This 28-Year-Old Is Making Sure Credit Cards Won't Exist In The Next Few Years
sfgate.com
sfgate.com
Having built the same kind of company from the ground up, I have good reason to suspect that most of Dwolla's transaction volume does not come from mobile payments, if the $350 million / year number is accurate in the first place. Some revenue comes from Bitcoin transactions, which the article doesn't mention, creating the false impression that Dwolla is already a mobile payments juggernaut. It isn't.
Dwolla does not integrate with any point of sale systems to the best of my knowledge, which means that the title of this article is basically fantasy.
Dwolla is also breaking California law by operating in a manner that allows California users to use the service without a money transmission license. (Having an investor that processes transactions for banks does not make Dwolla exempt. Anyone who doubts this should read the list of exemptions: http://www.leginfo.ca.gov/cgi-bin/displaycode?section=fin.... If Dwolla were considered a bank it wouldn't need a money transmission license in Iowa, which it has.)
I'm not a fan of that law, so as of yesterday I've sued the State of California over it.
You CANNOT build a billion dollar company without breaking laws knowingly or unknowingly.
EDIT: Please don't take this as an insult, but you seem to have a negative attitude when it comes to competitors. I noticed this a few times. This makes you sound jealous (maybe you aren't, idk) and devalues your comments.
EDIT2: And they have done this with $1.3 M in funding, and 12 people. Hats Off. Hats Off.
Des Moines' little secret is that it's a major "back-office" financial-services center--banking, insurance, mortgages, annuities, etc. Wells Fargo, Aviva, Principal Financial and others have either their corporate or divisional HQ's there.
There's also a heavy marketing and publishing cluster there (including a couple of sizable companies owned by Hearst--which is also the parent of SFGate). But that's tangential...maybe.
Another reason is Des Moines is small and homogenous enough for people in the financial services community to know each other. And to influence/be more easily influenced.
These reasons--and others--are why I completely disagree with Milne's statement that "location is just an excuse". It's not. Start ups need the proper environment to take root and grow--infrastructure, people (domain experts and technical), and "political" protection.
The fact of the matter is, Dwolla probably would not have survived this long in the Valley, Wall Street, Route 1/128, or Austin. It is a financial-services-oriented start up in a small, but highly concentrated, financial-services town where someone high up on the local totem pole liked what they saw.
And sometimes, that's all it takes.
I got here a year or so ago, and I've been pleasantly surprised at the level of activity in the Midwest, but it's got a long way to go in terms of depth and breadth of skill available to draw upon.
Basics of the scam: Deposit in Dwolla, buy Bitcoins on an exchange, send bitcoins to your own wallet, chargeback Dwolla deposit.
A couple of months ago TradeHill, the second largest bitcoin exchange, discovered Dwolla billed them $30K in chargebacks despite their claims of never doing that.
It's this Dwolla issue that stopped the influx of new money into Bitcoin and now the price is 90% down.
This is a key problem for growing any kind of digital cash like economy: somebody needs to take the risk of turning chargeback-money (USD) into cash-like money (bitcoin), or you need to have a network to somehow take physical cash.
It just illustrate that online transactions should be chargeback-able to protect consumers from fraud. Bitcoin just doesn't cut it.
I believe there's a place for non-chargeback online transactions. Just as there's a place for non-chargeback in-person transactions (i.e. CASH).
Dwolla's entire purpose is not to use the traditional POS systems. However, they could certainly create their own inexpensive POS device with no interchange fees or use a cell phone.
Glad to see you sue over unjust laws but no need to bash Dwolla. The service is unbeatable compared to any other way to transfer large amounts of money.
Dwolla has an API so any point of sale system can integrate with it if they so choose, but I believe that most retail locations that accept Dwolla either check the dwolla website, iphone or androids apps for incoming payments.
I don't have any idea what percentage of their transactions are bitcoin related, but it's definite that it accounts for at least some of it.
https://en.bitcoin.it/wiki/Dwolla
https://en.bitcoin.it/wiki/MtGox#Dwolla
http://www.siliconprairienews.com/2011/07/as-bitcoin-exchang...
I'm not aware of any POS companies that have actually implemented the Dwolla API, but I could be wrong.
"A portion of" or "part of" does not mean "most of", any way you look at it. So, do you have any concrete sources?
