Payments For The Platform Economy

Call it a “seven-year overnight success story.”

With his partner Bill Clerico, Rich Aberman co-founded WePay in 2008 as an online payments service for enabling shared expenses. Over time, and drawing on their progressing experience in the payments space, Aberman and Clerico pivoted the company to become something quite more expansive — not to mention significantly disruptive.

Inc. recently tagged WePay at No. 62 on its list of the 5000 fastest-growing private companies in America. Is seven years “fast?” It might be, when you consider the distance. MPD CEO Karen Webster discussed with Aberman exactly how and why the company got to where it is by taking on two of the toughest things in payments for the most dynamic aspect of the modern economy – software platforms – and where it might be headed next.

KW:  Congrats on the Inc. recognition – it seems a good time to just get a little bit more caught up with things that are going on at WePay.

In the article, the company is described as serving the “platform economy.” I was wondering if you could explain more about that, as it’s really where you seem to have found your niche.

RA:  The key insight that we made, and it took many years to get there, is that merchants of all shapes and sizes — anyone who wants to accept electronic payments, from individuals raising money for a donation campaign, all the way to large hospitals billing their patients — are less and less likely to go directly to a retailer acquiring bank or a pure payments company in order to get payments services. They’re far more likely to turn to the software that they’re already using to grow and manage their business, expecting payments to be a fully integrated feature of it.

When we say “platform economy,” what we’re referring to is the commerce at large that’s being facilitated by these software platforms. Whether it’s hosted shopping cart software for an online retailer, a marketplace for labor (like Uber), online accounting and invoicing software, or email marketing software — there’s no function that a business performs today, regardless of its size, that is not in some way powered by software.

Commerce doesn’t exist simply between a buyer and a seller that connect directly outside of some kind of software platform; software platforms are always underpinning that transaction. For us to become the largest acquirer that we can be, the way to do that is not to build a pure payments company that sells services to all different kinds of merchants; the way to do that is to partner with the platforms that are already providing value and powering these businesses.

KW:  Got it. WePay powers payments for the software platform economy. I interpret that this way: You tuck your payment services inside of software that’s addressing a core business requirement. You payment-enable that software and therefore commerce-enable the business using that software.

RA:  You illustrate it perfectly. Here’s an example that makes it more real.

FreshBooks provides accounting and invoicing for small businesses, and a big motivation for small businesses to use that type of product is the ability for their clients to pay an invoice with a credit card. Yet, for a long time, FreshBooks was referring their portfolio of clients to third-party payment providers and, once an account was set up, routing payments through them.

Then FreshBooks took a look at companies like Uber — that provide payments service to drivers as part of their product — and realized they wanted to offer FreshBooks Payments, so that a small business that signed up for their accounting and invoicing software would automatically be eCommerce enabled.

That’s where we come in.

We offer an alternative to aggregation, an alternative to having to work with an acquirer to become a third-party ISO or payments facilitator. That helps a player like FreshBooks get to market with a payments solution faster, at a lower cost, with a more robust payment offering (including omnichannel and international), with no risk and regulatory or operational exposure. But, and here’s the thing, with the same level of control and flexibility that you would be able to achieve if they were actually the payment facilitator.

We’ve actually productized what companies like Uber, Intuit and Airbnb had to build in-house — their own payments infrastructure and back office — and we deliver it as a service, saving our clients from having to make that investment.

KW:  Got it. But clarify what you mean by “no risk and regulatory exposure.”

RA:  For a software platform like — again, to use the example of FreshBooks — to become a third-party payments facilitator, they would have to take on massive operational overhead. We present ourselves as their partner in payments, taking on the responsibility of that overhead and the risk of exposure, but in a way that is so tightly integrated with their product that — from a customer perspective — the company is in the driver’s seat. But they can be that way without being in the crosshairs from a risk, regulatory and operational perspective.

And because WePay relies on a fully integrated partner model, we piggyback on the relationships and the data that a partner already has with a merchant — so there’s no need for us to have a parallel, separate onboarding process that contains its own set of data. It’s baked into the partner’s product experience.

KW:  How long did it take you guys to pivot to find this sweet spot? It doesn’t sound like this is what you started out doing 7 years ago.

RA:  No, it’s not. WePay started off as a very specific use case: We were going to make it easy for individuals to collect money from their friends for shared expenses and group purchases.

We were building a payments company with realizing it, at first. On top of that, we were also — without initially realizing it — building workflows and features that catered to a very specific use case, which would add a lot of value to the transaction.

From there, the use cases that we went after evolved over time. We looked at the fact that small businesses need a really simple product payment, one that works without having to integrate a gateway but that does utilize point-and-click features. So we built an invoicing product; we built an online store builder; we built a donation product…all of which we are able to promote — initially — as being superior to existing platforms in the marketplace by virtue of the fact that ours, in each case, presented both the value-add software and the payments services as a single, unified, fully integrated product.

Over time, we adjusted that argument, realizing that specific platforms focusing on specific services — FreshBooks with accounting and invoicing for small businesses, for example — were able to inherently offer value-adds that were more robust than our general ones. That was the case in every vertical in which we tried to compete.

The pivot came from our understanding that those companies targeting a specific area— like FreshBooks, or GoFundMe with donations, et al — want to be able to offer a fully integrated payment experience, but they lacked perhaps the appetite, sophistication or resources to invest in building integrated payments as opposed to a better experience in whatever their focus was.

Over the course of a 5- or 6-year period, we refocused to take what we knew we were great at — the back office and infrastructure around payments facilitation, and the ability to consume more data and more interesting data than traditional payment companies in order to better underwrite risk across a variety of different verticals — and build an API layer on top of it that would allow us to partner with the platforms with whom we had previously been competing. We could marry our strengths with their strengths — the ability offer tailored experiences to particular verticals — in such a way that the market hadn’t seen before.

KW:  You’re disrupting a lot of things, but it sounds to me that your biggest impact is in the ISV and ISO spaces.

RA:  That’s right; I think we have two primary competitors.

The first are traditional acquirers that sponsor third parties. For a long time, they have participated on what I would call the “periphery of payments.”

Traditionally, all a shopping cart would do for a merchant is connect to the existing provider and route transactions through its existing acquiring relationship. Those platforms are beginning to realize that there’s a lot more value to be created or captured if they handle the payments in-house. We can help them achieve that without their having to be sponsored by an acquiring bank.

Secondly, I think we’re disrupting the ISO model. They either get most of their referrals through ISVs or — absent referrals — their merchants are still using the merchant accounts that they get from ISO right on the platform. To those platforms, we’re offering the ability, by putting them in a position to handle payments themselves, to keep the big chunk of the revenue that otherwise ISOs are getting from their value adds.

KW:  Put another way, sounds to me like you are rewiring the ecosystem.

RA:  That’s right. ISVs and ISOs kind of pass the merchant back and forth between themselves, a process through which the merchant is able to get the full breadth of services. What we’re saying is that the merchant should get that full complement just from the ISV, and we’re building our ISO into the ISV — effectively making them one and the same.

KW:  So what’s next? Any new developments that you want to share?

RA:  For us, the beauty of the partnership model is that our platform partners know their markets and their customers better than a payment company ever could…and they have their own strategies for how they want to grow, and in what context they want to serve their merchants. These are software companies that distribute their product through the Internet, which by definition makes them global companies.

Therefore, WePay needs to develop a global acquiring platform. You can get a pretty good understanding of our roadmap just by thinking about our business from that perspective.