Restructuring the Financial Infrastructure — Patrick Collison, CEO Stripe
The Industrialist’s Dilemma — January 7, 2016
Patrick Collison, CEO of Stripe, kicked off the first session of The Industrialist’s Dilemma on January 7, 2016, with a discussion on the changing nature of the payments and financial services industries.
The conversation and classroom dialog focused on how the payments and financial services landscape has been reorienting itself over the last 15 years, and the increased speed with which things will continue to change over the next decade. Patrick discussed the growth of Stripe and his vision for the future of the payments industry. Three things stood out to us from the classroom discussion and fireside chat…
“Winning is not zero sum in our business.”
While Patrick posited that there will be reorientation in the payments value chain due to new companies such as Stripe coming into existence, he stressed that the Stripe team is looking for ways to work with incumbents where coordinating helps enhance the broader consumer experience in growing overall transaction volume.
This insight highlighted to us how Stripe has been able to work with payment processing organizations such as VISA and American Express (both of whom are investors in Stripe), whereas the potential for long-term conflict between these firms would likely be inevitable if the parties felt that they were fighting for the share of a stagnant or slow-growing market.
As Aaron highlighted in his post on the overview of the course and as mentioned in our article on the idea of The Industrialist’s Dilemma, how large industrial firms partner with new entrants will be increasingly important, given the breadth and speed of change as we migrate to a digital world.
The Law of Unintended Consequences on Steroids
As Stripe grows larger globally they (and their competitors) will reorient many ways in which consumers interact both with companies and also each other on financial transactions. Not only will people be able to make purchases on their smartphones (per Patrick, a “magic wand” for one’s life) in ways previously unimagined, but how organizations handle transactions is also turned on its head. For example, on-demand ride services initially needed to build a secure, PCI-compliant vault to store card numbers for future use and required a large internal banking team to pay out drivers (and of course before that, riders needed to provide a payment method every time they hailed a taxi). In today’s world, ride services can outsource much of this to Stripe, so that multi-sided transactions can be made without adding resources or complexity to the business, and the payment experience remains frictionless for drivers and riders.
These types of efficiencies will not only lead to a better experience for service providers and employees, but will also reduce costs in these systems, which can both increase profits and/or reduce prices for consumers.
Developer Network Effects Increase the Rate of Penetration, Which Creates New Consumer Benefits…
One of the features of a system like Stripe is that it took what used to take days or weeks (setting up a system for accepting payments) and reduced it to hours or minutes by allowing developers to simply drop in a few lines of code into their product. As engineers compare notes on the ease-of-use and speed with which they are enabling revenue systems for their companies, a virtuous circle is reinforced where not only is there an increased velocity in which companies deploy systems such as Stripe, but also there is an unleashing of creativity around all aspects of the shopping and purchasing experience.
Systems such as Stripe are allowing business leaders to think about how ideas which were previously unimaginable, such as purchasing a car and having it delivered (with a bow on it a la Beepi) without ever having to go into a car dealer, can now happen when built on new technologies. The network effects of these new systems come not only from an increasing number of companies deploying a system such as Stripe, but also by removing barriers that entrepreneurs might have faced in the past when starting up a new enterprise.
These types of solutions not only have the potential to upend the purchasing ecosystem, but also to impact all of the ways in which products and services are bought and sold.
And this can have huge implications for a variety of markets — from retail to automotive to healthcare.
But more about that in future class sessions.
Any comments? Let us know your thoughts…