(upbeat rock music)
(bright music)
John, how's your talk going?
Oh, hey, yeah, good, good, good.
Yeah, I'm out of string.
Hmm, I just need to figure out how to work cookies into this.
Like first-party cookies?
Could be for a party, yeah.
Okay, but like strictly necessary cookies?
I mean all cookies are necessary.
-Okay, but like functional cookies. -Some are.
Like if you're running a race.
I have the feeling you're talking about cookies.
Cookies, yeah, I am.
Oatmeal raisin, chocolate chip...
No, no, no, no, no, don't be ridiculous.
Oatmeal raisin, no, like a super cookie.
Okay, for a minute I thought you were talking about cookies.
No, no, no, don't be daft. Gosh.
I like the way you worked in OCS over there.
I see you have the cookies here.
Authentication.
Actually I think it might be interesting to talk about Europe.
Click. Conversion.
-Ooh, triple chocolate. -The fricking cookie banners these days.
I love cookie banners.
Are we talking about cookies or cookies?
Cookies.
(fun music)
Welcome back to the stage, John Collison.
(upbeat music)
Good morning and welcome to day two of Stripe Sessions.
And in my defense
cookies are an important part of the future of payments
especially with the demise of third-party cookies
you know, they’ve been critical for personalization,
which we’ll talk about in a bit.
And it’s not just cookies.
Nearly all of the technology trends you encounter here
in Silicon Valley have some important payments impact.
Maybe the biggest example of that is AI.
AI agents are likely to change commerce in a big way.
OpenAI recently showed this demo of ChatGPT
doing your groceries on Instacart.
It’ll suggest meal plans and pull recipes
and drop everything into your cart that you need.
And you know, everything, sales, marketing, product
they're going to be very different in a world
where your end customers aren't directly browsing your website
but they're talking to an AI agent that's doing tasks for them.
It's going to introduce a very new and different set of challenges.
So we think the future of technology is in many ways the future of payments
but there are also a whole bunch of payment-specific trends
that you all should be across.
And that's what we're going to focus most of our time on here today.
You might be familiar with this quote from William Gibson:
"The future is already here, just not evenly distributed."
And this is actually very true in payments.
So for the next 45 minutes, we're going to take a look at the pockets
of payments innovation all around the world
and what they might mean for you.
We'll look at why crypto is back, why you're maybe underestimating BNPLs,
the future of the checkout page, and a lot more.
So our first pocket of the future is real-time payments, or RTPs.
The domestic digital payment systems
that are low cost, secure, and settle instantly—
kind of payment systems you bring home to your parents.
You've probably heard a lot about these.
RTPs are built of two tightly integrated components.
You need both. Firstly, you have a rail for bank transfers
that settles instantly.
And then secondly, you have a payment method
that's built on top of that rail.
And the payment method part carries all the consumer UX
and scheme rules and all the nifty features you're used to
recurring payments or something like that.
It's basically where the government set out to design Venmo
or Cash App and actually did a surprisingly good job of it.
In some of the world's largest economies,
RTPs are becoming the most popular payment methods.
Look at UPI in India. Maybe the most famous example
cash has long been king there, but not anymore.
UPI launched in 2016
and already has over 300 million monthly active users
and 130 billion annual transactions.
And this explosive growth has correlated with cash transactions
actually declining by 12 percentage points over the last five years
as the government has run a project to try and wean the country off of cash.
Another example is Brazil,
where there are 200 million active credit cards.
But also, we saw PIX launch four years ago,
and there's already over 150 million PIX users.
And Brazilians are more commonly paying with PIX.
Last quarter... last year, excuse me, quarterly PIX transactions began
to outstrip card transactions.
And this trend of RTPs taking off
it's not just confined to emerging markets.
Let's look at an example in Sweden.
So the most popular way for Swedes
to buy their fermented herring is with Swish.
Swish usage is now double that of credit cards.
And to give you a concrete example of how these products work:
if we just look at the checkout flow for Swish…
so this is starting on the Stripe page, we can select Swish
we're going to be bounced over into Swish here.
We just tap “paid”... this is our bank app...
We enter our security code to authenticate.
And that's it. That is the transaction done.
It's not what you'd normally think of as a bank payment method.
You might think they'd be kind of clunky. It's quite slick.
So along with bicycle lanes and banning emails
after 5:00 p.m., RTPs are all the rage across Europe.
We've seen schemes from Bizum in Spain
to iDEAL in the Netherlands.
The rollout of a pan-European instant bank settlement layer, SEPA Instant,
is surely going to accelerate the number of RTPs in Europe.
So if you are selling your products around the world,
the emergence of all these RTPs means
the payment method preferences of your customers are changing.
You need to be future-proofed
for this new world of payment method proliferation.