Than Dwolla did chargebacks and SHTF in the Bitcoin world.
• Are you suing them without a laywer? Everything looks to be directly from you to Somebody Important.
• Why are so many people CC'd on your emails?
The underlying issues here are of national interest and involve a complex regulatory regime including the Department of the Treasury, the Federal Reserve, the White House, Congress, and state regulators. There are a lot of people who need to know what's going on.
Also, isn't working on this taking away time to be working on your startup? Or is this just some dumb promotional stunt?
EDIT: Your filings against Airbnb, Facebook, Stanford, USC, etc... shows that you have lost your grip on reality. Do you really think thats going to help or just piss people off?
Aren't you the same guy who was claiming that Facebook ripped you off? How about you actually create something that people want to use, rather than complaining about everyone around you.
We need people who like to fight. We just need them fighting the right people. Sounds like he's off to a decent start, if he can continue it.
My understanding is that if a California resident signs up for a service with a company in Iowa that has no California presence, that becomes interstate commerce. According to the Constitution and case law dating back to the 1800s (largely established by mail order companies), California does not have the right to regulate interstate commerce. Even when one end of that transaction is in California.
That is, in fact, at the heart of the whole sales tax issue with Amazon that has been in the news. By California state law, sales tax is owed, but California can't regulate what Amazon, an out of state company, does. Only Congress has that authority. (It looks like they may do it as well.)
I am not a lawyer, and could be wrong. If you want actual legal advice, you need to consult a lawyer. But this is my understanding.
California has the constitutional right to regulate commerce within its borders. When a California resident in California signs up for a service, even a service provided by a company in another state, California law applies.
In this case particular case, California exceeded its constitutional bounds by passing a law that claims to regulate commerce nationwide. Whether or not you agree with that, the exemption order that my company received proves the interpretation.
Either way, Dwolla is not registered as a money transmitter in California, has not applied for a license, is doing business with California residents in the state, and is in violation of the law as a result.
New York used to have a physical presence requirement as part of its money transmission statute; those companies without a physical presence in the state were not required to obtain a license. As of September 30, 2011, that changed: all money transmitters with New York customers must obtain licenses, whether or not there is a physical presence. With the advent of the internet, states are realizing that "presence" does not necessarily have to be physical in order to claim tax revenues or license fee revenues.
Unfortunately, until California makes the mistake of attempting to go after a non-California company with this law, the law won't get overturned on the grounds of regulating interstate commerce.
They can claim all the tax revenues and license fee revenues they like, but they'll find themselves sorely disappointed.
What you're missing is that California went after my company for attempting to do business outside of California, which gives my company standing to oppose the law on interstate commerce grounds.
Aaron
I'll be following the civil suit very closely. Best of luck.
It's like saying "the government is after me!" because of the Census.
I would be very interested to hear about any that you run across.
There are three reasons why I use my credit card so much (in order of importance to me):
1: It makes my finances much, much easier to manage. If I were using a debit card, I would have to track every transaction to the penny throughout the month in order to avoid overdrafts. Instead, I just keep a rough mental tally of my expenditures to make sure that I'm not living beyond my means. If my spending happens to get front-loaded on any particular month, no big deal: I've got another paycheck coming before the bill is due at the end of the month. With a debit card, I would have to manage my spending by pay period (twice a month) rather than billing cycle (once a month). Also, if I did happen to spend a little bit too much by accident, I'm looking at a few dollars (possibly even just a few cents) in finance charges, as opposed to a $20+ overdraft fee on every subsequent transaction.
2: I have a rewards credit card, so everything I buy gets me points. If you aren't using a rewards credit card, you're helping to pay for my rewards: the credit card companies generally charge the merchants higher transaction fees for purchases made with rewards cards (otherwise they would lose money on people like me who don't carry a balance). Merchants pass those costs on to customers by raising prices slightly. If you're not using a rewards card, you're paying those higher prices without reaping the benefits. Some merchants charge lower prices for cash, in which case I will usually pay cash because the savings are worth more than the points.
3: Because I pay my balance in full each month, I'm getting an interest-free loan from my bank each month. That money sits in my bank account accruing interest for anywhere from 1 to 30 days (depending on when I make the purchase). With interest rates as low as they currently are, I'm only making a few cents each month this way, but that's still money I wouldn't otherwise have.
