PayPal, Declined

Inside the Bid for an Iconic Fintech

Back in 2013, when it was still owned by auction site eBay, PayPal tried to buy Stripe. At the time, Stripe was just three years old. Founded by Irish brothers Patrick and John Collison, it had raised $40 million in venture funding and was building a reputation among web software developers for the ease with which it allowed them to integrate payments. Backers included PayPal’s own founders, who had long since departed the company but remained convinced online payment services could be made more efficient.

“It’s a little impetuous to go to PayPal founders and say payments on the internet are totally broken,” said John about his pitch. “But look, you can WhatsApp anyone around the world and it’s free. It’s a remarkable act of co-ordination between the telcos and ISPs and the people who own the fibre underneath the sea to create this global communications network. Then, if you look at the economic infrastructure, we haven’t even started.”

The brothers articulated a broader vision of internet commerce, unconstrained by clunky payments infrastructure. “That had been the original vision of PayPal, but they hadn’t actually made it happen, so I think they got us, in a way that a lot of people didn’t,” John said.

By 2013, Stripe was beginning to find traction. The following year it processed $7 billion of payment volume and secured a valuation of $1.75 billion, supported by volume growth that would go on to compound at 70% per year for the next ten years. Having been rebuffed in its attempts to acquire Stripe, PayPal turned its attentions elsewhere. In September, it announced the acquisition of Chicago-based Braintree for $800 million – picking up, in the process, Venmo, which Braintree itself had bought for $26.2 million the year before.

Like Stripe, Braintree was founded to make online payments easier. Its growth was fueled by big clients, including Uber and Airbnb. In 2014, it processed $23 billion of volume, a large portion of which was mobile. The deal with PayPal should have accelerated growth. “The hardest thing about acquiring the customer is getting them to enter their payment credentials for the first time,” Braintree CEO Bill Ready said. Users of apps built on Braintree would no longer have to enter a credit card number if they were one of PayPal’s 150 million users – an especially strong selling point for users of mobile apps, who were less inclined to enter their credit card numbers on tiny screens.

But Stripe’s software was seen as easier to use and over time it gained share. Over the next decade, while Stripe grew payment volume at 70% per annum, Braintree grew at 43%. Last year, Stripe processed $1.9 trillion of volume, compared with Braintree’s $600 billion.

Now, Stripe is turning the tables. Earlier this month, it was reported that Stripe and private equity firm Advent have offered to acquire PayPal for around $53 billion. It comes shortly after Stripe attracted a valuation of $159 billion in a secondary tender offer. According to news reports, the proposed deal would see Stripe and Advent each own an equal 50% stake in PayPal, and is backed by $50 billion in committed bank financing.

So what does Stripe see in PayPal? After a decade of drift, three CEOs in three years and a string of unforced errors, it’s a fair question. But few have watched PayPal’s fortunes as closely as the Collisons, who have at turns been inspired by and confounded by the company. To explore what they see in it – and whether $53 billion comes close to the right price – read on.