Dwolla founder Ben Milne reportedly came up with the idea for his digital payment transaction service to solve a problem he faced in a previous business.
Milne tells entrepreneur Jason Calacanis of This Week in Startups that at one point credit cards were costing his eCommerce company $55,000 a year in fees.
Below in a video from Credit Suisse, Milne says he believes frustration over these fees creates a huge opportunity:
For Dwolla, the solution was simple. Offer digital transactions for free under if they are under $10, and charge 25 cents per transaction for larger amounts, no matter what the figure.
The following chart from the Dwolla website compares its fees to other common payment types (estimated by Dwolla). The fees are based on a single $5,000 payment:
Dwolla — which stands for “Web” and “dollar” slammed together according to its founder — is a major departure from other digital services that charge nearly 3% per transaction. It’s even a departure from newer options that charge a monthly fee instead of a transaction fee as an alternative for businesses with high payment volumes.
You might be excited about saving those extra fees. But Dwolla’s biggest challenge has been building its network, Anne Driscoll, Vice President of Marketing, told Small Business Trends recently.
First of all, Dwolla is not a credit card processor. Its fee system only works when money is transferred from one Dwolla account to another. So only Dwolla members can use the transaction service.
This might make it less useful for merchants whose customers want to make payments in a variety of ways, including credit cards. However, the company does offer a Dwolla plugin to be used with a variety of online shopping cart solutions as part of its Business Payment Toolkit.
On the other hand, the platform could be an option for businesses seeking to instantly pay a large number of employees or freelancers, with fewer fees. That’s assuming all already have a Dwolla account. In fact, Driscoll points out a recently tweaked mass payment tool allowing for the making of thousands of payments simultaneously.
And, of course, business to business payments between suppliers, clients, consultants and partners could be done with Dwolla’s lower fees. Again, this assumes all the businesses involved were signed up for the service.
In fact, Driscoll insists that courting business customers, including small businesses, is currently where the company is putting its focus.
In order to gain greater adoption of its service, Driscoll says Dwolla continues to look for ways to simplify its signup process. To sign up your business, you’ll need to fill out general business information including your business type (such as LLC, partnership or sole propritorship) and a classification (such as retail).
You will also need to provide other general information, including a designated representative for the account and primary business address. You then set a four digit pin number, read the company legal information and enter a funding account (like a bank account). The company even provides phone and email support.
Dwolla also recently teamed with GoDaddy’s online bookkeeping services to integrate its payment system and is looking at similar agreements with other business services providers, Driscoll said.
And this week the company announced new “next day transfers.” This should make it faster for businesses to transfer money from Dwolla to their bank account or to deposit money from their bank or other funding source to Dwolla.
Images: Dwolla.com and Dwolla video still
Wow that’s an attractive rate. I wonder if it can also have other features like PayPal. If it does and it becomes mainstream, I will be happy to switch.
If Dwolla incorporates a PayPal feature, I’m guessing it might incur an additional expense. I’m also thinking PayPal’s a direct competitor – would that be an issue?
The fact you have to be a Dwolla member to make/receive payments is unfortunate. If I am to make/receive a payment, I wouldn’t want to first sign up to something rather than make a straight-forward payment with my debit/credit card. That’s an extra step and a possible barrier.
Saying that, the fees are very competitive, so it might make some people more accommodating in light of the cost savings offered.