How many of these reasons would also apply in Europe? I know that #1 does, but what about #2 and #3? There are plenty of reasons for not using credit cards, which I didn't really get into, but are there reasons that apply in Europe which don't apply in the US?
2. I think there is something like that yes but I have the same thing for the normal bankaccount the send you some kind of points and you get cheaper entery to all kinds off stuff but I never really read that stuff, In some shops you can use these points as money and I use the points for that.
3. I don't know about that but good for you if you can get some free money. A Irish guy told me once every cent is a cent closer to the next Guinness.
A few years back, I had plane international tickets booked on Zoom. They went out of business between the buying and the flying. With a credit card, that was Visa's problem. If it had been a debit card, it would have been my $3000 problem, as customers were unsecured creditors.
If you overdraw beyond this limit, you will pay a higher penalty rate and possibly also other fees. People with good credit can often negotiate a much lower rate than 12%.
2. I have a rewards debit card, everything I buy at certain places gives me points and discounts at said places. Never going into debt.
3. interest-free loan? Thats a funny concept, coming from a bank especially. Are you serious?
Simply put, in Europe you make enough cash so at the end of the month you dont ever have to consider you will be in debt unless you want to buy a ferrari on your way back from work. You collect points using your debit card. Debt is only used for fancy house/apartement, brand new car to show off, or starting a business. Never for spending.
Money in a bank account is a costly asset.
All of my regular bills (utilities, insurance, internet, cell phone, etc.) go on my credit card, and they are mostly clustered in the first part of the month. By using my credit card, I don't have to take that money out of my bank account until the end of the month, leaving me free to put money into savings and investment earlier in the month. If I were paying those bills directly out of my checking account, I would have to postpone my savings and investment transfers until later in the month to avoid going negative in my checking account.
I am from Europe and this is a completely ludicrous and false statement. If anything I would expect my USA counterparts to get way more salary after tax each month simply for the ridiculous taxes I am paying here (48%) plus we are paying some more taxes on ANYTHING we buy including food and water.
There is, however, a big difference between spending mentality - most Europeans shy away from going deep into debt and will typically only take loans on housing and cars but not to spend on luxury and entertainment; we by and large don't have that culture of ver-spending is ok and then keep shifting the debt from credit card to credit card. Matter of fact, I don't even know if VISA here would let me do that more than once...
Fast food and restaurant food is relatively expensive in Austria. Good, healthy, whole food ingredients are subsidized.
Buying local farmer products will vary in cost and when you go to the supermarkets (Lidl, Aldi and Hofer EXcluded, their "food" is absolutely horrible) and buy organic food it definitely is expensive; a bit less in Austria than in Germany though really good and very delicious food is scarce in Germany in comparison. I found the food you can buy in the US cheaper when you go by price per unit since packages are way bigger there and you have a ton more to choose from.
I can use a credit card as well, or a debit card, but there really is no point to use them here.
It's surprising how far behind the U.S. is in this matter.
(and of course the experience from Europe is that while it competes with debit and credit cards, it kills neither)
We a better System atm but we should not relatx. They need to start making paying on the internet easier, Credit Cards and Paypal get alot of money by offering shitty servises. The Banks should get into this field and make it easy, safe and free.
If credit cards were not already the dominant electronic payment mechanism (i.e. VISA/MC were just starting like Dwolla is), Dwolla could possibly win out because businesses could refuse CC's. Not going to happen now, at least with regards to business-to-consumers. And I don't think most B2B transactions were conducted through CC's anyways.
They seem to be doing okay now, but I don't see any secret sauce that's going to make them anything more than a fringe player in the payments industry.
The main advantage with a card is you can pay with it anywhere in the world. That kind of scale takes a lot of time to achieve and that is the reason the whole ecosystem is milking users.
Im from europe and this is just how it is in my view of the Amerika but I draw my knowlage from movies and stuff so correct me.
I wish someone would make a real alternative credit processing network, but there are so may laws and regulations, I wonder if it is even possible to ever have something like a simple 1% transaction charge.
