>> That's gotta be a low number, right?

>> [CROSSTALK] >> I was going 90 in my head, but.

>> You have to look at it in adjacencies and search and real-

>> Fact, fair point.

>> [INAUDIBLE] Google made from that.

>> No, I mean I think Android is a great business move by Google,

but right, it is, you've been around Apple.

>> But back to strength.

>> Okay, so >> All that to say that I think for

Stripe, the primary thing that I think sort of enabled certainly

all of our initial traction was that it was just a better product.

You could set it up faster, it was easier to understand.

Because it was kind of easier to both understand and to setup, people were more

likely to do something with us than, there's a fallacy in sort of assuming that

everyone is going to integrate something, they might just decide to not bother.

And so, we're able to sort of, by lowering the activation energy,

more people just went with that experiment or

decided to pursue that idea or sort of whatever the case might be.

And then, kind of once they got things up and running, it was much easier to

operate their business sort of ongoing business with Stripe.

Because Stripe sort of sits at this kind of fairly important nexus, right?

I mean we're integrating the app or in the website, we kind of, we're the conduit for

the businesses revenue.

It's where they go to kind of manage a lot of their customer data and so forth.

There are all these kind of additional areas, and I guess maybe this gets

into a later question, to which we can kind of expand over time.

>> Mm-hm. >> But, the initial one was

really the product and the ease of use.

The second one is the first generation of Internet companies that have existed

by and large on the Internet in the sense that the Yahoo!, Google, Facebook,

the sort of, I mean you spend a lot of time on them and

they're monetized primarily through advertising.

KInd of as you point out, tech companies are sort of now fracking their way

into the rest of the economy and kind of default business model for, I mean,

most of the economy is not advertising but just charging people for things, right?

And so I think we've kind of benefitted from that structural shift.

And then a lot of these companies are actually looking to do things that aren't

just charge a customer but do something maybe a little bit more sophisticated.

And so, for example in those companies I mentioned,

Lyft doesn't just charge their customers in their mobile app,

they also store the payment details so you can be kind of frictionlessly billed.

They support multiple payment mechanisms.

It's kind of Apple Pay and credit cards and no doubt more over time.

And then they need to pay out the drivers and

paying out the drivers involves sort of verifying the identities of the drivers.

And actually Lyft just launched something called Express Pay where, sort of,

rather transferring the money slowly of A-C-H the drivers get the money

instantly paid to their debit card, which is a huge deal if you're

living paycheck to paycheck as such a large fraction of the country is.

And so businesses are increasingly doing more sophisticated things with payments or

with money, and then sort of Stripe has been able to expand the suite of services

such that you actually can't get the same set of things elsewhere, right?

If you want to do something like Express Pay, to instantly send money to

a debit card, that's not something you can get somewhere else.

And so one, ease of use, two increase functionality.

>> How have you as the CEO of Stripe been able to navigate some of the relationships

with the other incumbents and both the payments and the financial services space?

You were invested by both American Express and Visa.

And they might, I assume certain parts of people in that organization

might look like at Stripe and be excited by what's possible, and some people might

be a little bit concerned about how it might reorient the landscape.

How has your company approached the relationships with larger

companies like that that have been around for many many years?

>> Well I think there's, first of all I think it's a mistake,

I think it's kind of very easy to look at this stuff as kind of zero sum.

But the economy as a whole is not a zero sum, like we're allocating a much larger

set of dollars today then we were 20 years ago, 100 years ago, etc.

>> And so kind of, you know, this was kind of super interesting.

But on the one hand, I think it's an important framing aspect to it is,

it is possible for it to be positive sum, and the existence of winners doesn't

necessarily mean that there will be losers.

There may be losers, but it's not necessarily going to be the case.

And Because Stripe's thesis is again the idea of bringing this 2% to 20% or

40, 50%, who knows.

And so generally being expansionary.

There aren't a whole lot of companies who are directly threatened or

imperiled by it.

So that's one.

Two, >> You guys will probably be shocked

to hear that I think some tech companies are kind of frequently and

to their detriment, kind of mistakenly hubristic.