What about here in the US?
So you've probably heard a lot about FedNow,
which is live with over 600 participating banks
moving money on these new rails.
It's awesome. And you hear FedNow compared
to real-time payment schemes like the ones we just saw.
But that's actually a bit of a category error
because FedNow is a rail
for the instant settlement of bank transfers,
but there's no payment method on top.
So it's probably better to compare it to Zengin in Japan
or Faster Payments in the UK.
These have been around for quite a long time,
but they are just vanilla bank transfer schemes.
And to be clear: they're still useful. There were a few billion transactions
settled on each of those systems last year,
but it pales in comparison to something like PIX,
which processed 43 billion transactions in 2023—
an order of magnitude more.
So you can probably expect FedNow to be similar to those.
It'll be useful for your push payments,
paying salaries, suppliers, but we don't think it's going to change
consumers' payment preferences in the US anytime soon.
So that's RTPs.
They add to the complexity of running a global checkout.
It's more payment methods for you to keep on top, of
but of course if you're on Stripe,
adding more payment methods to your checkout is easy
and you'll definitely appreciate the faster settlement.
But the thing about RTPs is they're part of a broader trend
shaping the future of payments, which we see...
which is that payments are becoming more political.
So this is the ARA Libertad, a ship in the Argentine Navy...
I have a lot of questions actually...
But a decade ago, it was seized... not by pirates,
not by the British, but by Elliott Capital Management
a New York hedge fund that held bonds
on which the Argentinian government had defaulted.
The US Supreme Court ruled
that Argentina's creditors could issue subpoenas
to banks to trace the country's assets all around the world.
And you know,
a Navy ship going missing, it tends to get your attention.
It's the kind of thing that gets governments wondering,
“Where exactly do our payments flow through again
and what are the rules?”
The payment systems we all use every day are an essential utility for modern life.
As a result, they offer powerful leverage to advance
or defend political agendas.
In geopolitics, we've seen governments go to new lengths
to use payment systems to advance foreign policy objectives.
For example, with the exclusion of certain North Korean
and Russian entities from the SWIFT network.
As a result, governments around the world are trying
to gain sovereignty over their payment systems,
Domestically controlled payment systems like the RTPs we just saw,
are a step by governments to run in-house
their most heavily used day-to-day financial infrastructure.
And RTPs aren't the only example of countries trialing new payment systems.
Many countries are already conducting live experiments with CBDCs.
For a good number of these experiments,
a key objective is to expand the use of their currency
versus—for example, the US dollar.
Additionally, many CBDC experiments are looking to create
a new unified standard for cross-border payments.
We're also seeing the growth of alternatives
to the SWIFT messaging system, such as Russia's SPFS
and China's CIPS,
which are explicitly targeted at sidestepping the dollarized economy.
Even within domestic politics, we're seeing payment systems being drawn
into the political fray.
Within payments
we're seeing new pressures on financial service providers
to either remove or reinstate entities caught up in controversies.
Advocates will say this is an effective way
to limit harms that kind of outrun the justice system.
But opponents say this is cancel culture hitting the financial system
with the latest enemy of social media being on the chopping block.
Nigel Farage had his accounts at NatWest closed apparently
because they were worried about associating with him.
When Canadian truckers took over Ottawa to protest COVID restrictions,
the Canadian government pressured banks
and payment companies to cut off donations.
But then US officials took the opposite view
and they announced they'd investigate payment companies
that refused to process payments for the truckers.
In Operation Choke Point... that was the name of it...
Operation Choke Point, the US government pressured banks
to not provide services to firearms dealers
and payday lenders and businesses like that.
Then a different administration tried
to prevent banks from restricting services
to those very same businesses.
Before digital payments, when everything was cash
it simply wasn't possible for payments to be a choke point.
Whereas now, in a world of digital payment providers
and social media controversies
payments itself can quickly become a divisive issue.
Politics and payments is one of the hot topics
you tend to hear about if payments is in the news...
and I mean, payments in general is not newsworthy.
But our next topic is one
that you will occasionally see headlines about
and that's payment costs.
Following payment costs is a bit like planning a wedding.
There's a lot to orchestrate
and somehow, the prices seem to always be going up.
So this is a chart of payment costs for businesses in the US
and as you can see
there's kind of an upward trend over the past five years.
But you probably saw this big news just a few weeks ago...
a settlement between merchants
and the card networks over interchange fees.
This case has been running since 2006,
so it's taken a while.
But the two major card networks have struck a deal
intended to reduce payment costs in the US.
What's being proposed in this settlement—
it's not approved yet—but what's being proposed in this settlement
mimics two of the most common approaches
we've already seen around the world to lower payment costs.
So first is the obvious one, just a straight up cap.