Thirty(ish) years later we have an insidious industry that has saturated US culture with the poison of unsecured credit. They set up stands at colleges, snaring college freshmen with offers of free tee-shirts. They sponsor educational curriculums in grade schools advocating the use of credit cards. They even kick money to toy makers to include a little "Visa" or "Mastercard" with their products. They lobby Congress to pass laws making it harder for people who've dug themselves into a hole to include credit card debt in bankruptcy.
Credit is not necessary for modern living, despite the propaganda that permeates every piece of media to which we have access. I know this because 18 years ago I was that ignorant kid that wanted a free teeshirt. Ten years ago I quit using credit as a means of purchase, and six years ago I made my last monthly payment (with the notable exception of student loans, which is a rant for another day).
I hear my friends talk about applying for multiple cards at the same time; cycling between cards so that a minimum spend is maintained and keeping and paying for cards that they don't need all so they can maintain a credit score. This is all guess work anyway, because no one really knows what contributes to this secret score.
The credit card companies must love the lack of transparency because instead of having to compete with each other and with other forms of payment we are now in a world where everyone believes they need to use multiple cards from multiple vendors. They use these cards even when they don't need or want to because of how much they fear their credit score dropping.
I am 29 years old. I thought the same thing as you until about age 25 when someone explained to me that CC's are a great way to build your credit rating. Since I avoided getting a credit card for so long...I had no credit and a very low credit rating! Whereas my wife who had had a CC for 10 years already had great credit. As a result, we had to utilize her credit rating when getting car loans/ home loans etc until my credit rating improved! Without good credit you can really get owned (bad loan rates) when pursuing a loan for any reason.
Why were you pursuing these loans in the first place?
Did you really need to get a car loan or did you just not have the cash to buy the car that you wanted. Could you have bought a little less car, paid cash, and have been payment free? Or could you have stayed in what you had, saved up, and then paid cash.
Same with a home. Did you need to buy a home? Or did you want to buy a home.
My point here isn't to indict your decision making, so please don't take my questioning as a personal attack.
My point is that this idea of borrowing money to make purchases has become so engrained in our thinking that very few people stop and question it.
There are cases where a clear need exists and sometimes the only way is to borrow money. I've been there. But the messages we hear on a daily basis don't talk about borrowing to satisfy needs; rather they serve to support the idea of borrowing to satisfy wants.
As much as I wish I had $250K in the bank....
"Did you need to buy a home? Or did you want to buy a home."
LOL - as a married father of 2 kids in the Midwest I find this quite a funny comment. After renting for many years and dealing with horrible landlords ex: coming home on a cold winter Friday night to find my apartment bedroom with no windows with a little note stating "Be Back on Monday" - sleeping in a sleeping bag as a result.
So yeah, we "needed" our own home.
Also, given it is a great time to buy home (great rates, low prices, we got a tax credit in 2009 too) it felt like we would be stupid not to capitalize on purchasing a piece of earth/dwelling etc. Now we have a fat veggie garden, doing a remodel etc. Sometimes we regret it but overall it was the right decision for us.
Unless mammy and pappy or granny and grampy have the dough, or you sold your last company to Google, I'm guessing if you choose to buy a home, you will be calling your local loan officer and after the meeting wishing you had established some credit.
> So yeah, we "needed" our own home.
This might be semantic wankery, but you didn't "need" to buy a house, you needed a place to live without a shitty landlord and - unfortunately, I would argue - the easiest, most feasible way to do that where you lived was buying a house.
Who can agree with me?
But for the majority of people it is simply not possible to buy a house without either making massive life changes or getting a loan. I don't think that becoming a life-long renter is a smart choice either.
As someone contemplating if not life-long then seriously long-term renting, serious question, why do you not think it's a smart choice?
The second reason is the fact that when I fully own a house I will feel more financially secure. I won't have to worry about making rent payments for the next X years of my life and I'll feel better prepared for unforeseen circumstances. I might be able to achieve the same security by investing my money in other areas; but I much prefer investing in something tangible.
A mortgage is essentially a huge long-term bet, renting is a smaller, shorter term bet. The owner is betting that everything lines up nicely: the value of his property stays put or rises, nothing bad unexpectedly happens to the property, undesirable people don't move in around it, a whole-sector bubble doesn't pop. As a renter, there is no commitment: if the house is outdated you can move to a newer one with far less hassle; you don't have to worry about cost of maintenance; if you move during a bubble you can move once again when the bubble pops and pay less. The owner may end up with a property in 20 years if everything goes well, but a renter will never be underwater.