>> [LAUGH] >> And

I think this is sort of especially common for whatever reason in Fin Tack or

payments whatever where people have these kind of grandiose delusions about

how in this kind of incredibly complicated and intertwined space they're going to

obviate everyone in one fell swoop with their sort of phenomenal new

thing that renders everyone else- >> Your home page.

That said, obviating everybody in thin tech.

>> [LAUGH] >> Must have been boxes

of your product, but.

>> [LAUGH] >> But honestly, we were pretty careful to

sort of try to be deliberate about where we think we can do better and where we

don't need to try to write off everything that's been built over the last 50 years.

And so >> Honestly I think credit cards

get kind of a tough rap these days.

I think they've done a pretty impressive job, like, blanketing the world, or

a large fraction of it, with sort of a frictionless credit extending,

simple, easy to use pin mechanism.

>> Works pretty well.

You can imagine things that might work a little bit better, but by and large,

it's very good.

And so we thought we could sort of systematically go into assemble this

set of capabilities and kind of existing functionality that existed and expose

all of it in a way more straightforward and sort of easy to integrate way.

But sort of the idea of again replace all that seems like a land war in Asia.

And so in general our strategy has been to

not try to compete with too many of these folks.

And I mean there's kind of some discussion of you know,

whether we're competitive with the card network.

How they should feel about us and so forth.

I mean, we're bringing so

much new transaction volume to the card network trails.

>> When you think about a kind of, to Rob's question

a little bit further, in the supply chain of payments and

in commerce, there are things that are sort of in front of you.

And below you, like you need the credit card to use Stripe.

And then there's some things that you do obviate a bit,

because you're kind of compressing the stack to some extent.

Would you at least agree that it's not sort of zero sum

in some of the things that you've compressed?

You don't have to get into which things those are, but there are things below you

that you can essentially abstract from the developer that does go away in this world.

Would that be accurate?

>> This is still being recorded on video, right?

>> Yes.

>> Nobody will be as fast, no.

>> [LAUGH] >> No,

there is a legacy set of businesses,

the term was briefly up there somewhere, ISOs.

That stands for independent sales organization.

And there was previously a sort of, well,

it sort of made sense I think through the kind of 1970s, 1980s sort of,

well business lines at the time were sort of everything that wasn't kind obviously

of part of your core competency you wanted to outsource in some capacity.

And so the banks and card networks collectively kind of felt like, well,

the scrubby business of signing up merchants, that's pretty labor intensive,

it's not very efficient, we should kind of federate it out to sort of all these

independent entities, the independent sales organizations.

The problem is that it kind of, once you do that the heterogeneity kind of entails

all these separate kind of non-cooperating companies,

it means that it's very difficult to change the shape of the industry, right?

And so then when the internet comes along and sort of that changes the nature of

the product you might want to offer, it's extremely difficult to do so,

just in the same way that it is very difficult to sort of advance things in

the Windows ecosystem or in the Android ecosystem, as compared to Apple.

It's just like a, exactly, classic kind of horizontal versus vertical segmentation,

fragmentation, or however you want to slice it.

And so those ISOs collectively, I mean none of them are very big, but

sort of collectively they are worse off in a world in which Stripe does really well.

Right, that was very diplomatic.

>> [LAUGH] >> Back to actually,

I'm going to change the angle of the conversation for five seconds.

So instead of worrying about whether the pure financial services and

institutional implications of Stripe, let's actually go to this idea that you

guys power the digital economy and many of the changes in that digital world.

because let's assume that if the way we buy cars and use cars and use insurance

and use services didn't change- >> So

there are companys selling cars in Stripe.

>> Yes, yeah, so, but as the industrial world moves digital.

>> Yes. >> It does sound like there are completely

new types of experiences that relate to payments,

that you guys can help enable incumbents and industrialists to respond with.

So I think about like online media or newspapers, and their use of payments,

and how can they build better relationships with their customers?

How do you think about that landscape and sort of digitizing the offline world?

