Even the Stripe co-founder admitted that there is nothing overtly appealing or exciting about the digital payment technology that is central to his business.

“It’s a small margin. . . It’s very competitive, ”said John Collison, who started Stripe in 2010 with his brother Patrick, in an interview with the Financial Times last week. The staff at Stripe are “the weird, weird creatures of the woods who are payments fanatics,” he added.

The biggest start-ups in Silicon Valley are normally mainstream internet companies like Facebook and Uber – aggressive, fast-growing companies relentlessly pursuing global dominance and the huge notoriety that goes with it.

Yet it’s Stripe – a name unknown to most outside the tech industry – that now tops Silicon Valley’s list of top private companies, after investors rated it at $ 95 billion this week.

Stripe’s software makes it easy for any website or app to accept payments, without having to obtain their own licenses or make deals with the many banks and card operators the company has already integrated.

Underpinning Stripe’s valuation nearly tripling over the past year is a belief from investors, including the Irish National Treasury Management Agency, Fidelity and Sequoia Capital, that the digitalization of commerce and payments still has a long way to go.

Given the size and fragmented nature of the European payments market. . . we think there is room for several winners

“The size of the opportunity is something people understood,” said Dhivya Suryadevara, Chief Financial Officer of Stripe. “It’s not very often that you see a business where it’s already that big, but there’s still a lot of growth to be done.”

As the internet economy moves away from advertising to e-commerce and payments, Benedict Evans, a tech industry analyst, described Stripe’s opportunity in another way: “They represent a 3% tax on the future of the Internet.”

Do more with less

One of Stripe’s main competitive advantages is doing more with less. It has around 3,000 employees, a third fewer than Facebook in 2012 when it went public with a similar rating. Its online tools are designed to be easy for businesses to adopt without the need for a large sales force or support team.

This has allowed it to remain capital efficient, although it has expanded to over 40 countries. Stripe has now raised $ 2.4 billion to date, up from $ 14 billion in equity funding from Uber prior to its 2019 IPO.

Stripe posted roughly $ 2 billion in gross revenue in the third quarter of last year, according to someone who has seen the numbers. That income translated into more than $ 120 million in profit before interest, taxes and depreciation, the person said. Stripe declined to comment on the numbers, which may not be calculated or presented in a manner directly comparable to that of its listed peers.

The numbers imply that the company is valued on a revenue multiple that is no different from other online payment groups that offer a similar set of services, like Adyen, which has a market capitalization of $ 60 billion, or PayPal, which is valued at nearly $ 300 billion. .

Conor O’Kelly, chief executive of the Irish NTMA, said he was “very comfortable” investing in Stripe at a valuation of $ 95 billion, given the speed of its growth.

“Even if they were not to do much more innovation – which they will of course be – they are already embedded in the biggest secular trend of our time: the acceleration of digitization and the growth of digital commerce” , did he declare.

As a sign of a strong investor appetite, Stripe held talks on a deal that would allow investors to buy between $ 500 million and $ 1 billion in shares from existing shareholders at or around the same price as the recent funding, people familiar with the talks said. .

‘Increase Internet GDP’

Stripe’s mission statement to “increase the Internet’s GDP” is no less grandiose than Facebook’s plan to connect everyone on the planet. But unlike social media apps or gigantic economy start-ups, Stripe operates in a heavily regulated industry where Silicon Valley’s ‘move fast and break things’ approach cannot apply.

There are two aspects to Stripe’s business model that have excited investors. One is the fundamental infrastructure of payment processing, for which Stripe typically takes a fee of around 2.9% of each transaction – or 1.9% in Europe, where card fees are typically lower.

Stripe isn’t the cheapest rate available, but key to its appeal is the speed and ease of integration, especially for the small businesses and start-ups it has built its business on.

“There was a lot of white space for small businesses that didn’t qualify for a merchant account,” said Dayna Ford, payments analyst at Gartner. “They did not have to take market share from the large incumbent operators.”

This basic payment business is “stand-alone,” Suryadevara said. “We don’t necessarily need to raise more money to grow this business.”

Suryadevara described the second part of Stripe’s business as “building platforms”: launching additional services that can save significant amounts of money on a large scale or for which Stripe customers can charge their customers extra fees. own users, generating new sources of income.

A new Stripe customer, Matchesfashion, first changed because its technology was easier to use. But the London-based luxury retailer also sells high-priced items to buyers in more than 170 countries – creating exactly the type of cross-border transaction banking systems can mistakenly block.

Nicolas Pickaerts, vice president of global development at Matchesfashion, said Stripe has increased its acceptance rate – the frequency with which purchases are successful – by about 2 percentage points. “Considering the size of our business, it’s worth a lot of money,” he said.

Stay one step ahead

To introduce more new products and expand its geographic coverage, Suryadevara said, Stripe is “investing like crazy in 2021, for the next decade.”

But others are now spying on the same opportunity to join the world’s fragmented payment systems. “Accepting a credit card payment has become much more competitive because it has been commoditized,” said Lily Varon, payments analyst at Forrester.

To grow beyond its core small business market, Stripe needs to beat the competition not only from more traditional payment companies like Global Payments, Worldpay, and Fiserv, but also from other next-gen companies including PayPal, Adyen, Checkout.com and a growing company. swarm of small start-ups looking for a piece of a multi-billion dollar market.

Guillaume Pousaz, managing director of London-based Checkout.com, said in a January interview that he expected his company’s payment volume to double this year after tripling in 2020. He said that net income had nearly doubled last year, thanks to an international footprint that supports more currencies than Stripe.

“Our moat has always been built around having all these licenses around the world,” Pousaz said.

Collison insisted that Stripe is also growing rapidly in Europe, Asia and Latin America, attracting larger corporate clients such as Facebook’s Instagram and software provider Atlassian. He cited 50 clients who process over $ 1 billion a year in payments as proof that they have made “tons and tons of progress in the business segment.” “One of the things we focus on a lot is being able to serve customers in the full range of sizes,” he said.

John Doran, general partner at venture capital firm TCV, which has backed payments firms such as Amsterdam-based Revolut and Mollie, predicts that Stripe will have a harder time growing in Europe than in the United States. “Given the size and fragmented nature of the European payments market. . . we think there is room for several winners, ”he said.

While rivals may be able to highlight support for more countries, payment types, or even cryptocurrencies, Collison argued that Stripe’s ability to defend its business against its rivals were not motivated by a specific product or feature, but by prospects.

He spoke of the “global perspective” of a Silicon Valley company founded by two young Irish immigrants and its ability to plan five or ten years in advance. “The [payments] infrastructure is global and you have to have a long-term mindset, ”he said.