Meet Stripe: The Global Fintech Giant founded by two geniuses 🤯

Hey Everyone - Harry here 👋

Welcome to the Issue #5 of Deep Dive with Inquisition. In this issue, we will go over the story of Stripe - from its founding to the strategies it used to become the backbone of financial transaction/payments for Startups to Enterprises inside and outside of Silicon Valley.

Early Days of Stripe:

Stripe was founded in Palo Alto, California in 2010 by the two Collison brothers, John and Patrick. Together they created Stripe after dropping out of Harvard and MIT, having sold their first company, Auctomatic, to Live Current Media in 2008 for $5 million.

Overview of the Global Financial Technology (Fintech) Industry:

1. The global Fintech market was valued at $294.74 billion in 2023, with a Compound Annual Growth Rate (CAGR) of 16.5% YoY.

2. According to Boston Consulting Group (BCG), the Fintech industry is on track to reach $1.5 trillion by 2030.

3. According to DealRoom, over $460 billion in VC funding has gone into fintech startups since 2016, creating more than $1.1 trillion in exit value during the same period.

4. Fintech remains one of the leading industries for unicorn company creation; however, rates have been dropping since 2021.

5. The United States dominated fundraising for Fintech startups with $18.6 billion in 2023. The United Kingdom came in second place at $3.2 billion in 2023.

6. The Fintech industry includes multiple sub-sectors such as payment processing, wealth management, insurance, mortgages and lending, financial management services, banking, crypto and decentralized finance, etc.

Rise of Stripe: How it First Started

The rise of Stripe shortly after being founded by the brothers, the Stripe API, and the strategies they used to secure early customers is quite fascinating. As previously mentioned, Stripe was started by the Collison brothers in 2010, but this is just the start of the story…

In 2008, Patrick (the eldest and current CEO of Stripe) decided to take a job as Director of Engineering at Live Current Media, while his younger brother, John, pursued further studies at Harvard University.

Interestingly, while Patrick had sold his company for $5 Million and received a lucrative full-time job offer, he continued working on side projects, one of which became Stripe. In Silicon Valley, even a successful exit (selling your company for seven figures or more) doesn't guarantee future success.

Entrepreneurs generally fall into three different types:

Group 1.) Those who enjoy the rest of their lives without doing any labor.

Group 2.) Those who join another company, become senior executives, or become investors in a VC fund.

Group 3.) Those who bet their fortune, time, and opportunities (e.g., Elon Musk).

The Collison brothers fit into Group 3 — pioneers unafraid to start from the bottom and redo everything from scratch.

While exploring side projects, Patrick questioned, “Why is it so hard to receive payments online?” This was back in 2010, when e-commerce was booming, growing at 19% per year, much faster than retail, with a market size of around $572.5 billion. The Fintech industry had already experienced a major shakeup thanks to companies like PayPal, which reshaped online payments. However, PayPal, while a blessing, was also problematic, imposing strict regulations like rolling reserves for 60 days if anything seemed against its policies.

The e-commerce industry was outpacing the digital financial sector’s infrastructure, inspiring Patrick and John to create an alternative to PayPal and other payment solutions. They decided to solve these pain points themselves and officially founded Stripe in 2010, changing how online payments worked for businesses. Unlike other services, Stripe required only a simple connection of the Stripe API to an online store, handling all transactions seamlessly.

What is the Stripe Application Programming Interface (API)?

An API connects two different pieces of software. Specifically, Stripe provides an API that allows developers to manage payment transactions, subscriptions, and connections with financial accounts by integrating the Stripe API into their software.

This was a revolutionary moment for developers and anyone conducting online transactions.

Remember Product-Led Growth (PLG) from Issue #4? Stripe implements a unique kind of PLG, known as “Developer-Centric PLG.”

During the early days of Stripe, the brothers focused on launching and gathering feedback for their Minimum Viable Product (MVP) — a functional prototype used to test a product/service with a general audience, gather feedback, and showcase potential.

Stripe’s method of gaining its first 20 users and feedback is so unique that the world’s biggest accelerator coined the term “Collison installation,” a technique the brothers used during their MVP days to:

1. Secure early MVP users.

2. Gather feedback from user experiences.

The technique was simple yet effective; whenever someone showed interest in the beta/MVP, rather than just sending a link, the Collison brothers would take the person’s laptop, set everything up, and have them try it on the spot.

In Paul Graham’s essay “Do Things That Don’t Scale,” he clearly referenced this technique used by Stripe during its early days.

Alongside with “Doing things that don’t scale” — Stripe also aced on its pricing strategy.

The author of First1000, Ali Abouelatta, provides great insight into how Stripe leveraged its early pricing strategy to receive the high-quality feedback it needed.

It also forced the team to build a great product. The more you charge for your product, the higher the customers' expectations are. Having that pressure from customers asking every day if their offering was truly worth almost two times what the competitors charge, ensured that the only way to keep their customers around was to build a product that was at least twice as good as anything out there (and that was not an easy task considering Paypal was one of their main competitors).

After presenting Stripe’s MVP in 2010 and gathering feedback from the community, Stripe officially launched in 2011.

