Online merchants are always looking for ways to cut costs, and with payment processing fees cutting into profit margins, they're bound to take notice of a new player in the space. Dwolla was launched by two 20-somethings to make it easy to send money over social networking sites, but it also offers online merchants an option for collecting payments for goods - for only 25 cents per transaction!
Dwolla is a new online payments service that lets users send money to other Dwolla users for only 25 cents, with no setup charges or monthly fees. Ben Milne and Shane Neuerburg, both in their twenties, co-founded Dwolla in 2008 and launched the service in Iowa in December 2009 with $250,000 funding.
After raising $1 million dollars in November 2010 from The Veridian Group and The Member's Group, Dwolla expanded its reach to all 50 states and received media attention, including this December profile by the Associated Press.
Money sent using Dwolla is deposited into the recipient's Dwolla account. The recipient must create an account, if they don't have one, in order to access the funds - there are no fees for withdrawing money. As this page explains, the only fee a Dwolla user incurs is to receive money - and the sender can choose to absorb that cost if they wish.
While Dwolla has some interesting features - you can send money to friends through social networking sites - it's the low flat-rate fee that will have online sellers interested, and Dwolla is working on developing shopping-cart plug-ins, including osCommerce, CRE Loaded and Magento.
What happens if there is a dispute? Dwolla has a page set up for filing reports - disputes must be filed within 30 days of the original transaction, and users must reference the original transaction agreement, such as an eBay listing or Payment Order. However, according to the Terms and conditions, "You agree Dwolla will not be held liable for any losses or debts incurred during your user experience with other users."
Worth noting are several other points in Dwolla's Terms and Conditions: You may only have one account. If you are a business, you must disclose this fact, you may not present yourself as a personal user rather than a business. In the event you would like to discontinue use of your Dwolla account, it can not be deleted, only suspended.
Be sure to read the full terms and conditions before setting up an account, you can find them on the bottom of the registration page.
AuctionBytes spoke to Dwolla's Ben Milne by phone and through email to get additional information of interest to online merchants.
AuctionBytes: Can users move funds directly from their bank accounts to another Dwolla user's bank account? Or do users have to put money in their Dwolla account first?
Ben Milne: Yes, you have two ways to transfer money, 1) internally within the Dwolla ecosystem and 2) from your bank account directly to yours or another's. If we were friends on Facebook or you were following me on Twitter, I could send you money directly from my bank account to your profile/handle without you needing a Dwolla account (to access the funds you'd need to register).
AuctionBytes: Are deposits made into recipients' Dwolla accounts, or can they be made directly into their bank account?
Ben Milne: Dwolla was made to allow users to control the flow of their money (e.g. giving you the choice to assume costs, or transfer to the recipient), so at this time the platform places money in the recipient's Dwolla account to let me them decide what to do with the money. From there, it's only a few clicks for the recipient to place that money back in their bank accounts.
AuctionBytes: If a user has funds in their Dwolla account, where does the money reside? Do the funds accumulate interest (if so, for Dwolla or for the user)?
Ben Milne: Dwolla's partner, The Veridian Group, is a subsidiary of The Veridian Credit Union (formerly John Deere) and is the depository for Dwolla's funds. As we continue to place emphasis on moving money as quickly as possible, it will become easier and easier to transfer funds back into user's interest accruing accounts where banks' core competencies lie.
AuctionBytes: What kind of insurance applies - FDIC only goes up to a certain amount, what happens after Dwolla funds exceed that amount?
Ben Milne: Dwolla's partners, with which funds are held, are both FDIC and NCUA insured. Dwolla is leveraging its partner's banking expertise to create a system that will scale and provide assurance to users as their service continues to succeed.
AuctionBytes: What assurance is there that if Dwolla goes out of business or files for bankruptcy, users will not be out of any money?
Ben Milne: Like any other financial institution, Dwolla has built in several processes, agreements, and relationships (e.g. investors) to facilitate reimbursement from such a fallout, if such a catastrophe were to occur.
AuctionBytes: How does Dwolla handle a customer complaint that they did not receive goods ordered?
Ben Milne: As a former Web merchant, I take such disputes very seriously. Dwolla has continued to bring on more help, as well as develop comprehensive strategies to deal with such claims as the service continues to grow. For now, claims do receive first-right of contact by supporters and can be made on the Website.
AuctionBytes: Merchants pay no set-up fees or monthly fees, only 25 cents per transaction. Are there any fees for API or shopping cart integration?
Ben Milne: No implementation or integration fees what so ever. Just 25 cents. A matter of fact, we just finished creating loadable plug-ins for CRE Reloaded. You can view it here. Magento and others to follow shortly.