A while back I interned with a company called Rapleaf that was trying to do the same thing for the internet, by tracking your social footprint (based on your email), figuring out information about you and, more interestingly, how long that information has been on the internet, as well as figuring out your social graph. I'm not quite sure if this is still the same stuff they're doing these days (they may be focused more on just providing data about people rather than providing "trustworthiness"), but at the time the idea was the longer someone's identity has been on the internet, and the more trusted friends they have, the more trustworthy they were. The example as to why this would be useful is a photo sharing site. If you build a new site that allows people to upload photos, you're going to need to impose a cap on the number/size of photos, or you'll very quickly end up being used as a storage provider for porn sites. But if you have a way of rating the trustworthiness of a new sign-up, you can offer them much more space because you're pretty sure they're not trying to use your site improperly. A blacklisting mechanism would be completely useless, because people would just create new accounts to get around it. But a whitelisting mechanism completely prevents that.
Like I said, I'm not sure if Rapleaf is interested in the trustworthiness thing anymore. I suspect they've found that simply selling information about people is a lot more lucrative. But the original idea was and still is a worthwhile concept.
This clearly still happens. It's a fundamental fact about how debts work and it's a central element in many confidence tricks (for example pyramid schemes). So credit ratings only benefit the lenders if the amount they save on loans to suboptimal players who default at random exceeds the amount they lose to organized people who exploit the system.
1. It's like having a proxy between your actual accounts and your purchasing. A stolen credit card is annoying and easy to rectify. A stolen debit card is terrifying.
2. Sometimes in life, an expense arises that exceeds both income and savings. When this happens, we either pay with credit (of some kind), we don't meet our financial responsibilities, or we go without. Sometimes the best option is to go without. When that is not possible, the credit card is a good answer. Pay off your balance responsibly and as quickly as possible and either save more in the future or be prepared to pay interest again.
For example, our business requires that I travel all over the US and I use a debit card exclusively. Never have a problem with the airlines, hotels, or renting cars, but that's because we've taken the time to know which businesses will accept debit cards without a hassle.
"Also most of the benefits from credit cards are travel related. Like rental car collision insurance, travel insurance, etc if you use the credit card."
I'm beginning to sound like a tin-foil-hatter here, I know, but things like travel insurance are fluff that the credit card companies throw out to induce people to use them.
That extra due diligence costs time and reduces flexibility. Did those rental places accept your debit card without a deposit? Did they notice it was a debit card?
And if you tell me a debit card then you are making a mistake.
There is nothing wrong with using a credit card for a short term loan, especially if you actually have enough money to cover that loan.
Additionally with a debit card you have to make sure to have enough to cover all your purchases.
With a credit card, you (hopefully) have a limit much greater than you need. Then once a month you go over your finances, pay the bills and you don't need to micromanage your account.
And http://news.ycombinator.com/item?id=3240408 brings up an additional point. Leave your money in savings, and transfer to checking only when it's time to pay the monthly bills.
It's true that some people need to purchase items on credit but the reason that they're so popular now is less to do with having a line of credit and more to do with the legacy of the technology.
Secondary reason is that CC offer easier charge back, customer protection etc.
I was specifying the reason that they came into existence in the first place (as opposed to debit cards), not why people use them now.
My opinion is that the reason credit cards remain so popular now is because of Visa's policy that forbids merchants from charging a different price for credit card transactions. As a consumer, when you pay by cash or debit then you are effectively subsidizing purchases by credit card. Credit cards wouldn't be so popular if the consumer was made to bear the true cost of their chosen transaction method.
I think many would prefer to use a debit card and be reimbursed the difference for the transaction fee (vs. credit card) but Visa's policies don't allow this and unfortunately it's not viable for most businesses to simply stop accepting credit cards.
Edit: I was wrong, while retailers can't add a surcharge for credit cards, they can offer a discount for cash/debit/cheque transactions: http://usa.visa.com/personal/using_visa/checkout_fees/index....
You will be charged a surcharge for using a credit card, or a fixed fee. Eg £4.50 for a CC, free for a debit card.
I don't know if that is true.
