While financial services innovation and tech probably do not occur to most people as particularly “flashy” areas, there is a noticeable preference shown toward the more dramatic side of the business.
While it’s easy to write the tendency toward hyperbole off to “new media” press outlets that favor hyperbolic headlines – it’s also the case that as the second decade of the 2000s reaches the halfway point, even the most mainstream financial and tech press have started moving the goal post for their favored narrative about success.
A short time ago, “ignition” seemed to be the favorite industry catchall phrase for success – recently, it seems, ignition is giving way to something more closely resembling explosion. And certainly the ecosystem has provided its share of explosive action notable in a seemingly ever expanding count of “unicorn” startups valued at over $1 billion or in the extraordinarily long roster of high profile, high dollar acquisitions over the last half decade – Instagram, WhatsApp, Tumblr, Skype, Nest, Twitch – the list goes on.
And while it makes for an interesting narrative – it tends to favor the sorts of businesses that come along with a lot of flash – which can be pretty tricky for payments companies, given the role that scale – and profitable scale – plays in their overall success.
“One of the things about payments companies is that they take a long time to build,” WePay CEO Bill Clerico told MPD CEO Karen Webster in a recent interview. “In the age of Instagram and WhatsApp and some of these more social media-like applications that have these really meteoric rises, it is easy to lose sight of the fact that when you’re selling payments there is a long sale cycle, there’s a long ramp, there is extensive time up to build the platform and so it is a much longer road. When you cross that inflection point, they become really defensible, really profitable and really high growth businesses.”
WePay is visibly moving past that “inflection point” as it is announcing $40 million in Series D funding today. The newest infusion of dollars brings the company’s total raised funds to $75 million – with all prior investors participating in the new round. This newest capital raise included new investor FTV Capital, which led the round, and Rakuten, which is not only Japan’s largest eCommerce company but one of the world’s largest online marketplaces. FTV Capital partner Chris Winship will join WePay’s Board of Directors and Rakuten FinTech Fund managing partner Oskar Miel will join WePay’s Advisory Board.
Webster spoke to Winship as well before the news broke. He said that FTV – which specialized in pouring investment dollars into high growth, innovative firms – found a natural fit in WePay as it checked off the main boxes his firm is looking for. WePay, he told Webster is one of the “most interesting, most innovative and most focused on the highest segment of the market” emerging payments firms and, as such, was a natural fit for FTV.
“It’s an area where obviously there’s been some very significant investments that’s already gone into this market with the likes of Stripe and Braintree with PayPal. And we had a chance to invest in those companies in earlier days but passed because the market didn’t seem quite ready to us yet. But it is a segment of the market we’ve been tracking for a long time and WePay finally got to the right size and scale and metrics and all the things we looked for in investments that the time was right.”
That scale – and more importantly scalability – that underpins WePay is in some sense the firm’s secret sauce and has been intstrumental in boosting them into a next level of success that still takes even its CEO by surprise.
“Yes it is definitely a surprise on some level,” Clerico told Webster when asked to give his reaction to the success of the firm and the confidence that such high profile investors have placed in it. “I think that you sort of know in your gut that this is an exciting segment, but sometimes it take a couple of years to see that through to fruition. We’ve kind of crossed that point where we have the scale and where we can actually say ‘Wow WePay makes sense economically.’ We have all these customer and we are adding all new customers and it’s fun.”
Clerico is aware that “fun” is probably not the first word that springs to mind when most people contemplate payments-as-a-service (PaaS), or compliance and risk management, the conjoined sweet spots that WePay specializes in, so their marketplace partners don’t have to.
“Those are the two key issues that these marketplaces face,” Clerico told Webster. “And this is a business model for sure that is here to stay. Five years ago we were talking about how great Zappos was, and Diapers.com and these cool retailers that competed on logistics and speed of shipping. But now we don’t talk about those companies anymore. We talk about Airbnb, and Uber and Etsy and marketplaces are connecting buyers and sellers.”
“Marketplaces have network effects, reduced capital costs and scale really quickly. Payments is a huge pain point for them, but if they can solve that, there is very little in the way of other barriers,” Clerico noted.
