Sunday 10 December 2017

Irish unicorns keep calm and keep coding

Ireland's biggest exports to Silicon Valley, the Collison brothers, are looking beyond their $5bn valuation to try and fix the internet's backward payment systems. And they're not letting geography, bureacracy or bad code get in their way. They spoke exclusively to technology editor Adrian Weckler

John and Patrick Collison. ‘Here at Stripe, we emphasise that people should not be valuation-focused — because we have so many other better metrics that we can track. Like how many customers we’re serving, or how happy those customers are, or revenue or profits,’ says John. Photo: Dai-Lon Weiss
John and Patrick Collison. ‘Here at Stripe, we emphasise that people should not be valuation-focused — because we have so many other better metrics that we can track. Like how many customers we’re serving, or how happy those customers are, or revenue or profits,’ says John. Photo: Dai-Lon Weiss
Adrian Weckler

Adrian Weckler

John Collison is slightly chuffed. He has spotted that the actor Jared Leto is using Stripe's latest product to sell t-shirts on Twitter.

"And did you see that [Dutch dance music DJ] Tiesto is too? There was particular internal excitement at that one," he says.

Collison can afford to smile. Tiesto and Leto are just the icing. At the last count, over 1,000 companies - including giants such as Adidas and Best Buy - had signed up to use Relay, the new Stripe service that has been described by Silicon Valley veterans as a "holy shit" moment in online payments history.

Relay lets people buy things in apps and social media services, such as Twitter, Facebook and Pinterest - and four million product listings have already been uploaded by retailers using the system. Twitter is pitching it as one of the features to lift the beleaguered social network out of its current malaise.

And it's partially down to pique.

Patrick and John Collison, two young Limerick brothers who have created one of the world's most powerful payments companies, were ticked off at how hard it is to buy or sell something on a phone.

"It's crazy that information can flow freely but other things can't," says John Collison from his San Francisco office.

"If you Whatsapp someone in India, there are lots of companies that get those letters across the airwaves. But then when money moves online, we've ended up with something a little like the old DVD unlocking codes. It's arbitrary rules for different people in the US or in Ireland or wherever."

Stripe, the Silicon Valley company they founded in 2010 after dropping out from college, is turning that annoyance into answers for big industry questions.

"Stripe's goal is to build the basic economic infrastructure to power the next generation of internet business, regardless of who they are or where they are in the world," says Collison.

It's a big statement. But so far, Stripe has been making good on the promise, bit by bit.

The company has been steadily creating a set of systems that allow people to cut through the treacle of getting paid - or paying someone - on the internet.

"It's nuts right now," says Collison. "If you're in Ireland and want to sell in China, traditionally you just couldn't.

"Because there was literally no way for that person in China to get your money. So this is something we've started on."

Collison means this literally. Last year, the company struck a deal with Alipay, the giant Chinese payments company that represents the lion's share of ordinary people's ecommerce transactions in that country.

It means that Irish traders looking to do business with counterparts in China are a lot closer to treating it as a normal transaction.

This is one of a number of big questions that Stripe is concerning itself with these days. The Collisons have learned that working on bigger issues lifts a number of boats - including their own.

"A few years ago, a number of our users came to us with some slightly odd questions about how to add bank accounts, hundreds of them, to their Stripe accounts," says Collison.

"We realised that these companies were trying to run marketplaces on Stripe. And that the real problems were about helping them handle identity verification, tax reporting, regulatory compliance and payouts to their sellers or service-providers.

"And so we decided to try to tackle the problem. In collaboration with these users, we built a product we called Connect and we made it available to everyone."

These "users" with "kind of weird feature requests" went on to become powerhouses like Instacart, Lyft, Postmates and Shyp.

Stripe's strength, other than its founders' impatience with existing systems and curiosity about uninvented ones, is its coding agility.

When the company was just a few months old, John Collison - then 21 - came to speak at a small National College of Ireland conference in Dublin's docklands. Instead of making grand gestures with a Powerpoint presentation, he took out a laptop to show the audience how a few lines of code could set up a payment process on the spot.

This direct, no-time-to-lose approach is central to the company's current attempt to fix commerce on phones.

"Today, on a phone, it's silly how hard it is," says Collison. "You click into a web page and then you get seven different screens and then you get redirected to some 3D Secure page. It's endless. On your phone, what should take two minutes ends up being a 10-minute checkout process."

The result, according to numerous research studies, is that people just give up.

"If you talk to any retailer, they'll tell you their conversion rate is way worse on mobile than on desktops," says Collison.

The big problem here is that most people (in the US, it's 60pc, while in Ireland it recently exceeded 50pc) now use their phones more than their PC to browse. Mostly, this is within apps such as Facebook, Twitter or Instagram.

But trying to sell buy or sell something within this mobile ecosystem is "broken", according to Patrick Collison, Stripe CEO and older brother of John. "It's like you'd intentionally designed something to discourage purchases," he says.

"For one thing, links - the basic building block of the web - simply don't work well on phones. Making a purchase entails multiple links, page loads and context switches. On top of that, the purchase flow itself on mobile is terribly broken, with dozens of different form fields and validations to have to jump through in order to go from intent to completion.

"For consumers, it's just too hard."

Better systems like Apple Pay, with its thumb-tapping process of instantly entering and confirming billing and shipping details, are slowly entering this void, he says.

But there has to be some way of making the basic process of using a phone for commerce easier.

"Billions of people around the world connect to the internet for the first time on a mobile device," says Patrick Collison.

"Yet conversions on mobile are still less than half of what they are on desktops. Clearly, the purchase intent on mobile devices is there, but a seamless checkout experience for consumers or an easy way to sell at the moment of discovery for merchants are not."

