The process of receiving payments over the Internet has steadily improved over the years. The people behind PayPal started the revolution in 1998 — later selling to eBay in 2002. A year after that, I co-founded TypeFrag, where we used a very popular payment processor called Chase Paymentech to handle our transactions before adding PayPal as an option four months later. Chase Paymentech is still popular, but it’s not viewed as cutting-edge by the current tech startup crowd. To say our billing flexibility with Chase Paymentech was limited back in 2003 when TypeFrag was founded would be an understatement.
After I sold TypeFrag four years later, we still used a combination of Chase Paymentech and PayPal at Carbonmade, my second company. That combination was the standard among tech companies at the time. There were other options, but nothing all that much better, hence it wasn’t worth switching. Then in 2007 a new company called Braintree promised better integration and more control over your customer list. We saw a lot of great companies like 37signals championing it. After talking to their sales people over several conversations, we switched to Braintree. Braintree was beginning to win huge favor in the tech community as the processor for fast growing startups. Today, six year after they were founded, their customer list includes huge companies such as Uber, Airbnb, GitHub, and Angry Birds.
Braintree has been quick on its feet and continued to adapt its technology to the changing needs of startups. For example, they saw that the New York company Venmo was taking off in processing mobile payments and quickly scooped them up in 2012 for a $26.2m. Then on September 26, 2013 eBay purchased Braintree for $800m to fend off their major challenge to eBay’s PayPal. I think Braintree could have held out and tripled their value over the next few years, but it’s close to impossible to turn down that kind of money when you’ve only raised $69m.
A few years after Braintree, the payments processing world saw a new entrant, Square, which was founded in 2009 and released their Square Reader for people and small businesses to accept credit cards through their mobile phones. Moving from 0 to 600 employees in four years, with a rumored IPO in the works for 2014, Square is well on its way to revolutionizing mobile payments. Whether they get into the online payments game to compete with Chase Paymentech, PayPal, and Braintree is too early to tell, but I’d bet that they will.
Until Square, all of these payment processors shared a common fault: they were painfully difficult to set up. Even in 2013, Chase Paymentech, PayPal, and Braintree required a lot of engineering expertise to get up and running. Not only that, they required a lot of paperwork, including scanned driver’s licenses. Then came a change. A new payment processing company called Stripe burst on the scene in the last few years, having been founded in mid-2010. Stripe’s departure from its predecessors is that for a slightly higher fee they require a lot less paperwork and — more importantly — make it incredibly easy for developers to drop in code that gets payments running in only a few hours. Stripe is what we use at my new company Uncover. Their customer list is impressive, including Rackspace, foursquare, Squarespace, Shopify and many others. That said, when our payments volume grows to a larger scale, we will be switching from Stripe to Braintree, as Stripe takes seven full calendar days to release funds to you. That’s a long time to be without your money when you’re a small business and you need cash flow to keep going. Braintree releases funds in two days.
Payments processing will continue to evolve as mobile becomes an ever more popular way to accept payments. The one thing for sure is that it’ll become easier and easier for a company to accept payments over the Internet.