Dive Brief:

• Despite serving more large customers, digital payments company Stripe experienced slower growth last year, according to an annual letter its co-founders released Wednesday. The company processed about $817 billion in payments for its customers in 2022. That was a 26% increase over 2021’s $640 billion in payments, but paled in comparison to the 60% increase Stripe experienced from 2020 to 2021.
• “This is a significant deceleration from the breakneck growth that we saw during 2020 and 2021,” Stripe co-founders and brothers Patrick and John Collison wrote in the letter the company issued Wednesday.
• E-commerce only grew 7% last year, the Collisons wrote, reflecting the shift back to brick-and-mortar stores as the COVID-19 pandemic ebbed.

Dive Insight:

In last year’s letter, the Irish brothers warned that they expected a slowdown in growth in the wake of the pandemic’s e-commerce surge. Then, in November, the company cut 14% of its staff, or about 1,140 employees, conceding that it grew too fast. 

Despite the payments deceleration, the Collisons wrote this year that they “are as confident as ever in the internet economy’s long-term prospects.” Patrick Collison leads the company as CEO, while John Collison is the president of Stripe, which now has about 7,000 employees. The company, which provides online payments software services and tools to companies small and large, has said it expects to process $1 trillion in payments this year and become profitable, Bloomberg has reported. 

Stripe, which has dual headquarters in San Francisco and Dublin, has about 100 business customers that take in about $1 billion in payments annually, including Instacart, DoorDash and Substack, the co-founders wrote. That group of business clients has grown by about 50% every year since 2018, the Collisons said.

The U.S. remains Stripe’s largest market, but more than half (55%) of the company’s new business customers last year were based outside the U.S. The number of new businesses turning to Stripe for payment services rose 19% in 2022, the Collisons said.

The Collisons suggested there’s still plenty of work to be done when it comes to improving online transactions, which they referred to as “still shockingly deficient,” including friction-filled checkout pages or failed payments.

As Stripe has zeroed in on improving conversion rates, the company last year made tweaks to its checkout offering that speed up the process and streamline acts such as entering addresses. To bolster authorization rates, Stripe has refined tools that use machine learning to retry payments and update card accounts when a consumer has been issued a new credit or debit card, the Collisons wrote. 

More broadly, as the industry experiences an increasing number of sophisticated cyberattacks, Stripe continues to invest in security, they wrote. “As attacker sophistication grows, the fixed costs of defense continue to grow,” the letter reads. “Though we deliberately avoid describing the mechanics in any detail, we’re committed to being a leader in this space.”

With the rise of artificial intelligence tools, the Collisons also noted that a “sizable majority” of AI startups use Stripe’s services, including ChatGPT maker OpenAI. The brothers predicted tasks such as bookkeeping will see more automation due to AI and machine learning advances.

In Wednesday’s letter, the Collisons acknowledged that the market for startups is “getting harder” and noted the venture capital decline. In 2021, Stripe was valued at $95 billion, making it the most valuable Silicon Valley startup at that point. Since then, however, the fintech market has seen funding evaporate and valuations drop, leading Stripe to slash its internal valuation in recent months. 

In March, Stripe said it raised $6.5 billion at a $50 billion valuation. The company said the fundraising wasn’t needed to run the business but rather to help employees meet tax obligations tied to equity awards. 

While Stripe is likely to maintain its stronghold on handling payments for small and medium-sized businesses, high-growth startups and marketplaces, the company could see fintech infrastructure competitors chip away at its presence in areas such as issuing or treasury management, said Index Ventures Partner Mark Fiorentino, who formerly worked at Stripe, in a recent interview.