Andrew Barnes’ series, “Digging Deeper” is based in Silicon Valley and focuses on key startups and innovators, and how they are disrupting digital payments and commerce.
WePay just raised an additional $15MM C Round to bring its total to $34MM. The pressure must be on, but from talking with Bill Clerico, their Co-founder and CEO, you would never know it. Pivots are beautiful. Fundraising is enlightening. And their target market is experiencing off-the-charts growth. Does it get any better than that?
WePay is going all-in on providing payment APIs to platform businesses, specifically crowdfunding, marketplaces, and small business platforms.
Let’s look at some numbers: WePay currently powers eight out of the top 15 crowdfunding platforms and has over 400 active partners.
The company is on track to triple its revenue in 2014. WePay reports a recorded 51% quarter over quarter growth from Q4 2013 to Q1 2014, and is averaging 35% monthly growth in crowdfunding-specific processing alone. Not too shabby….
So what’s the deal? Why should we care about these guys? Andrew jumps into it with Bill Clerico, CEO and Co-founder to talk about crowdfunding, beating the likes of Stripe, Balanced and PayPal, and lessons he’s learning as a payments startup.
Andrew Barnes: If I look at your trajectory as a company, this wasn’t necessarily where you started. Crowdfunding platforms didn’t exist back then. You now find yourself supporting a whole industry. Is being in this position a matter of good fortune as things have grown up around you?
Bill Clerico: The way I look at it, it’s a little bit of luck and a little bit of skill. The company’s six years old and for six years we’ve been investing in this payment platform. From the beginning, we started in group payments, so we had to build a payment platform. Probably 90 percent of the work went into the platform, 10 percent went into the UI around like sending and receiving money among friends. That market wasn’t the right fit for our products, and we should have gone through a couple iterations to find the right market for us, but we were constantly investing in that platform.
As a result, we have a platform that we’ve been developing for six years. It’s really robust, really full-featured; it’s geared towards the needs of sending and receiving money among little sellers and small buyers.
We found that the crowdfunding use cases plugged right in. We realized, “Hey, let’s not build all the UI and try to figure out all the different use cases and nuances.” Let’s strip all that off. Let’s build an API and let’s allow partners to come build all that on top of us. Instead of trying to figure out all the nuances, let’s let our partners figure that out and we’ll be the platform underneath. We had this tremendous asset that we had built over the course of time and it matched up with the right market at the right time.
WePay’s message talks to three buckets of clients, small business, marketplaces, and crowdfunding. Can you compare and contrast between those from a payments platform perspective?
I think the common thread through these platform businesses is that they are technology platforms that enable small merchants to accept payments. An example is an SMB (small-medium business) on Constant Contact accepting payments through their software. Or it can be a babysitter on Care.com accepting payments through their software, or it can be a fund-raiser on GoFundMe accepting payments through their software.
At the end of the day, it’s the smaller merchants that need to accept credit card payments. Solving that problem is actually really hard because underwriting the chargeback and fraud risk of smaller sellers is really difficult. They need to be pricing competitively and without monthly fees. They need an easy user experience for sign up, and need to get paid very quickly. All sounds like basic stuff, but they are really hard problems to solve in payments.
We see different usage patterns across the platforms. In crowdfunding we see short spikes of fundraising that lasts a couple of weeks and then the account goes dormant. In SMBs we see a slow and steady trickle of income over time. And with marketplaces we can see really fast growth of their platform because there can be strong network effects.
You also haven’t been shy about drawing distinctions with your competition. Can you name a couple of dragons that you’re looking to slay?
Sure, we have a lot of respect for all the innovators in payments right now. There’s so much going on. The amazing thing is that the market is so large and growing so fast. There’s a ton of opportunity everywhere. Because of that, it becomes important to focus, and we’ve chosen platforms, which we believe, are the most dynamic segments of ecommerce. Building the right tools for this segment as opposed to trying to do a lot of different things is very important for us.