My wife and I make a fari bit of money but we use credit cards so we don't have to worry about cash flow. If I want a new mac I just go out and buy it.
I don't have to worry if I have enough money in my account at that exact moment or not because I know that at the end of the month when the credit card bill comes I"ll have enough to cover it.
We might be an exception because my wife divides our income into several buckets as it comes in and then pulls from those buckets to pay the credit card bill at the end of the month, so I know very well what my monthly budget is .
TL/DR we use credit cards as a line of credit to smooth over cash flow throughout the month as do most afluent people I know.
I appreciate that Dwolla is trying to remove this inefficiency from the system. Mass conversion to a more efficient system would, eventually, mean cheaper prices for everyone.
If you're still confused, people have their own pride and principles. Something being legal or otherwise doable does not mean that everyone considers it moral.
To me, it feels wrong to leverage a slimy Visa policy to bilk airfare from merchants who have to accept credit to compete and from customers who don't opt-in to the game.
http://help.dwolla.com/customer/portal/articles/225303-why-i...
One of the guys asking Dwolla questions on Twitter was a 4th generation jeweler, who regularly has $10k and up transactions. He was very eager to learn about the merchant APIs. He could probably save $500-$900 on a $30k ring if the transaction was made with their service. There are a million examples like that out there.
1) People buy $30k rings!? 2) People put $30k on a credit card!?
At that level you are not using the card for credit, but rather as a replacement for cash. And who wants to write a check when you can use a credit card instead?
It's faster and safer to use a credit card, plus the merchant doesn't have to worry that the check will actually clear.
And using a debit card when you have a lot of money in your account is not safe. So credit card wins.
And for that same reason dwolla will stay rare for such transactions - without the consumer protection laws that credit cards have people will just not use it with strangers.
It will be used exactly as the article describes: To send money between people who already have a relationship, but it will rarely be used for purchases.
Basically he's replacing checks, not credit cards.
Meanwhile, in large part of the developed world, banks do direct transfers nationwide and checks are dying rapidly. I'm 36 and Norwegian. Before I moved to the UK, the last time I'd seen a check in person was when I was 5-6 years old, and I'd never had a checking account as they're no longer offered as standard in Norway.
While checks are still more common in the UK, they are being phased out, and direct account to account transfers are now down to about 2-5 hours during the business day.
Dwolla faces a massive risk that the big banks will just wipe out their value proposition overnight by deciding to copy the European model.
Or the school wants the kids to send in a fee to cover some trip they are going on? How do you do it without a check?
1). You remember to take cash and if you forget, you always have your cards on you and an atm is usually no more than a few minutes away. You can also increasingly pay for these sorts of things via mobile phone.
2). The school sends their bank account details along with the trip information and I setup a same day wire transer online.
And the merchants don't drive payment options ... they simply accept what consumers provide.
Also, IMO, the moment fraudsters target Dwolla, is the moment Dwolla realizes that a 2-7% transaction fee is necessary to stay in business.
Regulatory capture. There's a ton of financial incentive for the banks and processing networks to push credit. Instead of a simple processing fee that gets pushed to near-zero, they can get a percentage transaction fee from their monopoly network, possibly participation fees from the merchants, lock-in/network effect, they get to push credit debt to increase revenue from the purchaser, they can run 'promotions' and 'rewards' programs to stimulate use, etc.
Even before the overdraft racket had a light shined on it, banks and networks were pressuring merchants (through 'incentives') to shift transactions back to credit. They were raising debit processing and card fees in direct response to the revenue effects of consumers switching to debit. Lowering potential debit revenue by cleaning up overdraft nonsense just put the final nail in establishment incentives to support debit.
There are a ton of alternatives out there for transferring money. Wires are just one Fed product that happen to have a specific speed/security/limit/regulatory system.
Off the top of my head, if you want to move money, there's at least: ach, wire, image clearing, paper check clearing, image exchange, the atm network(s), the debit card network(s), the credit card network(s). That's leaving out paypal, western union, dwolla, and whoever else has started a money transfer business.
Almost every single one of those has different guarantees about timing, reversability, regulations, and transaction limits.
Wires happen to be a ca. 2 hour difficult to reverse (but possible) from /to banks connected to the FED. They're more expensive, probably on the order of $1 + staff overhead.