That's what tends to get all the headlines.
But the second is enabling price competition
for payment methods in the form of surcharging.
So let's take a look at how both approaches are faring.
First, regulated fee reductions: do they actually sustainably cut costs?
You might think the answer is obviously yes.
But when we look at markets that have regulated lower fees,
it's actually a bit of a mixed bag at times.
So take the UK,
which introduced domestic interchange caps in 2018.
You saw payment costs fall, but then they started to climb again
when some of the Brexit-related changes kicked in.
So that didn't really last as intended.
New Zealand, on the other hand, introduced exchange caps in 2022
and those reduced costs have sustained.
Now you might say that's only two years of data.
For another example, we can look
at regulated debit card processing in the US.
The Durbin Amendment regulated debit card prices in 2012,
and that has held debit card prices down for 12 years.
So regulated cost reductions can sustain, but it's not an ironclad guarantee.
If the card network deal is approved by the courts
we can expect to see fees come down
by a handful of BIPs over the next five years.
But then, like I said, the second approach to lowering payment costs is surcharging.
This means you'll have the power to charge different prices
to customers using different cards.
Rewards cards might feel a bit less rewarding
if customers are suddenly paying more for them.
We don't have to hypothesize about how this will work.
We can just go ask the Australians
who've had surcharging rules in place for years.
So what can we learn from the Australians?
Well you can learn
that government spending can get out of control.
This is actually a spending scandal in Australia.
But sorry, I meant what can we learn on surcharging
specifically from the Australians.
We learned that 45% of consumers opt to use lower-cost cards
rather than incur extra surcharges at checkout—
so much so that the median surcharge amount
has actually gone down from 2% in 2019 to 1.5% now.
That's just surcharging is really working in shifting behavior.
You can already see this behavior happening
at a smaller scale in the US where businesses look to offer consumers
lower-cost payment methods, even outside of cards.
Take Airbnb. They're using our Link bank account product,
our bank payment product that Will showed you yesterday,
where they're offering discounts to customers
making longer-term bookings if they use it.
So you see here, you save $192 if you paid with your bank account.
Yesterday, you all got your Uber discount code
if you pay with the bank account on Uber.
Similarly, Uber is in the process of incentivizing their customers
to use lower-cost payment methods with Link.
So if payment costs are a major consideration for your business,
you might need to start thinking about surcharging
and offering customers different payment methods.
And experimentation and testing will be key as you trade off
amongst all the cost and conversion and authorization factors.
But we're excited about this because it puts you in the driver's seat
of managing your costs.
So that's payment costs— sometimes going down,
usually going up, maybe about to start going down again...
especially if you want them to.
It's now time to hear from our first guest of the morning
and to talk to us about the future payments
I wanted to bring someone who has been a direct catalyst
in bringing the future about.
Alex Rampell is the cofounder of two payment companies,
TrialPay and Affirm.
Today, he's a general partner at Andreessen Horowitz,
where he sits on more than a dozen boards
in investing companies across fintech and AI and so much more.
So welcome, Alex.
(upbeat music) (Audience applauds.)
So I introduced this with the framing that...
The disruption is here, just not evenly distributed.
And if you're looking around the world
you can track that quite well.
Are there disruptions that you are looking at
that you think will be kind of significantly more impactful
in 5 or 10-year time?
Well, I mean, I know you mentioned AI,
and AI is the hot thing right now.
And I'm sorry for being a VC that's talking about AI,
or talking about wine, or talking about cycling
or whatever VC's are talking about.
But here's how I think about why AI is actually very impactful
and how it relates back to payments.
So, vertical SaaS became a really big thing
and part of the reason why every restaurant 40 years ago
should have used software.
But, in order for them to use software,
they would've had to buy an IBM AS/400 or something
install on-premises software, and have legions of IT people.
That was just not really possible and it was all too expensive.
Cloud made something like Toast possible.
But actually what made Toast work as a business was fintech,
and specifically payments, because now I can say you can use software
as long as you have a web browser. Everybody has a web browser, great
now you can use my software.
What I'd like to do next is make money,
and I can only charge the restaurant $100 a month.
There are only so many restaurants; that business model doesn't work.
Oh wait, I can actually embed payments, I can embed payroll,
I can embed these other things.
So what happened was a lot of vertical SaaS models
that didn't seem big enough got big enough
when you embedded payments.
And the same thing is, actually, I think about to happen with AI,
where a lot of what happened in software was… take a company like Workday
that we were talking about earlier.
Workday basically digitized the HR filing cabinet.
It didn't help you hire more HR people.
So a business that, I mean, Workday was a big business.
It's a $50 billion company, but there are a lot of companies
where it's like they just don't seem big enough
to turn into a business, so nobody makes them.