PayPal is in a huge number of businesses. They’re going international with a whole bunch of other tools. They’re really focused on mobile. Stripe is building a huge, universal developer platform that does many different things. In contrast, we believe that by focusing, we can deliver a lot of value. In addition to the features and the support that we provide to the market, the primary differentiator for us is risk. We will basically shield crowdfunding sites, marketplaces, and small business platforms from any kind of fraud risk. We take that on ourselves.
Platforms can install our solution and we’ll protect them from fraud. And we can still enable all the payments that they want. That’s a big differentiator from our competition, like Balanced and Stripe.
PayPal will do similar things in the area of fraud protection, but they don’t have the user experience or some of our features. And our API is easier to implement than the other guys.
So let me ask you, which came first: the clarity or the funding?
Raising money helps clarify your strategy.
Yes, it’s really helpful to get external voices into the mix. There are some smart investors in your lineup. Can you say more about what transpired?
We had a vision to work with platforms dating back a couple years. We’ve been working with GoFundMe and some of our other customers since they were really small companies and they helped us see the market. We worked with them at a very early stage. We saw the success they were having and we said, “Wow, there’s a huge opportunity here that’s much broader.” That helped us clarify things.
When you go out and raise money, no one wants to hear a pitch of, “Hey, we’re trying to boil the ocean.” They want to hear about a very specific opportunity and how you’re going to align all your resources to go after it. In thinking through what it was going to take to raise capital, we had to really clarify our strategy and that was when we started to make some of these decisions on where to focus.
We went out recently and got a really nice round done. We had the former CEO of Morgan Stanley who is also the former co-founder and CEO of Discover lead the round and all our existing investors participated as well. We have a nice slab of capital to go take on this opportunity.
Where are you planning to spend your funds? Is international a top priority?
Absolutely, when you think about platforms and all these sellers, marketplaces, and crowdfunding sites, and even small business software, they want to be global right away. They want sellers in the US. They want sellers in the UK. They want sellers in China. There’s no reason why they need to be isolated by geography. They want the capability to be able to onboard sellers from all over the world.
They want to be able pay someone and to be able to underwrite the risks of sellers all over the world. They’re going to have challenges, but that’s why we’re investing in our infrastructure.
Our vision is that a marketplace or crowdfunding site can come build on us and then immediately sign up someone anywhere in the world without any exposure to risk. I think that’s a really powerful vision. It’s going to take a lot of work to realize that, but that’s our goal.
Will your market development be direct, or will that be through partners?
We work with acquirers in all these other geographies. Our vision is to put a global API in front of that so that partners do one integration with us and never have to sign up for anything else. We handle everything else on the back end, which is pretty unique. If you think of some of the other companies that have gone global, maybe you integrate with one gateway, but then there are different acquirers that you need to sign contracts with in all the geographies. That’s not our vision.
Our vision is that you integrate with us once. We come to one agreement and we can take you global immediately, across the world because I think for platforms it’s an important competitive advantage — for them and for us.
Let’s talk about Veda, could there be a WePay without Veda?
No, I don’t think so. It comes back to our value position, which is onboarding these small sellers and allowing them to accept payments easily. Anyone can accept payments for a small seller; the acceptance part is not hard. The challenge is underwriting the risk of that seller so you don’t incur fraud in the process. To these ends, Veda does a couple things.
First we use social media to help understand who the seller is. Second is the risk API which we announced at FinovateSpring. The platform can pass us data about the buyers, the sellers, and transactions, which in turn helps us to underwrite the risk. If you think about a buyer and seller on a marketplace, there are all kinds of great data that the marketplace has about them. For example, their reputation, their history, and how many times they’ve logged in.
There’s all this great information that they can share with us that helps us make better fraud management decisions. Think of it as big data applied to small merchant underwriting.
Without your small merchant underwriting, you couldn’t perform risk assumption. Without assuming risk, you wouldn’t have folks jumping on board.
Exactly, we’d just be another payment processor.
If I were an entrepreneur in payments what would you tell me? What have been the keys to your success?
We sat down at the company a couple months ago just to reflect on the journey, and the unique things that we have done that have allowed us to make it this far. I believe that almost 99% of startups ultimately fail and in payments it’s probably higher. We used that to define a set of values for ourselves. There were two in particular that really applied well to us.
