This article is an inquiry into how fintech companies have changed our world. From PayPal to Stripe to Venmo and beyond. We journey back into how things used to be in the early days of the internet to get a feel for how far we’ve come.
A discussion we’ve yet to have on this blog for a long time is one about the maturity of the global startup investment landscape.
Especially as it relates to the direction of investment observable from the fundraising news we come across every day on the internet from the startup industry.
For the benefit of those of you reading this but are yet to get the gist, I’m talking about the recognition and discussion of the role fintech companies and their founders played in the growth of the global startup investment market.
Isn’t it the right time to attribute the large part of the effort it took to get the industry here to whom it’s due?
As of today, AI startups in particular seem to be big beneficiaries of the large investment appetite that has come as a result of the success VC firms have had with their investments in global financial technology companies.
So I ask —again, when are we giving these pioneering companies their flowers?
Are they not solely responsible for the booming interest to invest in AI companies as the new ‘frontier’ for instance, because VCs are now constantly seeking to replicate the success they’ve had with fintech companies from the past two decades, no?
You may say, this is only the effect that these companies have had on investors and if you’re an average Joe like me, especially if you’re not familiar with the magnitude of progression or remember how things used to be, you may also erroneously think too small or not think at all of the impact these companies had, and are still having on our way of life.
Therefore, the goal of this article is to discuss this.
I have taken it upon myself to help everyone reading this answer this one question: In what ways have fintech companies charged our world?
Let’s take an in-depth look at the question in focus.
The PayPal story
PayPal created a new level of trust in online transactions. It was a game-changer for online shopping and helped fuel the growth of e-commerce.— Don Kingsborough, Ex-VP of Marketing at PayPal
Our collective journey to an era of seamless online transactions like we now have with companies like TransferWise, Payoneer, Venmo, and a host of others did not start today.
In fact, it’s generally agreed that it started over 20 years ago when PayPal pioneered an online payment processing service.
The company was the first to successfully help people (first in the US then everywhere else) feel secure with making payments online leading to an astonishing rise in the volume of e-commerce transactions.
PayPal is one of the preeminent leaders in digital payment starting ten plus years ago… It was the number one place where you would feel comfortable putting your personal information online to be able to transact in the e-commerce world.– Andrew Bauch, Senior Equity Analyst at Sumitomo Mitsui Banking Corporation.
Before its launch in the late 1990s when e-commerce was still in its infancy, online transactions were often less convenient due to a host of issues that include:
- The use of a manual payment processing method where customers had to print out an order form physically, fill it out, and mail it with the payment for their ordered goods to their online seller before they could receive their goods.
- Security concerns
- Non-availability of ubiquitous and seamless checkout options like there is today.
- Non-availability of peer-to-peer (P2P) payment option.
- Lack of trust.
The arrival of PayPal alleviated all these consumer concerns to the extent of leading to a revolution in online financial transactions.
It wouldn’t be farfetched to say that If it wasn’t for PayPal we would have been far behind in terms of how many financial transactions occur online like it is today and this quote from Airbnb’s founder buttresses this;
PayPal made it possible for Airbnb to exist. It allowed people to trust strangers and transact online, which was essential for our platform’s success.— Brian Chesky, Co-founder and CEO of Airbnb.
Enter Stripe’s era
Another company that has had a huge impact on us through the role it played in the growth of online payment in the mid-modern era in tech is Stripe.
The company was born out of the frustration of its founders for the complex and not-so-developer-friendly nature of payment processing services of the time.
As it turned out, building a developer-friendly payment processing system was exactly what online transactions in the 2010s needed to pick a pace and continue to grow exponentially.
The Collison brothers dropped out of MIT and Harvard to start Stripe, a streamlined service for accepting payments on the web. Their 17-person team is now focused on simplifying that complicated process by cutting out all the clutter. No more merchant accounts, gateways, subscriptions, credit card storage, or hidden fees–Stripe handles all the wonky details for a dead-simple rate of 2.9% plus 30 cents per transaction. Stripe’s aim, the co-founders agree, is to make accepting payments online as simple as embedding a YouTube video. — Fast Company
Patrick and Jonathan Collison, who founded the company, designed Stripe to be extremely easy for developers to integrate into their applications in terms of sign-on requirements and API.
Notice the significant jump in percentage points from
4.9% in 2011 to 5.4% in 2012.
They prioritized merchants’ need for a globally oriented payment processing system and made it so cheap in comparison to its competitors that it led to a visible increase in conversation and volume of online transactions in the years following its launch.
Before Stripe was introduced in 2011, merchants who sold goods to worldwide audiences were faced with the problem of geographic restrictions that early payment processing services had. This limitation meant that their businesses could not accept payments from customers who are not in the same country but Stripe’s launch alleviated this concern.
In fact, in an interview with Wired, erstwhile Lyft CEO Logan Green described the impact Stripe had on its business during its early days saying that prior to the launch of the payment processor, his company had a cumbersome ad-hoc system for paying drivers that took four full-time people sending out payments every week. Now, payments are pushed directly to drivers’ bank accounts.
Present day
Today it’s almost impossible to fully grasp the impact these fintech companies have or how things used to be.
Not long ago it used to take weeks to have money delivered from across one continent to another but not anymore.
Services like Wise, Payoneer, Venmo, and many others have made transacting online easy and seamless while simultaneously making a huge profit for their investors who some would say are now looking to recreate their success in what seemed like a novel idea at the time.
Stripe, PayPal, and others listed in this article solved all our early needs and continue to do so today.
Although some would argue that they’re far from perfect in the way they help solve our problems, we can at least all agree that they’ve made transacting online better.
They eliminated the serious trust issue that hindered the growth of e-commerce in the early days and up to today, they are still vying to further streamline all areas of our financial life.
For this purpose alone—not least the effect they’ve had on VCs’ investment appetite, I strongly believe, they deserve some flowers.
Follow our blog to see articles like this where we journey back in time to inquest into how things used to be in the early days of the internet and get a feel for how far we’ve come.