Dwolla Provides Fast Access to Cash at Low Cost
By D.J. Murphy, Editor-in-Chief
The month of February capped off a stunning year-plus for payments startup Dwolla. Early last month the company, which was founded in 2008 but didn’t launch publicly until December 2010, announced it had secured $5 million in new funding. For a company that began because its founder, Ben Milne, simply wanted to run his online business without paying so much interchange to credit card issuers, it’s heady stuff. But, Milne, who is also Dwolla’s CEO, says the company will succeed based on adherence to a coherent philosophy:
“On any device that connects to the Internet, we believe you should have access to your cash and be able to exchange it in a very fast way at very low cost to everyone involved in the direct action,” Milne tells CardNotPresent.com. “In a world where money doesn’t physically move any more—the ownership of it just kind of shifts—there’s really no reason technically why that shouldn’t be possible.”
What Milne envisioned was a cash-based system that worked along the same lines as the Automated Clearing House (ACH)—an electronic network that facilitates transactions to and from users’ bank accounts—but that overcame the some of the issues most admit ACH needs work on.
“Our network would not be relevant if ACH was real time, if ACH had a fraud layer, if ACH had an authorization layer, if ACH did not have all the legacy issues and if ACH was available through consumer-based Web services and APIs any developer could use,” he says. “If you had all those things there’s be no reason for us to exist. But I think we all know the Fed has been working on that stuff since the 1970s and has made little progress.”
Dwolla’s value proposition for merchants is simple: for transactions under $10 there is no charge, for transactions over $10 there is a flat fee of 25 cents. Milne says getting them to understand the value hasn’t been difficult. What has been difficult is overcoming the objections that “there has to be a catch.”
Milne believes once merchants see the employees behind Dwolla (over 20 now and growing, with part of the new investment earmarked for increased headcount) they will realize it’s a real company with real people behind it and those objections will fade.
“By letting our values radiate through the way we act, the way we talk to our customers and the way we build the company out, we think over time a snowball effect will happen where people will become aware of how we do things,” he explains.
One of those things, he says, is the fact that Dwolla doesn’t earn money on the float, a policy derived from the company’s philosophical stance and one of the ways Milne believes Dwolla will be able to differentiate itself from other payment networks.
“We don’t think we should be able to modify money that doesn’t belong to us,” he says. “That would incent us to hold the money longer which philosophically goes against our value of moving money as fast as humanly possible. By sticking around and being consistent to our core values, eventually it’s just going to be something people understand about our company.”
As for consumers, Milne firmly believes in the “if you build it, they will come” ideology. As the company taps the new cash infusion to build out its API, more developers will use it to enable more transactions drawing more consumers. He says Dwolla’s cloud-based security and the social aspect of the company have resonated with consumers. At the moment, Dwolla has in excess of 80,000 registered users and is on its way to facilitating $3 million a day in transactions (it passed $1 million per day in July). But, even as the company grows, Milne promises to keep transaction fees low.
“At the end of the day we want to be in the middle of as many transactions as possible,” he says. “We’re not looking at charging any more, we just want that quarter.”