Stripe successfully navigated feedback noise by having a great product and a unique method of collecting valuable insights. One of the most challenging tasks for founders is sorting through a wide array of feedback, opinions, and advice. As a startup founder myself, I often find myself sorting through conflicting advice. Navigating this noise requires understanding whether the person truly knows and understands your company, its operations, and its goals.

After launching its MVP and filtering feedback to identify the most important advice, Stripe created a “Network Effect.” By targeting users who needed online payment solutions and seeking feedback from those willing to pay, Stripe secured early paying customers.

The company continuously improved its product based on feedback from key customers. When people are satisfied, they share their experiences, enhancing the “Network Effect.” Stripe focused on word-of-mouth within the developer community in Silicon Valley and leveraged its resources, such as investors, to grow rapidly.

In startups and life, many people offer generalized advice that isn’t specific enough. The best way to identify good advice is to listen to those who:

1. Truly understand the concept, business model, industry, and product/service of your startup.

2. Are actual potential users/customers willing to pay for it.

Stripe’s success in its debut and rise came from properly filtering and implementing feedback. The company repeated this process until its core users became satisfied, turning them into fans, which further fueled the “Network Effect” globally.

How Stripe Became One of the Biggest and Fastest-Growing Fintech Companies:

Stripe achieved its status by excelling in essential areas for a startup:

1. Unique, value-driven product: Providing significant value to users/customers.

2. Active implementation of user feedback: Listening to and incorporating customer needs and wants.

3. Leveraging the Network Effect: Promoting growth through word-of-mouth.

4. Doing things that don’t scale: By directly setting up beta tests for early users and hosting in-person and online events, Stripe built an ecosystem capturing developers and general users who needed online transaction solutions.

When a company reaches a certain level, growth can slow, making scaling more challenging compared to the early stages. This was true for Stripe, which overcame growth limits by:

Creating an Ecosystem to Cover Everyone.

Stripe didn’t stop at payments; it expanded into interconnected areas. Here are some of the services Stripe provides:

Payments:

Stripe Connect: Payment infrastructure for platforms and marketplaces.

Stripe Terminal: In-person payment processing with card readers.

Stripe Identity: Verification service supporting Knowing Your Customers (KYC) and Anti-Money Laundering (AML) compliance.

Stripe Financial Connections: Secure bank account connections for financial data and payments.

Revenue and Finance Automation:

Stripe Sigma: SQL-based analytics and reporting.

Stripe Revenue Recognition: Automates revenue recognition for accounting compliance.

Stripe Data Pipeline: Syncs Stripe data with data warehouses.

Banking-as-a-Service:

Stripe Issuing: Manage and distribute physical and virtual payment cards.

Stripe Treasury: Embedded banking services for funds management.

Stripe Billing: Recurring billing and subscription management.

Stripe Radar: Fraud detection and prevention.

Stripe Atlas: Helps entrepreneurs start a global business.

Stripe Climate: Supports carbon removal technologies.

Stripe Tax: Automates tax calculation and collection.

Stripe’s comprehensive service suite contributes to its success, providing solutions from incorporation to payments and tax management — making it an “All-in-One” platform. Understanding the fast-paced nature of startups, Stripe continues to enhance its infrastructure to support client growth.

By mastering the essentials (e.g., great product, implementing the right feedback, doing things that don’t scale), Stripe has already checked the boxes for early-stage startup growth. The company achieved scalability by building an ecosystem on top of its core products (e.g., transactions and payments), serving everyone from startup founders to enterprises with billions in transaction volume — contributing to its reputation as one of the fastest-growing fintech companies globally.

Challenges for Stripe:

1. Regulatory Compliance:

   → Navigating different countries’ regulations.

2. Global Expansion: 

   → Facing challenges in new markets due to strict regulations and local competition.

3. Competition:

   → Competing with rapidly growing companies like Square, PayPal, and Adyen.

Future of Stripe:

1. Expanding market share globally:

   → As online purchases rise, Stripe should aggressively expand to capture its global market share.

2. Continuously improving its product suite:

   → Maintaining a culture of implementing user feedback and refining products.

Key Takeaways from the Story of Stripe:

Stripe’s wide range of products has positively impacted society by lowering entry barriers to online sales. Here are strategies used by Stripe that can be applied to your own business:

1. Create a Value-Driven Product:

   → Like Atlassian, Stripe created a product so good that it naturally attracted users, generating a Network Effect.

2. Actively navigate, listen, and implement feedback:

   → Stripe built its ecosystem by incorporating real user feedback.

3. Do things that don’t scale:

   → Stripe hosted in-person events and hackathons, focusing on providing exceptional experiences to early users, which allowed the Compounding Effect to happen.

4. Create an ecosystem after mastering your core products:

   → Building an ecosystem that covers everything from 1-10 is crucial, as it diversifies revenue streams and allows your company to serve clients from the earliest to latest stages, which Stripe excelled at.

If you are enjoying this content you are receiving, please feel free to share the link below with your friends, family, co-workers, etc., while also checking out what Inquisition is all about!

Thank you so much for reading!

-Harry