Digital Age Banking Overrated — and Hugely Overvalued

The hubris surrounding Stripe’s steep move up the venture ladder is a sad commentary on today’s financial scene.  The company, whose name is not exactly a household word, processes online payments. It was valued at $35 billion in a recent fundraising round, notwithstanding the fact that entry barriers to competition are almost nil. Lyft, for one – among Stripe’s biggest customers – is considering processing its own payments. Checkout.com and a score of other startups are making inroads as well.

To give you an idea of how absurdly out of whack Stripe’s $35 billion valuation is, compare it to that of Rivian, a company that actually makes things. They’ve just received an order from Amazon to deliver 100,000 (!) electric delivery vehicles starting in 2021. Rivian’s current valuation is around $3.5 billion, a mere tenth of Stripe’s. That is the ‘penalty’ for producing real goods and getting one’s hands dirty as opposed to hiring a bunch of coders to create digital widgets. For further comparison, Humana, Hitachi and eBay carry valuations roughly equal to Stripe’s, while Allstate, Newmont Mining, Hilton, Mitsubishi Electric, Tyson Foods, Nissan and General Mills are smaller. Someone ought to teach these dinosaurs how to make digital chickens, hotels, cereal and automobiles if their owners want to be billionaires.

What’s Customer Service??

Stripe’s goals include issuing corporate credit cards and offering a variety of financial services besides payment processing. Sound familiar?  I am a Stripe merchant customer myself and regard the service as no better or worse than others that I use, including PayPal. Compared to old-fashioned banking, I would give Stripe a C-minus.  Unfortunately for customers, Stripe’s founders are too young to know or care about customer service. Like nearly all online businesses founded and run by millennials, Stripe has made it extremely difficult to reach a human on the phone. As for the financial services the firm provides, they are just plain-vanilla, neither varied nor flexible.

Despite this, according to an article in The Wall Street Journal, “investors view payments companies like Stripe as a way to get exposure to a basket of fast-growing public and private tech companies, since Stripe’s revenues are tied to its customers’ growth.” Just so. But paying $35 billion for a company whose business model is easily replicated by any of a score of competitors? That’s just crazy, especially since it would be so easy for them to improve on the abysmal service that has become the hallmark of online-payment companies.

Voice-Menu Hell

To give you an idea, I recently received a notice from PayPal that a customer was disputing a $129 charge. Unfortunately, neither I nor my webmaster have been able to determine the customer’s name or why he wants his money back. In the good old days, one could simply call one’s banker and straighten things out in a few minutes. Nowadays, as you know, it takes 20 minutes or more of voice-menu hell just to reach front-line support, and then another 20 minutes on-hold to get to someone who can actually help you with your problem. Such are the drawbacks of the digital age.

Investors seem not to care. “Stripe is more than ever a bet on the internet as an economic engine,” explains its chief product officer. Well, yes, the internet may be an economic engine. But some of its parts are so poorly designed and constructed that millions of users undoubtedly long for the days when actual bankers prided themselves on how they treated customers.

Hot to Trot

Regardless, investors are so hot to trot for the Next Big Thing that they evidently have no reservations about throwing insane sums of money at companies such as Stripe that exist mainly in the ether. Their founders often become billionaires overnight, but it is predictable that this will be seen for the absurdity it is when honest work comes back into vogue. It will take an economic depression to bring this about. Given the number of speculative dollars associated with this century’s replay of tulip-o-mania, that day cannot be far off.