A few weeks ago, a client sent me an email about a new online payment system that he was interested in exploring as an alternative to PayPal. The name of the service is Dwolla, and I had never heard of it before, despite the fact that it’s based in Iowa, my home for 12 years before moving last year to paradise. At first, I was skeptical, but when I started to look into Dwolla, I found the service had some very attractive features.
The first thing that intrigued me were the low fees Dwolla charges for digital transactions. For all transactions under $10, Dwolla charges absolutely nothing. Zippo. Nada. So micropayments like buying a latte from your local barista don’t cost anyone anything. In fact, Dwolla has an app for a variety of mobile devices, such as iPhone, iPad, iTouch, Android, and Windows 7 Phone, that allows you to locate others who accept Dwolla payments.
For purchases over $10, the charge is a flat rate of 25 cents, which sure beats the percentages that PayPal and credit card companies have been charging recently. For merchants, Dwolla provides a web-based Dwolla Merchant Kiosk for processing transactions either through a computer or smart phone.
So how can Dwolla afford to charge such low transaction fees? Largely by side-stepping the US banking juggernaut and its associated credit card system and working instead with a credit union in Iowa. You link your personal bank account to Dwolla, and the credit union acts as the financial go-between. Though some people might have reservations about linking the entire blance of their checking account to such a service, Dwolla touts iron-clad security measures that prevent your account information from being seen by any others in the system.
Currently, Dwolla is accepted by merchants and individuals nation-wide, but in non-metropolitan areas, the coverage is pretty spotty. For example, here in Central Washington, I could find only two merchants who have currently adopted Dwolla.
But as word about Dwolla gets out and the company proves itself, the number of those accepting the new system is bound to grow. The key variable, in my opinion, is whether consumers are willing to trust their bank account information to a new system like this. Credit cards, for all their faults, have covered the backs of consumers in fraud situations. It’s unclear to me whether consumers will be willing to give up such security for lower transaction fees.
Return to Main Blog Page