ACH is a roughly overnight to/from any bank connected to the fed, pretty easily reversible for 3-90 days. They're ~$.01/transaction at scale, and you can batch huge numbers of them into one file, so they scale. That's where most bill pay and direct deposits go, as well as a ton of other stuff.
Sounds like ACH. I don't think it's possible for individuals to use on their own, though.
I can just log into my bank in Germany and transfer money to any account in Europe (even in the UK) with zero fees. As mentioned, it's a very common method of payment because it costs nothing to set up or use. Only downside is that transfers usually take a couple days to clear.
It's still nothing close to $25 - I pay 34 cents.
The banks didn't do this willingly, they were forced to by the EU.
I'm also not clear how the recipient supplies their info to the sender's bank. If I don't have an ING account, how can they verify that I'm me, and not someone else who's pretending to be me in order to intercept the transfer? As I recall, when I've done wire transfers, I've always been given the account info of the recipient for me to provide to my bank (but I haven't done this very frequently).
Edit: I just saw your other reply where you describe the ING app. I guess that works, but it's rather unfriendly. I'm always a little wary of high-security stuff (such as money transfers) that depend on email, too, but that's also an issue for Dwolla and probably a lot of the other payment startups.
But how is that any different from a credit card number? I have all my bank info in my pocket, right on my Maestro card. No expiration date, no CVV code. Just an account number and a publicly-known bank number. If I'm authorizing a direct debit, that's all I have to enter.
The 6 digit sort code is unique for the bank branch across all UK banks, generally the branch on record for the account (most UK banks use the sort-code for the branch the account was opened at). Unless you happen to mistakenly enter an account number and sort-code that matches, and you manage to mistakenly enter the name of the account holder for that bank account, they'll usually catch it.
The situation is similar across Europe, so if this is a problem in the US, it's a problem of the banks own making, and one easily solved the same way it was in the UK: By adding a sort-code, and matching on the name as well.
This was true sometime ago. Now, the recipient only needs to supply the sender with the last 4 digits. They then verify their own information to complete the transaction.
Knuth stopped sending checks for rewards specifically because it turns out that giving random people your account info is a bad idea.
I fail to see what negative consequences that have.
I have a hunch that the penalties for check fraud are disproportionately severe compared with crimes of a similar social impact. I wonder if the same would be true with ACH transfers. My point is that governments take bank crimes seriously as prosecute them aggressively.
I'm sure that the penalties for check fraud are quite high. Nonetheless, I don't want to be a victim of check fraud. It's a massive amount of hassle when you have to fight financial fraud, and sending the criminal to jail doesn't change that.
"The only fee would be if someone paid you. We take a quarter. We really want that quarter. It's all we want!"
He should probably say "25 cents" instead of "a quarter".
That's pretty funny.
* 1.4 billion credit cards held by U.S. consumers
* Average credit card debt per household with credit card debt: $15,799
* Total U.S. consumer debt: 800 billion (down from ~1 trillion in 2008)
Yeap, look at that debt, credit cards are amazing.
Let me put my f___ the system hat:
1. $2 trillion in transactions per year.
2. Merchants pay between 2-4% in fees for every transaction
Many people seem to forget about the second - "I'm not paying any fees" :/.
That means around $40 billion in fees per year. A few billion short of the national budget for the US Department of Education. I really, really doubt it's costing all this money to send and track (mostly virtual) money around. And we haven't taken into account the late fees (around $20b/year), overcharge fees, annual fees, banking fees and others.
Credit cards are just money harvesting machines.
Why exactly do we need a third-party to handle our payments? Banks own our data and most of the infrastructure. Electronic payments should be part of the basic account package. "Reward" cards are just another marketing gimmick to get you to use more cards.
/hat off
Cutting myself short, I'm extremely excited with what Dwolla/Square and others are doing. It's 2011, I want to make payments with my eyes!
Every company has the occasional unsatisfied customer.
It's even more unreasonable since they gave no notice that there was a hold on the withdrawal.
When I buy electronics with my credit card, I get an extra year of warranty, and buying protection. Dwolla can't beat that.
When I travel, or rent a car, I get insurance coverage with my credit card. Dwolla can't beat that.
When I buy anything with my credit card, and something goes wrong, I lose no money. None at all. Dwolla can't beat that.
