The Palo Alto, California building that held the PayPal headquarters at one time, is now home for startups Rich Aberman and Bill Clerico, aged 25 and 24 respectively. Their venture, an online payments company is backed by an investor group with the likes of Max Levchin (PayPal cofounder). What’s exciting is that part of their business mission is to steal part of PayPal’s business.
The duo founded WePay, a service for online payments that allows you gather amounts for expenses that are shared with others, may it be a group gift for someone or fundraising for a cause. The company which started off in 2008 has gathered $9 million as initial capital from A-listers of the Silicon Valley comprising Ron Conway (who backed Facebook, Google and Twitter), Steve Chen (founder – YouTube) and Eric Dunn (former CTO of Intuit – now, INTU).
WePay focuses exclusively on group payments and this, Max Levchin, the investor, believes will help the company gain a considerable share of the online payment market, a market which was established in 1998 by his (then) PayPal. PayPal was later acquired by Ebay, at a cost of $1.5 billion. He (Levchin) says that the duo showed up and said 'Hey, this is what PayPal doesn't do well.' To which he replied that he knew. All that was left then was to establish that the duo could do it.
Aberman had the idea to develop WePay around two years back as he was trying hard to gather funds for his brother’s bachelor party. The amount of $4200 was to be collected from 14 guys for renting a beach house in Florida, for a bottle service at a club and to buy burgers, beers and chips, enough to feed the small army. For him, collecting the money was annoying. Several weeks went by as he went about irritating and collecting cash and checks from people sprawled across the nation. He hoped there should have been a better way of doing it.
WePay, currently a company of 13 people, rolled outs its service in April and has almost 500 users joining in weekly. Between July and August their transaction totals have tripled, hitting $1 million.
Depending on the mode of payment (bank account or credit card), the company obtains a commission of 50 cents or 3.5% of the total amount. The payments are gathered in purpose specific, shareable accounts where a group leader can monitor the flow of funds, send reminder mails to people who haven’t paid and withdraw the funds.
A serious threat that looms over WePay is that PayPal can easily squash it. With $71 billion in annual transactions and over 85 million active users, PayPal rules the online payment business. If at all, PayPal decides to improve its existing group payment system, it could spell trouble for WePay. However a major part of PayPal’s transactions comes from e-commerce services.
Anuj Nayar, PayPal’s spokeperson says that the company has no immediate plans to step up its existing group pay system. Also, presently the investors at WePay are not concerned whether the giant considers a change of mind.
Former PayPal employee, Dave McClure (cofounder, 500 Startups that funds WePay), says that as much as he loves and respects PayPal, he is not worried as PayPal is not moving as fast as startups do.
According to Aberman, WePay’s best defense is its good customer service. Not only does it have a helpline number posted notably on the website, it also encourages customers to phone-in their suggestions.
He says that he wants people sitting literally next to engineers so that there is direct communication between people building the product and people talking to customers. WePay added services like selling tickets online and accepting donations owing to these types of conversations.
The fear and possibility of getting squashed by a giant is very prominent for stratups. Aberman says that in the back of their minds, they are pretty nervous and suspicious that anyone will move into their space.
It wasn’t an easy job setting up WePay, to focus his attention full-time; Clerico quit his job as an investment banker whereas Aberman sacrificed a New York University law school scholarship.
Paul Graham (partner at Y Combinator) was impressed by their courage. And the venture gave WePay its first break of $17,000 as initial capital. Graham says that the guys had already jumped and were down the cliff and then they asked for a parachute. It seemed to him that they had staying power.
With its launch, the fan base of WePay is growing fast. In one case, a financial analyst from Boston, Michael Polark used the service in May to gather an amount of $2200 from 40 friends to rent a trolley to travel to a Boston College commencement party. A problem arose when Polark had to transfer the money back to several people as a problem in the system had led them to accidently overpay. He called up customer service at WePay and the problem was quickly resolved. Also he got $20 for the inconvenience caused to him.
Since then, Polark has been recommending the service to all his friends. This bodes well for Aberman as he thinks that word of mouth will help the company grow.
He says that they are trying to be anti-PayPal and that they don’t bite the hand that feeds them and he believes that there is a big opportunity on the table to satisfy customer needs.