But if you can actually monetize, step one was sell it in the cloud
so that anybody can use it.
Step two was embed financial services.
That was the giant leap.
I mean payments embedded with financial...
sorry, payments embedded with software became big.
But step three is, I don't know.
Take a business where they run a Microsoft Excel.
There's probably not that much software to write,
but it's really hard to hire the 7,000 people
that use Microsoft Excel all the time.
That is now a business model.
And I think a lot of that will be combined
with financial services and integrated financial services.
Okay, so you think AI will be kind of the next wave of that
if we look at. I agree with you, by the way—
and we're going to talk about vertical SaaS
much more in a little bit—
that fintech made vertical SaaS a better product
because you have this new revenue line,
presumably AI won't be a new revenue line.
Are you saying that it will make
vertical SaaS more possible, more compelling,
but you'll still charge for the software, or will the revenue model be different?
No, I think you'll probably still charge for the software.
What Tom—Tom's the CFO of Mindbody—
we were talking about a business called PoolTrac,
which is like the most obscure vertical SaaS company in the world,
but it's for companies that maintain swimming pools,
and how many companies are there on Earth that maintain swimming pools?
There aren't that many, that market can't be big enough.
Then they won't pay $10,000 a month for software.
They might pay $50 a month for software to do CRM
and pay like, but once you embed payments...
There's no size for software today and AI brings that down.
-Exactly, exactly. -I like that.
And speaking of revenue models, you have this view that way more companies
should do their own version of, kind of, Target's Red Card.
Can you explain that idea to people?
Yeah, so if you... Target's a public company,
so if you look up their 10-Q or 10-K, one of the KPIs that they point out
is what percentage of their payments
were processed effectively on their own network.
Because Target, I think their second or third cost is payment processing.
Target has something like a 2% net margin.
So you take their net income, divide by the revenue, 2%.
If they didn't have to pay 100 to 200 basis points
of payment fees, like guess what?
They would make almost twice as much money.
Highly impactful.
So what they did was they said,
we will give you lower payment processing costs
and actually, sorry, for the consumer
they are giving a 5% cash-back rate if you sign up for the Target Red Card.
The Target Red Card is two things.
It's a co-brand card.
I mean Macy's today is not doing great as a business
except for one line item, which is their co-brand card.
United Airlines makes lots of money on their co-brand card.
Co-brand cards have been known
as a very profitable thing for a long time.
So they have one of those, which is issued by Toronto-Dominion Bank.
But the real Red Card thing that they do that's interesting
is that it's kind of like this abstraction layer
against your bank account.
It's exactly what you were talking about with Link
to draw directly from a bank.
And they basically built, for lack of a better term,
an abstraction layer because you go pay
with your Target Red Card— it's a debit card
but it's a closed loop debit card—
and then it just withdraws money from your bank account.
They had to build a lot of complexity there
because how you map chargebacks in the credit
and debit card world,
which are pretty well-defined,
into “there are non-sufficient funds in the bank account”
or somebody asking, “I'm alleging theft
on my Target Red Card; how do I deal with that?”
Because Bank of America doesn't want to.
I want my money back in my Bank of America account.
So what I found compelling about the Red Card is
Target wants to lower their payment processing costs,
which is obvious, everybody does
but the way that they did it and the fact that they got to 20% share
of all of their consumers using this payment instrument
was extremely interesting.
And the way that I've thought about this is for repeat billers,
like not everybody can be Target
because Target, you might go to twice a week.
-Yeah, the frequency, yeah. -And what you've started seeing
with a lot of the frequent billers, and Uber is like that too
Uber is not like I need to buy it every day.
It's not like my electricity bill, but my electricity bill, my Comcast bill
like all of these things that I pay for on a regular basis
they're all trying to incent people.
They'll say, "I will give you $5 right now
if you switch from credit card to bank account."
And that's starting to work. So the ones that have high frequency
of interaction with the same customer,
I think Red Card is a really good... it's a harbinger of what might come.
So in the closed-loop world, everyone likes to talk about Starbucks.
Do you think maybe Target is a better example for people to look at?
-Yeah, yeah, I do. -And last question.
We're thinking a lot about, kind of, permissioning
and identity in these topics
and obviously that changes a lot in the world of AI.
I know you've been thinking about that topic as well.
How should people here be thinking about, kind of, permissioning
and identity in this world?
Well, I put out a post a long time ago.
It's kind of hard being right but too early
which is the same thing as being wrong, by the way.
It's a nice way of saying I was wrong.
But when the Apple Wallet came out
if you think about what you get to permission on your phone
right now, you install an app and it says
"Hey, I am the app, do I have access to your contacts?"
"Yes or no?"
And you, John, say like, "Yes, you do," or "No, you don't."
