Dwolla Instant: Online and Mobile Payments Startup Launches Instant Payments Feature

By Rex Vining - 22/12/2011 07:00:00

Fledgling online and mobile payments network, Dwolla, recently released a new credit product that allows users to make instant digital transactions while also providing access to online credit. The Des Moines-based  social commerce solution has already attracted more than 70,000 users by offering money transfers that are safer and less expensive than traditional credit card companies.^[1] The launch of the new feature, named Dwolla Instant, further challenges both traditional credit cards and other mobile payment platforms such as PayPal, Square, and Google Wallet.  

 

Dwolla 1.0 – Facebook Payments

 

Even before the announcement of its newest feature, Dwolla was well on its way to winning over the Netgen with its innovative approach to payment solutions. The service integrates with social networks such as Twitter, Facebook, and SMS, letting users make payment transfers by connecting their bank accounts to their Dwolla accounts. Users can also make a purchase from one of 4,000+ merchants in Dwolla's network.^[3] Dwolla offers payments up to $10 for free and charges $0.25 for each transaction over $10. Notifications alert users when money is ready to be transferred to their bank accounts. Until now, the transfer of money to a users' bank account typically took two to three days—and sometimes up to five. Dwolla Instant solves that problem.

 

An Instant Success

 

Launched as an opt-in setting on Dwolla's standard mobile payments platform, Dwolla Instant lets users make instant money transfers without the usual wait time. The service is in high demand with existing Dwolla customers, and with a flat fee of $3 per month, it's certainly affordable. The $3 fee starts the day users switch on Dwolla Instant, but can be turned off and on without penalty. Once users activate the feature, they select a funding source for their initial transaction. That funding source is tied to their "Instant Balance."

 

Dwolla users have two options when selecting a funding source—they can link to a bank account or choose to borrow up to $500 from Dwolla. There's no additional fee to borrow money, as long as they repay it by the end of their statement period. Even if users pay late, there's only a $5 fee. And Dwolla sends notifications and reminders to make sure users don't forget to repay their loan.

 

The low fees and transparent terms offered by Dwolla are a direct response to the Netgen's growing demand for innovative forms of short-term credit. These tech-savvy, yet financially frustrated users wish to avoid the high costs and complex fee structures associated with most traditional credit cards—and Dwolla is more than happy to oblige.  

 

The Low-Fee Payments Network

 

Perhaps the biggest advantage Dwolla has in the highly competitive mobile payments market—where it must contend with companies like Square and Google Wallet—is that Dwolla is primarily a payments network. Most mobile payment solutions act as tools for receiving and sending payments through existing credit card networks. You input your credit card information, and these financial solutions allow you to make payments using the credit extended to you by your credit card company. Rather than linking to your credit card, Dwolla acts like its own credit card, with the exception that all of your info is stored virtually rather than on a piece of plastic.    

 

Because the Dwolla payments network involves only digital transactions, it offers significantly fewer opportunities for data theft than the physical swiping required for traditional credit card processing. Traditional credit card networks must maintain the hardware, infrastructure, and resources needed to fight the fraud associated with having a physical card with a 16-digit card number. Without these added costs, Dwolla can maintain lower fees and still make a profit. As CEO Ben Milne notes, "Creating a new network is the only way to keep fees out. And Dwolla is the first payment network built in 30-odd years."^[2]

 

In addition, Dwolla enjoys the backing of The Members Group, a financial services firm that specializes in credit card processing, payment solutions, and prepaid cards. The firm has been helping Dwolla establish screening methods to measure the risk associated with new members.^[1] Dwolla will make use of traditional credit scores to assess risk initially, but over time they will use more and more of their own data on user behavior.^[4]  

 

Looking Forward

 

So far, Dwolla has shown amazing growth. In December 2010, the company was processing about $500,000 in transactions per week. By June 2011, they were processing $1 million per day.^[1] If current trends continue, we can expect to Dwolla to be processing roughly $1.5 million per day by the end of the month and $2 million per day by next summer. With numbers like those, larger competitors like PayPal, Square, and Google Wallet should take notice.         

 

Resources

 

[1] Kessler, Sarah. "Dwolla Loans Users $500 to Make Instant Payments Through Facebook and Twitter." Mashable. Mashable, 15 Dec. 2011. Web. 20 Dec. 2011. <http://mashable.com/2011/12/15/dwolla-loans-users-500-to-make-instant-payments-through-facebook-and-twitter/>.

 

[2] Perez, Sarah. "Disruptive Payments Network Dwolla Now Provides Users With Instant Access To Cash." TechCrunch. TechCrunch, 15 Dec. 2011. Web. 20 Dec. 2011. <http://techcrunch.com/2011/12/15/disruptive-payments-network-dwolla-now-provides-users-with-instant-access-to-cash/>.

 

[3] Schicktanz, Julie. "Dwolla Gives Users Instant Access to Cash." Finovate. 15 Dec. 2011. Web. 20 Dec. 2011. <http://finovate.com/2011/12/dwolla-launched-a-new-feature.html?utm_source=feedburner>.

 

[4] Shaughnessy, Haydn. "Dwolla Instant: Online Credit, Loan or Cashflow for the Netgen?"Forbes.com. Forbes.com, 15 Dec. 2011. Web. 20 Dec. 2011. <http://www.forbes.com/sites/haydnshaughnessy/2011/12/15/dwolla-instant-online-credit-loan-or-cashflow-for-the-netgen/>.