>> Yes, and so in some ways Stripe is a great bet on human laziness,

in the sense that, we're a bet that people would prefer to do

things from their phone than sort of going to physical places in person.

And I mean that kind of tongue in cheek but people will sometimes describe

the smart phone as a- >> A different word is just convenience,

so, [LAUGH] just a corollary to that.

>> Well this kind of, the framing of the smart phone as this kind of magic wand for

the real world, which maybe a yet more virtuous way to frame the laziness and

the indolence, but for example, there's a company called Beepi,

B-E-E-P-I, I think it was actually in one of the articles.

You can just find your phone and you can literally choose your car and you can

choose the color or whatever and tap buy, I guess, and literally a trailer comes.

>> [LAUGH] >> With a car and

there's a big bow tied around it.

>> Okay.

>> And you now have your new car, right?

>> So it's Uber for cars.

[LAUGH] >> Indeed.

Yes, but I think there's something very significant here where

you no longer need to go to the car dealership because that's kind of,

I guess kind of- >> Why not make $25,000 purchases on your

phone with a click?

>> Well I was going to say, I mean I think going to the car dealership is kind of

the platonic ideal of things we don't want to do, right.

>> [LAUGH] >> And so

there is kind of this idea of Stripe kind of powering the,

let's call the digitization because it's better than the,

I don't know, enlazining or something.

>> Right.

>> There's that, and then secondly there is something despite making it a kind of

erstwhile pessimism about the US economy or the dynamism thereof.

I mean I do think that there is something sort of incredibly potent

to this kind of technology powered restructuring.

>> Yes. >> And I do broadly think it's true that

sort of as we look at a snapshot of the economy in 30 or 40 years time,

a very large fraction of this will be occupied by companies that can sort of

take advantage of the things you're describing.

>> You guys are a bet on that.

>> Correct.

>> As you're growing your business, you said 350 people, and

you continue to scale as you add more people and

customers that you're supporting, how are you going to ensure,

what are you trying to do to enforce that you stay lean, that you stay quick?

And all the things that we talked about, being responsive and agile and

you don't get into the same challenges of- >> Right.

>> Other large organizations, be they companies, universities or the like.

So I'm not sure that it's entirely possible in the sense that,

and this is one of the depressing things about life, but

when you think about the sort of calculus from.

Well, if your goal is to survive, just like to endure as an entity,

be it individual or an organization or whatever, right?

Kind of, you can't just take bets of a good EV and you have to take bets

that have sort of a very small probability of killing you, right?

And so I think the regulatory example is sort of a good one in that if some large,

established entity is presented with a proposition which could 10x their market

cap if it succeeds and destroy them because they're all in jail or

something if it fails, and it is a 50/50 kind of bet,

I mean, that's tremendous on an EV basis.

And yet if the strategy, the disposition of the business with regard to risk is to

take those bets, then, it just doesn't last very long, right?

And because instead of, to take 1 minus 0.5 to many powers before it's

the most likely thing, and so the manifestation, I think, of that for

the large companies is in order to endure, they have to be irrationally risk averse.

And that's not a statement about the coordination cost of larger

organizations or anything like that.

That's just a basic statement about- >> [INAUDIBLE]

>> Or just endurance as anything.

And so that's first off.

And so certainly now we are less risky than we were on day one.

And I think that's kind of the extreme pessimistic view.

I think, obviously you can hope to do a little bit better than many organizations

again, sort of, but by virtue of getting to sort of observe everything

that they did, and sort of simply getting to springboard off that and

getting to sort of start things from scratch, you've a much better chance.

And then, pretty substantially, I mean, in particular, in sort of Stripes' case,

this doesn't go in every case, but the Stripes' case,

what's kind of going on is like a shift in industry.

In that we're supplanting banks, who certainly were not about software or

technology, or

these ISOs who are literally kind of going door to door selling people.

And we're sort of shifting industry to actually playing on this

kind of technology, software, programming, design, whatever playing field, and so,

kind of in that sense, we're, on an organizational level, far better equipped.

And then, I guess,

the question of how do you just run an effective human organization and

not sort of descend into stultified calcification and have to go on too long.

