A New Twist in the Three-Way Payment Wars: Braintree Finally Offers Instant Underwriting

By Sarah Lacy , written on October 1, 2012

From The News Desk

In the battle to kill PayPal, upstart Braintree has had a few key advantages. It prides itself on being people driven -- not having computer-dominated customer service and fraud detection. That means it avoids embarrassing cases of accounts being wrongly closed during a company's busiest moment.

Braintree has also innovated quickly on mobile payments -- winning it marquee customers like Uber, Fab, and HotelTonight. A recent acquisition of digital wallet company Venmo gave it another key arrow in the quiver: the promise to extend one-click payments across its entire portfolio. In other words if you've ever purchased an Uber cab -- or anything else on a Braintree powered site -- you can now make a quick, one-click purchase on any of its other sites. So far, some 35 million people have entered their credit card details into Braintree -- not an insignificant number compared to the 100 million PayPal accounts, only about 50 million of which are active.

But Braintree has had one big drawback that has cost it customers: Its service took too long to get up and running, because it didn't have instant underwriting capabilities. It was bad enough that that put Braintree at a competitive disadvantage to PayPal. But it also put Braintree at a competitive disadvantage to surging upstart Stripe -- another developer-friendly PayPal alternative, backed by PayPal founders Peter Thiel and Elon Musk. Stripe also offers instant underwriting -- and has stolen a number of customers from Braintree who can't wait around for days for approvals, among them Paul Carr's NSFW.

Sure Braintree had out-innovated PayPal; a startup out-innovating a giant isn't hard. But it was starting to look like Stripe had out innovated Braintree.

Well, better late than never. Braintree is announcing today that it, too, has instant underwriting, meaning there's no more wait to sign up and start taking payments. The whole process should now take about 30 minutes, says Braintree CEO Bill Ready.

Like a good media trained CEO, Ready defined the battle as being between his company and PayPal, even when I asked him about Stripe. "We see it's still the case that even with Braintree and Stripe as developer oriented solutions, 90 percent of the startups default into PayPal," Ready says. What Ready meant by that statement was that killing PayPal is everyone's clear priority. But another way to read it might be: There's only room for one startup to build a big business fighting against PayPal's hegemony.

Today's news hardly makes that a fait accompli for Braintree, but it shifts the battle to an area where the company is stronger: International. While Stripe has big international ambitions, it has only just expanded into its first country, Canada. Meanwhile Braintree can process payments in 130 currencies. It's covered all of Europe and Canada and will announce new territories in the next few weeks. It'll be at 160 currencies "before too long" Ready says.

International capability is huge for the ambitious commerce startups that Braintree has courted, because startups go international so quickly these days. Ready says that Braintree's European coverage was crucial for Fab and Uber's recent geographic expansion.

There aren't very many companies that can get you into more than 100 currencies, and most are owned by legacy financial giants -- which even PayPal relies on for its international capabilities. Many of them require tens of millions of dollars in volume before they take a meeting and a several month integration process.

What's more: Ready agrees with the post I wrote a few weeks ago that the future of global payments can't be tied to credit cards, and has already been pushing beyond them. It has already created access to more than 80 alternative local payment methods, Ready says. "That's another reason we bought Venmo, because its wallet includes non-card payment options like paying from a bank," he says.

The aspiration is to be the iOS of payments. You build on iOS once, and your app can run anywhere in the world, no matter what carriers are providing the iPhone's service. And you build for the same iOS whether you are Facebook or two developers in a garage. Ready says payments should be that easy, instant and universal. Ready argues it's the last piece of a Web company's infrastructure that hasn't evolved, particularly in an Amazon Web Services world.

The next thing to watch will be how Braintree integrates Venmo's digital wallet and how comfortable its retailers are with it. One thing that makes PayPal powerful is its entrenched base of customers who would rather pay with PayPal then whip out a credit card. That means even Braintree customers would still rather have a PayPal button on their site than miss a sale. So coming up with an alternative instant payment button is no small thing.

But what many vendors hate about PayPal is that it puts its brand front and center and takes you away from the company's page to process payments. Ready is aware that his offering needs to walk a fine line between informing users how they're buying something on a new site without entering any credit card data, while at the same time keeping the Braintree brand in the background. After all, most of us have no idea we've entered a credit card with a company called Braintree. It doesn't even sound like a payments company the first time you hear it.

I couldn't let Ready go before asking him about the recent comments by PayPal's new president David Marcus, which acknowledged what Stripe and Braintree have been saying all along: That developers hate PayPal.

"I'd like to have a beer with that guy," the folksy Ready said. "I think he got it right. The question is do the thousands of people who work inside PayPal agree with him. I don't envy him. He's starting with 100 million users and $100 billion in volume and a massive company. That's a fantastic starting point. We're clearly the David here. But I think he has a hell of a lot harder job than I do. At least I know out of my hundred employees, every single one believes in what we're doing. He has to convince thousands of people to do things differently."