Location, yes or no. Photos, yes or no.
You already have a handful of cases right now
where your ID card is like...
I think there are four or five states in the country now,
or in the US, where you could provision
your DMV-issued driver's license
into your Apple Wallet.
I assume that Google has something very similar.
You can imagine a world in the future where it's like
I want to apply for a new payment instrument.
Now in the future, that might be a button,
like there might be an App Store for the Wallet
where the way that I apply for anything is like...
but the thing on permissioning is...
like the Social Security number that I have is in my Wallet
my driver's license is in my virtual wallet.
Those will have the same kind of permissioning
or permissionings as you see right now for...
location, photos, and the like.
But you also made the point that maybe just clicking “yes” in a dialog
where it is the user is not enough
to actually treat as a kind of permission these days.
You know, your example was that... Your casino in Vegas example.
Yeah, well, I think this is the strange thing,
is things move from the offline world to the online world.
So there are really three things
that you need to know from an identity perspective.
Number one is this identity real?
And it's actually quite easy to create a fake identity.
We had a lot of problems with this at Affirm.
I'm sure you do as well.
So, is this identity real?
Then number two is: is my interlocutor, the person that I'm interacting with—
is that the owner of this identity?
And that's also very hard
and we actually have pretty good technology...
Ask a bouncer in a college town where they're just trying to distinguish
between members of the family.
Exactly, exactly.
So, and then part three
which nobody has really thought about yet
is, is the person of sound mind to have made this decision?
So if I go on Robinhood
and I buy a bunch of YOLO calls that expire today
with my entire net worth, and I'm sloshed, right?
I'm completely wasted.
If I went into an old Charles Schwab office in 1970
they wouldn't let me do that, right?
And it's not like Robinhood wants to let you do that either,
but you don't have a way of actually figuring out,
like, is the person of sound mind to make this decision?
In Vegas, they want you to lose all of your money,
but they also don't want to go to jail.
And there are rules about this
they will not serve you your 15th drink
and let you YOLO all of your money
on double zero in roulette.
So I think that's another...
As everything that happens in a financial transaction
and the offline world starts moving online,
how do you, not to be too skeuomorphic,
but how do you encapsulate and decision some of these things?
I think that's a very astute comparison,
which I think is, people talk about identity online,
they generally mean the first one of “do you have kind of valid ID?”
And it's not, is the person actually
your kids using your phones, or whatever
is a big example of the second one, and then is the person of sound mind.
Anyway, we can go for hours more, but we only have a brief amount of time.
-Alex, thank you for coming today. -Of course, thank you very much.
Yeah, thank you, everyone.
(Audience applauds.) (upbeat music)
Next up we are going to talk about crypto.
Now if you're a nightclub owner in Miami, you might have noticed
that business has been a bit slower than usual.
It's been a rough few years in the crypto market,
and crypto's the only part of the financial world
where you can get 12-year-olds making themselves millions
by drawing a whale wearing a top hat
and people making and losing billions on Dogecoins.
But if you're just skimming the funny headlines
and chuckling and moving on,
you're missing out on all the genuinely exciting progress
that's been happening in crypto,
and you owe it to yourself to dig in properly.
Our history with crypto goes back a long time.
You know, 10 years ago, we became the first major payments company
to support Bitcoin as a payment method.
At the time, Bitcoin was a pretty terrible payment method.
Transactions took ages, they're very expensive.
So in 2018, we actually turned it off.
But amidst all the trials and tribulations and Shiba Inus
and crypto kitties, there's been a lot of technical improvements
happening in crypto.
I'm talking about three things specifically.
Firstly, transaction settlement times
are no longer comparable to Christopher Nolan films for length.
Many blockchains are now measuring transaction times
in the milliseconds.
Secondly, transaction settlement costs
are no longer comparable to Christopher Nolan films for budget;
it's now perfectly affordable to transact on chain.
Finally, and this is a big one.
Stablecoins are becoming, well, stable. They're regulated
they're backed by real assets, they're being used a lot.
Look at this chart of the total value being transacted by stablecoins.
If we are in a crypto winter post-2021,
nobody told the stablecoins.
So what does this all mean?
Well, it means crypto is finding real utility.
We're seeing folks use it to store value
most notably when their domestic currency crashes.
You don't see this in the US; it's a very good currency here
but that's not the case everywhere.
Look at Turkey; you can see that the price
of the Turkish lira has fallen over the past few years.
The lira's trading volumes against stablecoins
have consistently increased.
With transaction speeds increasing and costs coming down,
we're seeing crypto finally making sense as a means of exchange.
So, as something for you
we're excited to announce that we're bringing back crypto
as a way to accept payments,
but this time with a much better experience as stablecoins.
Do you want to see how it works?