First, we invested in relationships. I think that payments is a relationship business. You can’t start a payment company without backing. You’ve got to go and partner with card associations, with an acquiring bank, a settlement bank. There are all these different parties doing the back end.
There are fraud and risk questions, there are gray area questions, and there are compliance questions. Having really strong relationships with your partners in the back end and being really transparent with each other is a critical part of success. It allows you to take your platform through the many iterations and manage the bad things that happen, and the bad things that you wouldn’t want to have happen. You need to have partners that you stand behind, and they stand behind you.
This applies to both your vendor side, the guys working on the back end, and also your customers. One of our larger customers is GoFundMe. We started working with those guys when they were tiny. That’s the relationship that we really invested in, fostered over time, and now they’re a great success story and a great customer for us as well.
And the second core value?
The other big bucket is having the courage to change. That’s our other core value.
In payments, you have to invest a lot to get something up and running and it can be really hard to put that down. We had a whole direct business where we went direct to customers and we had an invoicing tool and we had a mobile app. We’re talking about tens, maybe hundreds of man years that went into building this software.
Knowing when to pull the plug on that so that you can focus on what is working is critical. That is, unless you’re Steve Jobs and you know exactly what the market wants and you can go build it. As a startup there’s a process to learning that. So calling yourself out when something is not working, and then trying to fix it, is a critical piece.
It’s interesting that payments business is a transaction based business and yet underlying it is so much relationship-building.
One of my favorite things about the payments business is that your incentives can align almost exactly with your customers. For example, if GoFundMe grows, then WePay grows. It’s worth it for them to give us great feedback and help us improve our product. We want to help them grow and be successful as well. It’s not like I’m selling you software and I’m trying to extract as much flesh as I can out of you because you signed a contract. It’s really like a game that plays out over years. How can we both be really successful over time? That’s one of my favorite pieces of the business.
Okay, cuisine question – Palo Alto, you’re heading out, where are you going?
I’d probably head to San Francisco.
That is heresy.
There’s some good restaurants and some good places to be, but…
You’re heading up to the city….
I usually head to the city. When we’re in Palo Alto my favorite restaurant is a place down the hill called Evvia, which is a Greek restaurant. It’s really good, that’s my spot. We also have a local dive bar called the Nut House, which is right around the corner. That’s a WePay favorite as well.
Thanks Bill. This has been great. Very exciting time in payments.
Great talking with you too Andrew. It’s been a pleasure.
WePay’s payments API is built specifically for platform businesses like marketplaces, crowdfunding sites and small business software. These platforms are empowering millions of users worldwide to unlock all kinds of creative commerce. Through its proprietary VedaTM risk engine, WePay gives platforms a flexible payments API that provides a great user experience while still being able to take on all their fraud risk and compliance burdens.
Who’s providing the money?
Investors include: Y Combinator, August Capital, SV Angel, Ignition Partners, Highland Capital Partners, Webb Investment Network
About Bill Clerico
Bill is CEO and co-founder of WePay, where he drives the company’s vision, strategy and growth. Bill and his co-founder Rich Aberman founded WePay in 2008. But the real roots go back to 2005 when Bill and Rich were roommates at Boston College. Back then they started a taxi advertising company in Hong Kong. The business ultimately failed but the entrepreneurial fire was lit.
Andrew Barnes, Managing Director, Emerging Payments
Barnes is a self-confessed payments “geek” and recognized entrepreneur working in Silicon Valley. He leverages his business development track record and network in startups, retail, and FI’s to solve tough revenue problems in payments and mobile commerce. Barnes has held executive positions internationally with Sprint, Global One, and 2Roam Mobile. He founded the National NNN Investment Group, and is an Advisor to the Electronic Transactions Association (ETA). Barnes has an MBA from WASEDA in Tokyo 早稲田大学大学院 and a BA from Penn State. He created the widely sourced Digging Deeper series and can be reached at @AndrewinSV and Linkedin.