WePay Discovers Its Hidden Talent: Social Risk Evaluation

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WePay has come a long way from its humble beginnings at Boston College in 2008, where co-founders Bill Clerico and Rich Aberman created it as a way for groups like fraternities or ski-weekend buddies to collect and spend money. The company moved to the Bay Area in 2009, went through the Y Combinator startup program, decided to take on PayPal in the area of online payments for small businesses, and has been growing like a weed ever since.

The startup has raised just over $19 million in venture funding, is signing up 1,000 new merchants each week, and is processing hundreds of millions of dollars in payments per year. In the last 12 months its revenue has increased by a factor of 10, and it has doubled its head count to about 50. The company recently moved into a huge space—Box’s former headquarters on Portage Avenue in Palo Alto—that gives it room to keep growing.

But the most interesting change at WePay is something that wouldn’t be obvious to most customers or other outsiders. It’s in the way the startup is attracting new business. As Clerico and Aberman explained to me in a recent interview, the company has realized that its secret weapon—the thing that sets its apart from PayPal and other other online payment providers—is its ability to sign up new merchants quickly, without lots of paperwork or time-consuming background checks.

In fact, its onboarding process is so fast that other Web businesses that need to help their users process money—such as Fundable, a Kickstarter-like crowdfunding site for startups—are signing up by the dozens to use WePay as their payment infrastructure.

WePay's staff poses for a July 2012 group portrait (click for larger version).

According to Clerico and Aberman, the startup is able to offer these quick sign-ups because it has figured out a fast and reliable way to evaluate whether new customers pose a fraud risk. Rather than running slow and expensive credit checks and other inquiries, it simply looks at applicants’ social networking profiles on Facebook, Twitter, LinkedIn, and other sites. Says Aberman: “The benefit of digging into Facebook and Twitter is that when a new user signs up, they don’t have any transaction history on WePay. But they do have a history on other networks. We can see goodness or guilt by association.”

That means WePay can make a quick decision about whether a new applicant might be a fraudster. Assuming they’re not, it can enable them to receive money as soon as the day after they sign up.

“Simplicity is absolutely paramount for small businesses” who want to accept payments online, Clerico says. “Their current solutions are either to apply for a merchant account with a credit card company, which is a crazy 15-page application process, or they can use PayPal, which also has a pretty drawn-out sign-up process that has given a lot of small business owners negative experiences. But we have this great asset, which is our easy sign-up process. It’s absolutely the easiest way for any small business to accept payments online, whether it’s a maid, a handyman, a gardener, a dog walker, or a Web designer.”

The whole phenomenon of social risk evaluation is very new, and is part of a gradual shift in the role that social networks are playing in our everyday lives. You may have thought that your Facebook and Twitter posts were purely social, allowing you to share updates and keep up with your friends and family. But increasingly, the ripples you leave as you pass through your social networks are signals that … Next Page »

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

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