>> Okay, but you will attempt to not do that using your-

>> We'll attempt to not do that,

it's an important part of our strategy.

>> When you think about your, I guess disruptive potential,

whether it's in financial services or just as you touch other parts of the economy,

do you think that, because a big part of this is thinking about what are the What

are the strengths of a digital company in the mindset and the approach?

Do you think about either data in terms of how much data that you learn from and

can improve the product on?

Do you think of network effects, so

keeping people within the payment ecosystem?

What are the modern ways of competitive kind of advantage that you think about

developing within Stripe?

>> Right >> That's a good question, and honestly,

I go back and forth on the importance of data.

Not with regard to Stripe in particular, but

it's in general in the industry in that it's always in every incumbent's

interest to broadcast its importance?

Because it makes their position appear more secure, and so I think you

have to discount, or every time someone talks of the importance of the data,

I think you should just be slightly skeptical.

>> We'll do a montage video of incumbents talk about data.

>> [LAUGH] And it's not clear to me in most cases sort of what are a company's

values sort of primarily based on some kind of flow or some kind of stock and

to what extent that the stock of data kind of in fact enable the flow.

I think, you know, one way in this kind of pretense the network effect,

is I think that in general the term network effect should be banned.

Or more specifically, it needs kind of more specificity

in the sense that there are network effects for the value of a node is

kind of not proportional to the distance between two nodes.

And so, for example, when you're on eBay or Airbnb actually,

kind of marginal additional thing being sold or

place to stay is kind of, how valuable that is is kind of

independent of me because I might want to go anywhere, right?

Or I might want to buy anything.

Whereas when you think about, for example social networks,

it's obviously kind of very much a function of the distance from me.

If some person in some distant country joins a social network in general,

I don't care.

Whereas I very much care whether my friends are on it or not.

And I think that when you kind of talk about the data sort of in each case or

the kind of accumulated stock and

asset I think it really depends which one you're talking about.

And sure enough, you observe that,

in the social networks, there's actually this kind of pretty rapid turnover,

be it, sort of, Snapchat, Fotsap/sp?, Facebook, Twitter, Instagram, and Yik Yak.

And I don't know what kids use these days.

But.

>> Definitely Yik Yak.

>> Okay, yep, and whereas Ebay,

LinkedIn, kind of some of the original kind of web giants.

I mean they don't have the best web design and

I think that's kind of non-accidental, they don't have to.

Where it gives you this ferociously competitive sort of social attack.

With regard to Stripe.

Oh and it's actually one last thing on that point and,

many of you probably read Zero to One by Peter Thiel and he kind of lays out I

think four sources of monopoly or whatever that tech companies can have.

I think it's sort of economies of scale, network effect, consumer brand.

And just kind of core technology that others don't have.

There's actually a professor here at Stanford,

Hamilton Helmer, sure you guys are friends.

He has a slightly more elaborate version of this.

And I think his version is actually really good.

I think he has seven powers, he calls them.

And so just consider that a plug for Hamilton Helmer.

>> Please Don't name them all.

>> Oh okay.

>> [LAUGH] >> Do you have a network affected?

Do you like it?

Do you think it matters?

>> Can't talk about our strategy on video.

No, okay one important network effect in the strike.

>> Yeah, thank you.

>> Is The network affected the mindchair and all the developers.

>> Okay.

>> When people talk about the power of developers and

rise of developers or whatever.

I think this is actually a lot of what they're getting at.

There are just like so many neurons and deal cells in their heads,

that are sort of wired for stripe and not something else.

>> Right. >> And that makes it much easier for

each business to go in and it's literally cheaper to go an integrate Stripe.

because It's easier to find people who know it.

>> And- >> So

you're bringing down the friction of using Stripe because of the broader

community that uses it.

And so a little bit of a network effect in that sense.

>> Yeah, and then yeah.

>> Great, okay, so that was a good overview of your relationship to

the industrialist alumni and how you guys are approaching the digital side of that,

so with that, I think we'll >> Ladies and gentlemen,

please join us in thanking Patrick.

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