A lot of companies agree. Over 1,000 of them are now using Stripe's solution, Relay. It's a US-only service at present, as international Twitter followers of Jared Leto will have discovered by now. But if Stripe's product history is any guide, it will soon expand into Europe and other places.

Getting beyond rich parts of the world is critical to all of this, says Patrick Collison.

"There's a huge amount of untapped possibility in basically every non-Western market," he says. "Not only because they're at an earlier phase of the adoption curve of the internet and their economies are in the early stages of their development trajectory, but also because they're yet to be fully integrated into the internet economy.

"It should be possible for someone to start a business and to accept payments from customers anywhere in the world - no matter where they're geographically based.

"When it comes to the movement of money and the ability to start and operate a business or needing to purchase from a business, the internet really hasn't delivered on its promise of transcending physical geography.

"You have this balkanised landscape of European internet companies and American internet companies and Chinese internet companies and so forth. Entrepreneurs in the US or western Europe can really easily start an online business - but somebody in Peru or Indonesia or India can not. That should not be acceptable to us."

By their own ambitions, Stripe is still a small company at the beginning of what it wants to set out to achieve. Does it have the chops to get what it wants done? There aren't too many doubters in Silicon Valley.

"They want to win so badly," said Ethan Kurzweil, a partner with Silicon Valley investment firm Bessemer Venture Partners, which has no financial interest in Stripe.

"They are going to do whatever is humanly necessary to make that a winner. I remember meeting Patrick early on and it was clear that he was going to do this."

Kurzweil has no particular reason to talk Stripe up. He has no financial relationship with the firm. But he does know a thing or two about backing winners. Start-ups he has invested in include Twitch ($970m sale to Amazon), Dropcam ($555m sale to Google) and Periscope ($100m sale to Twitter).

"With some companies, you go in and their office is amazing and they have bartenders and stuff. With Stripe, it's a grounded company. They have an elegant vision but they're frugal and very dynamic. You might say they've had an easy time with capital, but they've also been scrappy. They've kept that culture even as they've had money thrown at them."

So far, the company has raised $190m to tackle the issues it wants to address. It doesn't disclose financial information around revenue, run rates or profit. But senior investors are still lining up to get a piece of the action. In its last funding round, it added credit card behemoth Visa to its list of financial backers.

This has led to a lot of interest in the company as a 'unicorn' - a private start-up with a valuation of over $1bn. (Patrick Collison adorns the current cover of Forbes Magazine partly for this reason.) In an industry that has become as obsessed with net worth as products and services, there is now talk of Stripe entering 'decacorn' territory: a private start-up with a valuation of over $10bn. (This would not be formalised unless a further round of funding indicated as much.)

The Collisons seem genuinely uninterested in this as a going concern. They probably know that paper valuations can collapse as easily as they rise. And that there is a peculiar type of shallowness to an obsession - both in Silicon Valley and in the media - with celebrating a firm's valuation as much as a product, a service or an act.

"In general, I think that start-ups get way too caught up with valuations," John Collison said at Moneyconf, a sister event to the Web Summit. "And I think that the Valley has helped to cause this problem because it's often the only number people there talk about.

"But there's too much meaning put on it. It ends up getting used as a scoreboard, whereas it's really just a cost of capital. And even then, it's just one of many, many metrics that businesses should be looking at.

"If anything, it's actually far down that list of metrics - especially as so many start-ups today are not that capital-intensive.

"Internally, at Stripe, we emphasise that people should not be valuation-focused because we have so many other better metrics that we can track. Like how many customers we're serving or how happy those customers are, or revenue or profits."

That being the company's basic position, it follows that neither Collison gets too exercised over debates about whether there's currently a bubble in tech industry valuations.

"People have been talking about bubbles since 2010," says John Collison. "But history shows us that people are pretty bad at calling a bubble. We might see one at some stage.

"But what we definitely see now is that there are a lot of real companies here making real products and delivering real revenue.

"It's not the case where it's all based on hits to a website while the company incinerates cash. Pick five high-profile tech companies here - Uber, Airbnb, whoever - they're conducting real business."

But it's not bubbles or valuations or being part of a San Francisco zeitgeist that occupies the minds of the Collisons these days.

Instead, it's the big questions. Where do we, as a society, take the internet from here? How can we make it easier for anyone to build a business online? How do we connect digital dots that are scattered across financial, regulatory and proprietary swamps?

"Less than 5pc of all spending in the world takes place on the internet today," says Patrick Collison. "Stripe is a small fraction of that percentage. So if our goal is to enrich the internet ecosystem to empower and accelerate this technological progress, we still have a vastly long way to go.

"If we want to be the agent that turns that 5pc into 10pc or 20pc, we're barely off the starting blocks. The binding theme has decades left in it."

This could eventually mean connecting everything from virtual currencies such as Bitcoin (for which Stripe already has some support) to disparate payment systems, such as the runaway mobile hit M-Pesa in Kenya.

"That's something we see as part of the future," says John. "But down the road. There'd be lots of work to do on stuff like that. But we want to support the means for collecting money and paying out, wherever it is."

"Ultimately the biggest challenge is systemic," adds Patrick Collison. "Jeff Bezos has the compelling analogy of electricity generation when he talks about Amazon Web Services. In the early days of electricity, everyone had to have their own power station.

"It's clearly so much more efficient to the world if you can aggregate and centralise that expertise to provide electricity as a utility, a service. We want to provide the best commerce and payments infrastructure to any business - an Amazon-class payments infrastructure without customers incurring the cost and complexity of building it themselves."

It's the big questions that the Collisons and Stripe are out to fix. At this point, no one is betting against them.

John Collison will be speaking at next week's Web Summit in Dublin.

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