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IT, startups, Finance

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

Wade Roush 7/8/10

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 Xconomy's chief correspondent and editor of Xconomy San Francisco. You can e-mail him at wroush@xconomy.com, call him at 415-796-3024, or follow him on Twitter at twitter.com/wroush.

Stop Equating Monthly Payments with Affordability to Avoid Financial Trouble

Few of us can claim to not be guilty of at least a purchase or two where we said to ourselves "Only X per month? That's not bad at all!" Using the monthly payment to assess affordability, however, is a financial trap.

Photo by ell brown.

With the variety of ways people can acquire credit and spend money these days it's unsurprising that financial mistakes and misfortunes abound. Over at U.S. News & World Report they've put together a list of seven common financial mistakes. Among the mistakes they highlight is seeing the monthly bill as an indicator that something is in your budget.

Equating monthly payments with affordability: Far too many of us decide whether we can afford something based on whether we can manage the monthly payment. This is particularly true for homes, cars, and furniture. But just because we can handle a payment does not mean we can truly afford something. Monthly payments also ignore the true cost of ownership. A car, for example, costs a lot more than the monthly payment when you consider insurance, gas, repairs and maintenance. Instead of focusing on the monthly payment, separate needs from wants and evaluate how you might better use the money. If you still have consumer debt, for example, consider paying the debt off before buying something that will commit you to future monthly payments for potentially years to come.

Shifting your perspective away from "Do I have an extra $200 a month to spend on this thing?" to "Is spending $200 a month plus all the additional expenses on this thing the best use of my money?" will help you channel your money towards more productive uses. Check out the full list of money mistakes at the link below or share your best advice on easily corrected financial choices in the comments below.

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This year, money is on everyone's mind. With the economy in flux, bills to pay and employment tentative, gaining a better handle on finances rises on the list of New Year's resolutions for 2009. Managing personal finances, as a category for a New Year's resolution, is very broad. Each person's finance topic may differ from another, spanning employment, savings and daily spending or retirement funds. With so many topics to choose from, discussing personal finance resolutions has more to do with how to make the resolution successful in place of a stock list of "to dos." Here are five steps that can help people succeed with a resolution. They can be applied to any resolution, but what is more important these days than getting finances under control.

1) Overstretching leads to failure. The reality is many resolutions quickly fall to the wayside. According a study conducted by Stephen Shapiro's Goalfree.com and Opinion Research Corp. of Princeton N.J., New Year's Resolutions do not work. Shapiro says, "According to our study, only 8% of Americans say they always achieve their New Year's resolutions". This leaves 92% of resolutions to fail. What can we do to make better financial management a long-term part of life?

Pick and focus on the biggest, baddest, but most important piece of your financial picture. Is it getting your retirement accounts in order or back on track? Or, managing your current cash by putting a budget in place? Or, even down to the basics of knowing understanding where all your money goes by learning how much and on what you spend your pay every week? These may seem small tasks, but they all require research, selection, and action to make them happen. Trying to do all at once can be overwhelming. Remember: it is better to succeed with one goal than fail at many goals.

No only is taking on too much demoralizing when failure occurs, you will be forced to say "no" to yourself more often if you attempt to take on too many change. This leads to using will power in place of a plan in your change process (the effects of will power will be discussed in step 4). Pick the resolution that means more to you than any of the others so it will have value and meaning. It will be worth the challenge that comes with change.

2) Change is about planning. Resolutions are about change. Making resolutions into habit requires lasting change not just a momentary gritting of teeth that will power is made. Change requires planning, organization, and action. It requires emotional investment and belief that even partial change is possible. The idea of change is not what is daunting, but the action of change.

You've selected the biggest, baddest, but most important financial issue from your resolutions list. It's time to get organized. Take the financial resolution and jot down ideas of what would be necessary to success, helpful to do and nice to have as a part of the outcome. Prioritize them and check to see if it's possible to achieve. If it seems possible, press on! If it seems overwhelming, you've selected too much to take on, which means you need to pare it down to something more manageable. Realize that some items may be dependent on others, so when organizing or cutting items, look for dependencies. Remember to put some rewards into your plan, too, so it's not all about deprivation or "to do's".

If you don't have much experience organizing project, take a few moments to read a few article on project management to get an idea of how to define your resolution and identified the steps and order they need to occur to make them successful. The Project Management Institute resources site is a good source for quality information.

3) Habit comes from practice. The fact that 92% of resolutions fail is not surprising. Humans are habitual creatures. We like to know things and count on them. That's why we marry, buy houses, have children, have pets. These things provide stability and accountability. Habit is how we make sense of the world around us. If we weren't capable of remembering how to grow food or where to hunt or fish, we would have been extinct long ago.

Habit is derived from memorizing and reenacting actions repetitively. Repeating the steps of the financial plan created in step 2, you'll work toward your goal at the same time as cementing new behavior in yourself and how you work with your money.

4) Realize will power has very little to do with success. Many blame the breaking of resolutions on will power, or lack of it. In reality, will power has very little to do with long-lasting, effective change. Think of will power like any "power" practice: sprinting, lifting heavy objects, or hiking up a steep incline. They are done in short bursts and can only be sustained for brief periods of time. The body and the mind fatigue under such pressure and exertion. Using will power to effect the change required of a resolution is bound to fail because it is unsustainable.

Will power does have a role in change, but is not the main vehicle. It is a tool of last resort tool to keep you on track. Will power is the digging deep to keep to the change decisions made in the face of very strong competition for you to break. It should be counted as a very minor player in your strategy for creating change.

5) Accept failures and celebrate successes! No one is perfect, yet striving for perfection is America's national pastime. Resolutions are often tossed aside at the first signs of adversity or the first failing. It is comfortable and easy to fall back to doing things the way we've always done them because they are known, they are habit (there's that nasty word). The whole purpose for defining a resolution is to make planned changes in how we act into habits that form better solutions. In our case, it is to get a better grip on personal finances. And, since we are human and not programmable automatons, we will make mistakes, bad choices, or just plan indulge.

Resolutions stay in place better when we learning to accept our failure and grow to understand we are not infallible. Rewarding our changes can make the success even sweeter. Successful management of finances does not have to be about spending in a way that may open the door to an old habit you've been striving to change.

For example, if controlling spending is the resolution and stopping spontaneous shopping trips was a decided remedy, then a reward should not be indulging in a spree. It would only serve to reinforce the bad, old habit. Choose something special and fun that is not shopping, possibly a concert or dinner with a close friend at a nice restaurant. Something that has budget and foreseeable boundaries associated with it.

With these five steps, your most important money resolution can be successful in 2009. Resolutions are about changing your behavior, and in this instance, about changing your relationship to some part of your finances. Change is never easy, so be forgiving but be firm. Follow the plan you establish and take the time to review it. Invest in your plan by further educating yourself on how to keep making your plan successful. Happy Finances in 2009!





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