One of the particular types of marketplaces that WePay has developed an expertise around are those that rely on crowdsourced or crowdfunded models to ignite their own businesses. Webster asked Clerico and Winship if the segment was here to stay.
“The reason we didn’t invest in Square and these other businesses in the space is that we didn’t see in their business model something that could grow up at scale. WePay can,” Winship told Webster. “Now are we fundamentally making a bet on this crowdfunding and similarly dynamic high growth marketplaces? Yes. Is it going to keep growing at the rate it’s growing? Will it be here in 10 years? Obviously, we think it is. And we are seeing that these SMB platform players are throwing out Stripe and PayPal because they want to work with WePay.”
These marketplaces create a variety of payments point points, a barrier that can often be underestimated. It is also the hurdle that WePay has dedicated itself to clearing for the last six-and-a-half years.
“Marketplaces are moving money around, they want to hold funds back in escrow, there are all these things they do that trigger regulatory involvement. And because it is a two sided transaction – the buyer and the seller with the marketplace in the middle, there is just varying fraud risks that come with the marketplace business model that retailers have never had to face.”
But it is the questions that WePay is focused on answering – and always evolving a better answer to. Clerico noted that a large portion of the latest $40 million raised will go toward further refining its risk management tech platform.
“We want to explore ways to make that even more competitive in the market and perfect it,” Clerico told Webster, further explaining that going forward, as marketplaces become a more entrenched part of the retail landscape – this issue’s importance only becomes magnified.
“You can’t be filing to go public and not have these issues buttoned up,” Clerico added. “The need to be compliant is very real, and we find that the more sophisticated marketplaces really care about it and are excited about that as part of our value proposition.”
But, Clerico told Webster, because WePay has been in the market for a while, they know how to build compliance into their central value proposition – largely because they are now experienced in working with the regulators. He noted that though tech firms have a tendency to want to hide from or avoid regulators – WePay has always found proactively approaching them and being transparent about their business model have best served his firm.
“What you find out is the regulators as much as anyone want to do know, ‘Do we need to regulate this?’ ‘How should this be regulated?’ We have found they are very open to having a dialogue with technology companies.”
And continuing that dialogue going forward – as WePay continues to attempt to leverage its scalability in the U.S. and beyond – is the company’s focus going forward, Clerico told Webster. This includes an expanded sales team – which has made impressive progress, given that there are only four people on it currently.
“We process billions of dollars of transaction volume annually,” Clerico told Webster. “We have paid over 1 million sellers across our different partners. The growth has been pretty astounding. We’ve more than doubled year over year and we have seen users being paid through our services increase at 160 percent.“
WePay is also looking to expand its cross-border capabilities as well, a move that will notably be aided by its newest investor – international eCommerce powerhouse Rakuten.
“They are the ninth largest Internet company in the world,” Clerico noted. “They are also a marketplace and they have really great expertise in Asia.”
WePay is not a flashy player, in fact if they are doing their job right, they are invisible to the two parties — the merchant and the consumer — that rely on them to make the transaction happen. But WePay doesn’t need to be flashy, because as commerce is evolving online – they are becoming increasingly necessary, as those transactions take place in increasingly large and complex marketplaces.
But WePay says it is not only ready to make the jump – it is ready to help more merchants access that future of commerce faster.
Innovation Investment Tracker
This week saw $1.41 billion in financial activity across VC-backed and strategic investments. All in, 48 out of 59 deals disclosed amounts.
The biggest move of the week was NXT Capital CLO Financing Round for $408 M, followed by Affirm’s Debt and Equity Financing Round for $275 M.
Retail payments held 42 percent of the second week of May’s investment activity. The biggest move the $275 million Affirm deal, which was led by Spark Capital Growth. In the No. 2 spot was MarkLogic’s sixth round for $102 M.
Commercial payments’ biggest transaction was NXT Capital $408 million CLO Financing. Summit Park Venture Capital Financing Round came in second with $118.5 M.
Payments Fintech and Data Analytics related to retail, shopping and commerce were the investment leaders last week.
From a geographic perspective, the U.S. was the most active region, followed by China. The median investment amount was $7.6 million.