(Audience cheers.)
Alright.
So this is a little preview.
Patrick's not the only one who can leak things.
This is the Stripe Checkout you know and love,
and you know it's got all the cool functionality like...
again, a big one for us is localization, where it looks different.
You know, you see here
depending on where the customer is coming from
it'll give them that really nice high-converting localized experience.
But what's this new functionality over here
on the right, we can pay with crypto.
So we'll tap “pay” here, we'll go to a confirmation screen,
and we're on Hyperion
the ghost of Christmas past.
So this is our confirmation page.
We passed in the email address for the checkout.
Here we're selecting what chain we want to pay with.
We're going to pay with Solana.
Here we're selecting what wallet we want to use.
We could use Coinbase Wallet or MetaMask.
I'm going to use Phantom, for the purposes of this demo.
So when I pay here, it's going to bring up some UI from Phantom
which is the crypto wallet that we're using.
So this is the Phantom UI here. This is not Stripe UI.
You see, here, we're confirming we're going to pay with Solana.
The network fee, very cheap.
As we discussed, network fee's coming down $99.
Now again, you're probably used to a crypto transaction.
You're expecting me to bring out another guest here
and we'll do an eight-minute conversation
while we wait for the transaction to clear.
But that is old crypto.
You ready for the new crypto world?
You have to look very closely and not blink, you ready?
That's it.
We're done.
(Audience applauds.)
That confirmation page
was not like, "This has been entered in a queue.
We're going to now go do something."
It has now been posted to the blockchain already.
So if I go into my Phantom Wallet here
and go into the Explorer,
you see here sent at 9:58 today, we can view on the Solana Explorer.
This is I think the Explorer just loading... it is on the blockchain.
Here we go. So you can go to this URL yourself
if you are eagle-eyed
and see this is a real posted transaction to the Solana chain.
Similarly, we can view it in the Stripe Dashboard.
So if we click in here to our 9:58 a.m. payment,
you see here we've made a payment with crypto
and again, Stripe handles everything for you.
You just got $98 into your bank account.
But that is crypto coming back to Stripe.
(Audience applauds.)
That will be coming later this summer.
Let us know if you are interested in piloting this.
We are super excited about it.
Okay, we are going to move on
to one of the most debated topics in payments innovation
and that is buy now, pay later methods, or BNPLs.
Do they drive up conversions and average order values
or are they just a more expensive way to make the same sales
that you would've made with card payments?
We're actually in a reasonable position to test this
because we have no horse in this race.
But we get a good view of the data so we can put it to the test.
Here's what we found.
We did some trials where Afterpay
was displayed to consumers, and we had a holdback,
and the businesses using Afterpay globally saw a 2.3% increase in revenue.
Certain businesses could see
a much larger increase, depending on the customer base.
So that's settled: BNPLs are definitively good for business.
And you might think, these are existing sales
that would've happened otherwise, they're just switching over
to a different payment method.
They're not. We dug into this shift in share of wallets
and the test showed that BNPLs
are flipping uncompleted transactions into purchases.
In our most conservative estimates, 61% of that lift is coming
from net-new sales.
So you might be wondering,
"Really? What explains this behavior?"
But as with many strange phenomena,
it's the pesky kids, the Gen Zs…
they just get the ick when it comes to credit cards.
The vibes are not there.
(Audience laughs.)
Credit card usage amongst Gen Z is at 42%, way lower than the 71% amongst Gen X,
and they're using BNPLs in every aspect.
They're spending on shopping, utility bills, maintenance.
All as an easy way to track spending without traditional credit cards.
So if you want to sell to the folks on the right side of 35,
you are going to need BNPLs.
You might wonder, what should your BNPL strategy be?
Well, there's a universe of BNPLs out there
each with its own kind of specialization in terms of geography and payment type,
and your customer's preferences for specific BNPLs will vary.
So you want the ability to support the provider
or providers that will best perform for your customers.
You want the ability to do A/B testing on your checkout
like we showed you yesterday.
So that's BNPL.
One of the biggest changes we have seen in B2C commerce.
A very important part of selling to your next generation
of customers, and statistically, significantly valuable.
On the B2B side, the trend that we're most focused on
is what Alex just talked about:
the rise of vertical payments
and vertical SaaS companies doing payments.
So this is a big change.
You know, a few years ago, your local gym got its payments
from a local sales rep of a merchant-acquiring bank
who's out there, feet on the street going door to door.
They had their reader in hand and they went to the gym
and then they went down the street to the barber
and then they went down the street to the church
and they were kind of selling generic payment services
to each one of those businesses.
Everyone was going to the bank for payment services.
Then that all changed.
That same gym today will get their payments from Mindbody.
The barber would get their payments from SQUIRE.
