Innovating Where Banks Won’t: Talking with Rich Aberman About WePay’s Vision for Group Payments

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It’s too bad the economic collapse of 2008-2009 gave “financial innovation” a bad name, because the online banking and payments sector could actually use a lot more of it. When’s the last time your bank’s website surprised you with a cool new feature or service? For that matter, when’s the last time PayPal rolled out any fundamentally new features or user-interface improvements? Once financial organizations grow to a certain size, it seems, they often stop dreaming about cool new ways to serve customers better.

But that actually turns out to be a good thing for startup entrepreneurs, who have been busy filling the gaps in online money management with services like Mint, acquired by Intuit last fall, and now WePay.

The Palo Alto, CA-based startup emerged last fall from investor Paul Graham’s Y Combinator startup school, with a plan to change the way groups of people pay for things. Born in Boston from the world of its co-founders, recent Boston College alums Rich Aberman and Bill Clerico, it started out as a way to do things like collect frat house dues or pool contributions for a bachelor party. But it’s already grown into something much broader, with some customers using it to round up homeowners’ association payments and others using it to collect donations for humanitarian causes. Couples are even using WePay to set up funds for date expenses without having to take the more deeply fraught step of opening a joint bank account.

“What really made us say, ‘Wow, we should do this’ was my brother’s bachelor party,” says Aberman. “I was collecting a couple of hundred bucks per person from 14 people, and track who had paid what, and I realized that there was a very specific need that PayPal wasn’t addressing…They do a good job of helping people sell things online, but I don’t think they do a good job helping people collect money from other people, particularly in large groups.”

WePay, which opened to the general public in late March, provides the coordinators of group payments with online accounts separate from their personal bank accounts. They can spend the money in the accounts using WePay debit cards or by writing paper checks. All members of a group can monitor that account’s activity, ensuring transparency and accountability. The system can also be used to send group members automated reminders that payments are due—in other words, bills.

Opening an account with WePay is free. The startup makes money by charging groups a small transaction fee that’s added to each bill or deducted from each payment. That’s the same way PayPal profits, and it’s a sufficiently convincing business model to have attracted $1.65 million in funding from August Capital and a group of angel investors that includes PayPal alumni Max Levchin and Dave McClure, former Googler Paul Buchheit, Swipely founder Angus Davis, and “super-angel” Ron Conway.

John Chory, an attorney at Boston-based Wilmer Hale, was an early adviser to Aberman and Clerico, before they entered Y Combinator. He argues that it took a pair of twenty-somethings—members of the Facebook generation—to invent something like WePay. “Rich and Bill are two very smart and very motivated entrepreneurs who recognized a problem in their own life and set out to solve it with WePay,” says Chory. “They are representative of the next generation—tech-savvy people who stay connected with technology 24 hours a day and who are comfortable keeping their friends apprised of their activities. I have a feeling they will keep solving problems for many years to come.”

The 8-person startup is “aggressively hiring” software engineers to solve those problems, Aberman told me during a long phone conversation. I’ve excerpted the most interesting parts of that talk below.

Xconomy: How did you and Bill Clerico end up co-founding WePay, and what was your path into Y Combinator?

Rich Aberman: Bill and I went to school together at Boston College, both on the same scholarship, and ended up rooming together freshman year and again junior year. We started a business together in college selling taxi advertising in Hong Kong. I was interning there for a telecom company and Bill had a software internship at Goldman Sachs. It wasn’t really a scalable, disruptive business, but it gave us an opportunity to work together and fall in love with entrepreneurship. We could have run it really effectively, but we both decided to come back to school. We weren’t quite ready to drop out.

I came out to the Bay Area after graduation to work at a Web development and video production startup for about six months, then I applied to NYU Law School and got in on a full ride. I was supposed to matriculate in the fall of 2008. Bill took a job out of school with a boutique investment bank out in Waltham.

About a year after graduating, and a couple of months before law school was going to start, we started incubating this idea. Bill predicted the impending collapse of the … Next Page »

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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