WePay is enjoying strong volume in crowdfunding payments, and is keeping an eye on regulatory developments that may affect its next opportunities.
"We see ourselves as the platform of choice for crowdfunding," says Bill Clerico, co-founder and CEO of WePay, which enables mostly smaller merchants to accept payments. Crowdfunding sites allow companies to attract investment from their prospective customers instead of seeking funding through conventional means.
WePay is processing $1.5 million per day in crowdfunding payments, mostly through developers that use WePay's application programming interface (API). While WePay has targeted crowdfunding for two years, volume has been growing rapidly in recent months. In 2013, WePay has processed an average of 648% more crowdfunding in each calendar month of 2013 over the same month in 2012, the company says.
Federal regulators are proposing new rules that may expand crowdfunding by allowing startup companies to solicit equity investment over the Internet and from the general public. Private companies are allowed to solicit equity investment from accredited investors with a net worth of at least $1 million or an annual income of more than $200,000. The proposal, if adopted by the Securities and Exchange Commission, would let businesses raise up to $1 million each year by soliciting unaccredited investors.
"There are a ton of companies that are interested in doing equity crowdfunding and selling stock on a venture," Clerico says, adding WePay was examining the regulatory moves to spot a potential role in the market for his company. "Most of the companies we work with right now in crowdfunding are donation-based sites. We will see a new wave of platforms that are involved in equity based crowdfunding."
Even if it becomes legal, equity crowdfunding would face headwinds in the market, according to Richard Crone, a payments consultant. The investments made by large, established equity investors serve as an endorsement for a startup's business model and its ability to attract a market. That endorsement would be diluted or lost if the funding came from a variety of small unknown investors, Crone says.
While payments companies could process payments for equity crowdfunding, the lack of known investors would still not help the startup gain traction, Crone says.
"You need a 'Good Housekeeping' seal of approval to have credibility," he says. "There's 'smart money' and 'dumb money' in startup investing. The [larger] investors believe they can turn a good idea into a viable company, so the crowdfunding process does little to help a startup company with that."
Equity crowdfunding has its challenges, "but we are looking carefully at it," WePay's Clerico says.
WePay currently supports companies such as GoFundMe, Fundly, Fundable, YouCaring and Honey Fund. WePay also provides client support, fraud and risk management for crowdfunding sites through Veda, WePay's fraud prevention tool that uses Facebook and other social media data to vet users.
Individual fundraisers and sellers are becoming more comfortable with transacting online, and that is contributing to the growth, Clerico says.
"There are a lot of artisans, custom jewelers, people who have sold their goods at venues such as flea markets, and crowdfunding helps them get online," Clerico says.
Many other payment companies, including Stripe and Flattr, are finding opportunity in the crowdfunding craze. PayPal founder Max Levchin also recently launched a crowdfunding site for fertility treatments.
There are risks in this market PayPal recently tightened its controls around crowdfunding after a dispute with a technology developer.