In strategic shift, WePay targets small businesses

WePay began as an ingenious idea: create an easy-to-use payments platform for people who just wanted to give money to their friends.

Borrow $20 at the bar from a buddy? WePay could make it a snap to get that money back in his hands, without forcing you to write a paper check. The concept, simply: reduce the number of steps between you and the money you've lent.

It turns out that this market, while clearly underserved, is not enough to sustain a business -- even a lean Silicon Valley startup. 

Yesterday, the company released a new mobile app for Apple's iOS operating system. The application, targeted at small business payments with features such as credit card charging and invoice management (2.9 percent + $0.30 per transaction each), caps a nearly year-long remaking of the company to embrace less the bachelor party buddy and more the too-busy website designer (or photographer, or writer, or dog-walker, or consultant, or...).

To get more color into the strategic shift, I rung up chief executive Bill Clerico.

ZD: So this is quite a change.

BC: We founded the company to help friends pay back friends -- bachelor parties, ski trips, stuff like that. We got a fair number of users after we launched in 2010, but the economic model wasn't working. We learned a lot about building users and distribution, but we had to make sure that the math worked out.

So we had to look at, well, who are our best customers? It was the top 10 percent or so who were small businesses. But our product didn't really have features for them. So a year ago, we asked how we could better meet those needs. We added invoicing, a payment button for websites, and virtual terminals. Mobile [apps] takes invoicing and virtual terminal and brings it on the go. You can accept credit card payments in person.

There's one other distinction I want to draw. The small business space is a large space, especially with payments. We looked at the market and said, OK, the retail space is really competitive -- Square, PayPal, Google Wallet, LevelUp. They're asking how you bring next-generation payments to the point-of-sale.

We want service providers -- people who do invoicing, who are rendering services to customers. The right product configuration [for this use case] was a great invoicing product and occasional in-person payments. If you're a flea market, you need to swipe a card 200 times a day, sure. But if you're a service provider, you need to preserve the relationships more.

ZD: Who do you define as a service provider? Are we talking the freelance market, or something a bit more bricks-and-mortar?

BC: We define it as service-based companies with less than 10 employees, including sole proprietors. There are about 14.2 million in the U.S. That includes accountants, lawyers, consultants, as well as local services like dog walkers, maids, contractors, photographers. We've had a pretty strong base in photographers, freelance designers, freelance software developers. As that evolved, we started to see the rest of the spectrum.

ZD: You've spent a year moving away from your original core customer. Where do you go from here?

BC: We think that this market is massive. They collectively do over a trillion dollars a year in gross receipts. There's a massive opportunity to convert their checks into electronic payments.

Our strategy is very much to stay with the little guys. We work with larger partners who have smaller businesses on their platforms.

I think of WePay as a three-legged stool. First, product: you need invoicing and virtual terminal and things people need to get paid. Second, great customer support: people may not be familiar with all the complexities of the credit card industry. The last leg is fraud and risk management -- sometimes people run into problems processing large payments, which can be normal in the service provider industry. We use a lot of additional data to underwrite the merchant and get comfortable with them.

ZD: How do you manage the shift? Are you leaving your core customer base completely behind, or do you still plan to support them?

BC: It's been a gradual shift over the last year. Most customers are using a simplified version of our invoicing tool. As we've added professional services, we've definitely diminished the appeal of the requesting-money-from-friends group. Over time, our customer base will shift and be almost entirely small businesses. We're choosing to invest our product, marketing and development in small businesses.

I do think in hindsight it was a pretty great place to start. It was an entirely new place. No one's harder to serve than the consumer. We'll continue to serve them in limited quantities.

ZD: You mentioned large partners. How does that incorporate into the small business strategy?

BC: Our payment functionality can get integrated into other third-party sites. We have a base of crowd-funding sites out there who have a bunch of people who are trying to raise money. GoFundMe, Fundly, BookFresh. Today, about 70 percent of our business comes direct; 30 percent comes through partners. We really want to build our own direct channels to our customers.

The folks who value simplicity above all else will come to us. That said, in specific verticals there is specific functionality needed to process payments. That's where we look to partner. So our ratio is pretty healthy, but we'll use the platform to go deeper in verticals.