The church would get donations from Tithe.ly.
I guess the pool cleaning company we get on the slides
will get their pool cleaning software from PoolTrac.
And these are all SaaS platforms
that provide a ton of functionality around CRM
and scheduling and bookings and all the likes of that
and other bundling payments and other financial services.
And Mindbody is in a way better position to offer payments and financial products
to a gym than, you know, Bank of America is
because they understand this particular business, its dynamics.
They can build the payment products that this kind of business actually needs.
And we think this is one of the most important
and underappreciated changes in the world of payments.
Payment systems used to be generic and horizontal,
and now they're being tightly tailored to each business type.
So let's speak to someone who helps drive this change.
Please welcome Tom Aveston, the CFO of Mindbody.
(upbeat music) (Audience applauds.)
Tom, I understand you've been the CFO of not one
but two fitness companies.
So are you yourself a fitness nut?
Well, the issue is I have two little cost centers—
I mean children—at home.
So while I used to be a bit of a fitness nut
I'm afraid all I get to work on these days are my dad arms.
I see.
So an exercise in prioritization.
Can you tell us a bit about...
We talked about, well Alex talked about vertical SaaS
and the journey into financial services, we talked about it a bit here.
Can you tell us about Mindbody's journey
in financial services that might help ground people a bit?
Yeah, certainly. So, Mindbody started now over 20 years ago
providing software to the fitness and wellness industry,
and we added payments.
You guys are the big kahuna in the fitness and wellness industry.
We have plenty of competition, but yeah, we've been at it a long time.
The lawyers of Mindbody LLC.
Yeah, so we added payments a number of years ago,
and that allowed us to build a foundational layer
that we're adding more and more financial services on top of.
But it all started with payments, and I think payments is the enabler
of the business in the box
or the operating system that Alex touched on earlier.
Do you see the arc of vertical software companies
such as yourself following this thing we described
which is many starting out providing a software layer
it kind of becomes...
It would be crazy not to provide payments because you have a much better ability
to have a much better offering there and your customers are asking for it
and then you start getting into things like lending and stuff like that.
Does that arc match with your experience
or is it a... has been different in any way?
Yeah, I think it's exactly as you said earlier, right?
Vertical SaaS is in a much better position
to provide payments to provide financial services to their customers
because they know their customers' business is much better
than a Bank of America or a JP Morgan.
But also because the various processes
and workflows can be deeply integrated.
If you've got different solutions for different elements of your business
then you've got to reconcile those at the end of the day
and that creates friction
it creates the possibility for translation error
and it adds a ton of cost as well.
So by doing it all in one place, a business in a box,
an operating system, a one-stop shop, whatever you call it
we think it reduces that friction.
It reduces cost
and ultimately provides more value for our customers.
So we started with payments, we have a capital product
a lending product today, we'll be adding banking
payroll, insurance, potentially collective purchasing.
We see a ton of opportunity here and in fact, that's why we were so excited
to hear Will yesterday
and all of the new products you announced, right?
Because it'll certainly be a component of our offering in the future.
Yeah, no, on embedded finance.
I mean we have been investing very heavily
first in Connect offering payments for platforms.
But again, we find that offering financial services
to the end businesses tends to just work tremendously well for those platforms.
So that's why we've been investing as heavily as we have.
Your integration point is an interesting one.
I guess I didn't mention that in the setup
but you guys already handled the bookings
for these businesses
and so it's kind of crazy
if you got to the very last step of that booking and to pay for it
you were turfed out to something else, you're an integration problem.
So it just feels like the integration is why it makes payments a slam dunk.
Yeah, and you know, some of our customers don't use our payments.
It's a very small minority
and they've got a ton of work at the end of the process
to reconcile all that payments information
with their scheduling reservation information
and then back into their bookkeeping and accounting.
It's a ton of work.
How did Mindbody become the moderately-sized kahuna
in a very competitive industry?
How did you guys get to the position you're at now?
A player in a very large market, yep.
Yeah so, you know, the software, the integration of that software
the removing of friction and kind of driving efficiency
that's an important component of it.
That's very similar
to a lot of other successful vertical SaaS companies.
I think one way in which Mindbody has differentiated itself
is also by offering broad consumer distribution.
That's super important to any customer
that is looking for new avenues of revenue growth.
So we have millions of consumers every month
using the Mindbody marketplace app
and they're discovering new Mindbody merchants
through that app.
Two years ago now, two and a half years ago
Mindbody acquired ClassPass
and that's just another vehicle for that consumer differentiation.
I think that sets us apart from other vertical SaaS providers
who are just focused on the software and the payments
and maybe other financial services
but don't provide a way for their customers
to grow their business.
