Digital Payments

Stripe's John Collison On Improving 'The Art Of Authorization' Amid A Digital Payments Boom

“No one should be satisfied with the status quo.”

That’s how Stripe Co-founder and President John Collison characterizes the state of digital commerce today.

The global coronavirus pandemic, he told Karen Webster in an interview, has been the catalyst for a massive shift toward digital everything, particularly commerce. That shift is forcing companies to examine their abilities to meet their consumers, employees and business partners at these new points of interaction in what has become a “mostly digital” world.

Collison told Webster that this rapid shift has also highlighted the robust commerce capabilities of “digital first” platforms, many of which are on the front lines of powering the global economy, providing goods and services to consumers as offline businesses are locked down.

The names are familiar. Amazon. Uber (pivoting to food delivery). Instacart. And among those ranks, too, lie a growing number of manufacturers that now are pivoting toward direct-to-consumer models.

Unfortunately, he said, countless other companies struggle to make that transition, and face challenges in expanding reach and boosting conversion rates online.

The payments capabilities of merchants large and small, Collison told Webster, may not be ready, technologically speaking, for the sudden surge in online demand.

It’s a problem that has led nearly all — 96 percent — of marketplace and platform payments professionals, as queried last year by Stripe and PYMNTS, to say that sales conversion rates could be improved — leaving only 4 percent stating they were “extremely satisfied” with their ability to convert site visitors to sales.

As detailed in that same study, titled “Payments 2022: How Platforms Will Use Payments to Transform Global Economies,” 61 percent of the 250 respondents said false positives were a concern, 39 percent cited the cost of fraud as a problem, and 14 percent pointed to issuer declines as a top friction factor. Some 44 percent said that manual review and processing were trouble spots.

Those findings give important context to Stripe’s announcement today, April 23, that it has updated its core payments platforms to, in Collison’s words, improve the art of authorization.

The trio of upgrades include re-platforming to connect directly to card networks in a bid to streamline and improve authorizations, introducing intelligence into the authorization stream to reduce false positives and improve conversions, and expanding instant issuance to give merchants more opportunities to introduce and monetize new payments flows.

Collison told Webster that there’s room, incentive — and now, the technology — to boost sales at a time, and at the digital point of contact, where increasing sales is critically important.

Lost Data — And More Friction

He told Webster that all three of the upgrades announced today are aimed at growing top lines for digital platforms while increasing margins by eliminating the operational inefficiencies that plague many payments professionals. Chief among those inefficiencies are false positives and the need for manual intervention as transactions are held up.

The announcement of Stripe’s global direct platform provides a direct connection to the networks — Visa, Mastercard, American Express, China UnionPay and Discover among them — across the United States, the European Union, Latin America and Southeast Asia, which Collison said can help boost authorization rates. That’s particularly important for those digital platform firms seeing double and triple-digit percentage increases in demand such as Zoom and Shopify.

As Collison told Webster, Shopify has been seeing the equivalent of “Black Friday levels of traffic every single day. We’re really seeing a number of our customers spiking in the world of COVID-19,” he said.  In another example, Instacart has seen demand increase by 300 percent.

He added that with the direct connectivity, firms can see upwards of half a percentage point of authorization improvement.

"You’re removing intermediaries, not going through anyone who is the gateway in any one of these regions," he said.

Revenue Optimization

Detailing the particulars of another upgrade, Collison said the launch of Stripe’s revenue optimization engine leverages the advanced learning technology developed by the company to catch fraud (through Stripe Radar) and false positives.

That engine, he said, expedites conversion in much the same way that TCP streamlines the delivery of images and data across the web.

As data packets are sent over the internet, say, for an image, sometimes individual packets go missing (perhaps due to a less than optimal Wi-Fi signal), which in turn results in “parts” of the image missing — and there can delays in filling in the gaps as repeated requests for data are sent.

As Collison told Webster, audio and video streaming over the web now comes with advanced error correction, which helps fill in the gap.

“Historically, that hasn’t been the case with payments,” he said.  “You haven’t had advanced error correction.”

The engine, according to company projections, can turn as much as $2.5 billion in would-be declines into revenues for users.

“Declines are among the biggest issues for merchants,” said Collison, “and are a huge source of lost revenue for them.” He said Stripe’s machine learning models have built up profiles on individual issuers.

The urgency is there to catch and correct errors and to make online commerce more seamless, especially across platforms, as the consumer’s online shift — or much of it — may be permanent. Consider the fact that, as PYMNTS found in its “Navigating the COVID-19 Pandemic” survey across more than 8,000 consumers, the number of consumers who have shifted their retail shopping online has more than tripled. A third of those consumers have reported they will continue that digital shopping even after the economy reopens.

Issuance, Too

Beyond just accepting payments, Stripe Issuing is now out of beta testing and is available to all U.S. businesses — representing what is being billed as the world’s first self-service card issuing API. The company said that Zipcar is an enterprise issuing user.

As Collison explained, the issuing product offers a programmable infrastructure for creating cards. That infrastructure can reduce the time it takes to create and issue a card from a few months to as soon as a few days, for physical cards. There’s also instant issuance functionality for virtual cards.

“This is about getting money out into the world,” said Collison, and can reduce what he termed a developer bottleneck in getting new cards to market.

As the issuing product is being expanded to all U.S. customers — Zipcar, Carrot and Postmates had been using Issuing to create hundreds of thousands of cards monthly — Collison said that traction would be likely at the smallest of startups all the way up to enterprise-sized users, who all want to control spend.

That control is also desired by gig economy and platform firms who want to pay workers in flexible ways and make pay spendable immediately.

As firms look for a single-source provider, as retailers and companies across all verticals eye direct-to-consumer models, said Collison, “you're seeing several years of migration happening in the span of a few weeks with this shift online.”

The disruption can offer businesses the chance to seize new revenue opportunities as online demand spikes, if they have the right infrastructure in place, Collision emphasized, and leave the status quo behind.

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