Matchmakers Part One: Bill Clerico on the unique payment challenges of platforms
Many of today’s most valuable public companies and startups are matchmakers—multisided platforms that connect buyers and sellers. While the concept of a matchmaker business is not new, today technology is enabling such businesses to achieve massive scale. What does it take to build a successful, technology-enabled matchmaker business?
Karen Webster, CEO of Market Platform Dynamics and PYMNTS.com and David Evans, Economist and Author of “Matchmakers: The New Economics of Multisided Platforms” explore this topic in a series of weekly podcasts.
Recently they spoke with WePay CEO Bill Clerico. As payments partner to the platform economy, WePay has a ringside seat for observing the challenges and successes of such companies. In today’s excerpt of that conversation, Bill speaks on the unique payments challenges of platforms. The full podcast is available here.
David: Everyone talks about how they want to be a platform these days, and people forget that there are lots of opportunities out there either working with platforms as an application on the platform, or doing like you’re doing, which is providing infrastructure and services for lots of platforms.
Bill: You can either be one of the gold miners in the platform gold rush, or you can sell them picks and shovels. We’re in the picks and shovels business.
Karen: Speaking of picks and shovels, the businesses that you are enabling are complicated. There are lots of frictions that those matchmaker businesses have to solve. What is the specific point of pain that you are solving for them?
Bill: There are a number of complications and nuances that go into payments for platforms versus traditional e-commerce payments, but I’m going to focus on the biggest one: fraud.
A traditional e-commerce vendor, say a Zappos, has a bunch of buyers. They have shoes in a warehouse. They’re going to charge a bunch of credit cards. They’re going to ship the shoes, and that’s their business. You can contrast that with the marketplace where you’ve got a bunch of buyers, but the marketplace is not actually selling any goods directly. They have a bunch of sellers that are selling goods. So the transaction becomes a lot more complicated. It’s charging one person and paying another person, and that introduces potential for fraud into the equation.
Here’s a simple example of how fraud works in a marketplace. A fraudster wants to steal money. They sign up as a seller on the marketplace. They also sign up as a buyer on the marketplace, and they then buy a bunch of goods for themselves on the marketplace, using a stolen credit card.
The marketplace will charge your card and then pay off the “seller.” The fraudster takes that money and runs, and then the person they stole the credit card from looks at their bank statement and realizes they never bought anything from a marketplace, so they contact the credit card company for a refund. The marketplace then has to pay back the legitimate cardholder, but they’ve already paid the fraudster out.
We’ve seen millions of such attempts to defraud our partners. We actually analyze every single transaction that goes through our system for fraud, and we tell our partners when to accept it and when not to, and when we’re wrong, we actually take the hit with them.
Karen: It’s interesting that fraud is first thing that you talked about, not enabling the on-boarding of merchants more quickly. What are some other things you had to engineer into your platform to accommodate these very unique businesses?
Bill: Fraud is actually at the center of a lot of these issues. The reason that it can be hard to on-board sellers is not because marketplaces like to make it hard for sellers to sign up. It’s because they need to get enough information to make sure the seller is legitimate. So by having very good fraud technology and the data and tools necessary to manage it, you end up being able to enable more frictionless on-boarding.
Karen: If I think about the matchmakers that you’re serving, they have their own set of issues that they’re dealing with as new innovations give them an opportunity to enhance their business. I’m thinking mobile. I’m thinking of moving from online to off-line, off-line to online, and so forth. How do you adapt your platform capabilities to what these matchmakers require of you?
Bill: You said the keyword for platforms and matchmakers, which is “mobile.” With the explosion of mobile phones over the last six or seven years, it’s allowed platforms to enter all these new markets. Uber and Lyft are the prime examples of this. Because of mobile, platforms have been able to disrupt the transportation industry, whereas previously that never would have been possible.
I think it’s on us as an infrastructure company to make sure that we recognize the power of mobile when it comes to changing how matchmakers and platforms can operate. One of the big challenges when it comes to payments is that collecting data from the users is a lot harder on a mobile phone than it is on the desktop.
There are lots of different options out there in the market, you know, Apple Pay and Android Pay and PayPal and so on. None of them have really cracked the nut, though, on making mobile easy. So we’re constantly looking at ways to improve mobile checkout.
The other thing that we’re doing is, as you know, a couple months ago we announced the mobile point-of-sale reader so our partners could actually offer their sellers hardware in the field that could be plugged into their phone, and they could accept in-person cards. That allows platforms that participate in a whole new stream of payments and transactions.