Indeed now, a large proportion of Mindbody customers
make more revenue from the new customers
that discover them through the Mindbody marketplace
than they pay us in SaaS fees.
That, we think is an incredibly attractive value proposition.
So customer acquisition has been a huge part
of the differentiation for you guys where every business wants to grow.
Do you think that's a generalizable lesson
for vertical software companies in other industries?
Possibly. Consumer distribution is hard, as you know.
It's expensive, so I don't know if I'd necessarily recommend
that every vertical SaaS pursue that. You have to have good software.
You have to have good payments. And I'd start with that,
and maybe you grow to consumer distribution over time.
I mean, prior to Mindbody, I worked at ClassPass
and we spent hundreds of millions of dollars
building the consumer distribution that we have today.
So it's not an easy task. It's a big investment.
You guys have so much opportunity ahead of you.
You could expand internationally
you could go deep into financial services, like you described.
How do you prioritize?
Yeah, it's a great question.
So I'd say that we are focused...
ClassPass operates in 30 countries today.
Mindbody has customers in over 100 countries.
We are focused on product investments that can scale globally.
I'd also say that, as with many late-stage companies,
there is a tension between investing to drive long-term revenue growth
and short-term or shorter-term EBITDA generation.
So if we look at the investments that we're making in the near term,
they're product investments
to support our customers in countries
where we already have critical mass today
on the Mindbody side.
On the ClassPass side, we're interested in untapped markets,
and Japan is a great example of that.
We'll be launching in Japan later this year,
but also in those smaller countries where we can service consumers
in those countries, with resources that we already have in the region.
Yeah, that's how we are managing that tension.
Makes sense. Tom, thank you so much for being a partner.
We really appreciate it and thank you for coming here.
Thank you very much.
(Audience applauds.) (upbeat music)
The last topic I want to touch on is
something that is a hot debate at Stripe: personalization.
So things used to be not that personalized.
Think about network television.
Some poor executive had to choose amongst thousands of programs
what would work best for the masses.
JR coming back to life on Dallas— that was the global optimum apparently.
Compare that with our new personalized world.
You have the window into your soul that is your TikTok feed.
All those endless ASMR videos of the credit card imprinting machines
just shoomp, shoomp, swipe, that's what I got.
(Audience laughs.)
Now you have a personalized local optimum
that is so much better for you and it outperforms
that global optimum, and nearly everywhere you look
this trend is happening from music curation to advertising
personalization outperforming the old global optimums
more TikTok For You pages and fewer sitcom reruns.
Our belief is that checkouts fully personalized
will drastically outperform the current static versions.
And so we're investing in exactly this.
Yesterday we showed our Optimized Checkout Suite,
for which we've industrialized the process
of testing the tiniest tweaks to checkout surfaces
so you can learn what improves conversion and by how much.
And we showed you how seemingly basic personalizations
can deliver giant revenue gains,
like how presenting price in your customer's local currency
can increase your revenue from international sales by 17%.
But there's so much more
that can be done to personalize checkout experiences.
Imagine a dynamic checkout that in real-time analyzes
quantities in the baskets and customer-end context
and compares it to millions of other checkouts.
Your checkouts really should know the difference
between idle late-night browsing of athleisure
to frantic attempts to secure tickets to the Cowboy Carter Tour post haste.
Today, 70% of online checkouts are abandoned.
So we think that checkout personalization has a very long way to go
with enormous revenue upside for you.
That's why we are continuing to invest heavily
in our Optimized Checkout Suite.
So today, we promised you pockets of innovation
from around the payments industry that we think are worthy of attention.
We've sped through a few different topics.
We talked about real-time payment methods
and how they're winning in their domestic markets,
how you should expect more political complexity in payments,
how payment costs have been rising, but you have the tools to control them.
How crypto is back on Stripe, at least.
If you want to sell to Gen Zs, you're going to need buy now, pay later.
How we talked to Tom
on how it's only the beginning for vertical payments
and kind of vertical financial services, more broadly.
I think that's the big trend… it's not just about payments.
Then checkouts in the future, we think will be much more personalized
and perform vastly better as a result.
You might notice a theme here that the biggest disruptors in payments
are not coming from the US.
Regulatory changes, RTPs, BNPLs,
the most significant shifts in payments are happening elsewhere first.
So what does that mean for all of you?
Well, in many industries, it's still true
that you come to San Francisco to see the future,
but your lived experience here
or anywhere in the US likely is not exposing you
to the bleeding-edge future of payments.
For that, you're going to have to cast your net
around the world to see what's happening.
You're going to have to travel figuratively
and literally to seek out what's new
and what can help you with your business.
But the good news is that Stripe itself is 8,000 people all over the world
obsessing over every little detail
in the payments landscape so that you don't have to.
(Audience applauds.)
(upbeat music)