Long live, Credit Cards!
From this example, clearly some banks are figuring out how to sidestep the credit card companies and provide value. How would this and other similar products like the ING product not be serious threats to Dwolla?
First, most internet shops can do what the mail order companies have done for decades: they send you the product along with a bill that you can pay with a wire transfer. These days it means you go to you internet banking site and issue the transfer directly from your account to the merchant's account.
Second, a majority of big merchants provide "internet banking payment" where the merchant's site is linked with the top ten major banks' internet services. From the merchant's site you choose your own bank and they will redirect you to the online banking services of that bank, along with the amount they want to charge and some other metadata. Now, your bank will ask you to login to your own internet banking account and use it to authorize a wire transfer for the given amount. After that's done (securely, on the bank's own website), the bank will redirect you back to the merchant's site, again with a token that the merchant's software can use to verify that the transaction went through.
Also debit cards are in high use: they are usually free to obtain as well and it costs a merchant much less to charge a debit card than a credit card. This is sort of related because debit card transactions are practically just wire transfers. Some of them, such as Visa Electron, will actually require an online connection to your bank so that the balance can be checked prior to the wire transfer.
It all comes down to the fact that Finland's banks have been historically well interconnected and they also have a long history of electronic inter-bank transactions. Wire transfers have been a commonly supported and cheap way to transfer money since the 80's: also private individuals can use them to move money to each other free of charge. Further, wire transfers are immediate between accounts in the same bank; between two different banks it takes one night to get them cleared.
I don't understand this. Perhaps it's an American thing, but here in EU, I just put my landlord's account numbers into my online banking and I can transfer them money for essentially free. I even set up a standing order so it'll pay the same amount at a fixed day per month. I don't have to worry about paying rent. How does a landlord accept money via their credit card?
My bank's website doesn't list the company as one that it knows how to pay bills for, and wants you to send them a copy of the physical bill to get it added (there are no "bills" for the rent, so nothing to send). A direct transfer might be possible, but they don't seem to be advertising their account number.
If it can bring down the credit card transactions costs then great but other than that, I see no reason to move to bitcoins or dwolla because I see not a single benefit for me. Maybe it is great for you USA hackers but here in Europe... shrug.
Usage is effortless.
They make money by charging a percentage on transactions that businesses receive.
I played around with Venmo in the past and thought this would be perfect for this use case. Been a while, but I believe you can accept credit cards directly and pay no fees. Seems crazy, but I think the only downside is the amount limits.
Would be awesome to collect cc rewards on rent payments every month.
I've always rented from individuals, so don't have experience.
"been surprised at the conversion" when someone is sending you money?! I think that's pretty much the ultimate dream - one customer paying another person to sign up!
Money quote. Makes me want to work there. This is our generations equivalent of Jobs' universe quote.
Anyway, well played, sir.
Personally, I think this is Wells Fargo (and maybe a couple others) outsourcing the development of a new payment system/network.
Longer answer, they're usually overnight, the transaction goes out one day and funds are available the next (to the bank anyway). In some cases, there's same day stuff if you hit the early window, but that takes a cooperative bank. Retail wise, they can take up to 2 business days if you try to do it at a small bank with a correspondent relationship to a real bank in alaska.
But when you see 4 or 5 days, it's because the bank is holding access to the funds because the transaction is reversible. 3 days is the window for things like NSF and incorrect account numbers, but in the case of unauthorized stuff, it's 90 days. Frauds can claw back even farther.
1) Most Americans use credit cards because they need the credit. That is something that won't be solved. Many of us also like the benefit of rewards (miles, dollars, whatever). To get payers on board, you need credit, rewards, and exclusivity (i.e. is this the only payment method available at somewhere where I want to shop). The last 2 meaningful companies were paypal and discover card. PayPal had millions of Ebay sellers using PayPal AND they initially paid people to become members. Discover card started the cashback movement and was the only electronic payment option at Sears (largest retailer in the world at the time).
2) Due to the Durbin amendment (which went into effect October 1st of this year), debit card cost to a FeeFighters merchant for the average transaction in the US is about $0.25. (http://feefighters.com/durbin). They now cost 22 cents plus 0.05% of the transaction. The reason that I mentioned a FeeFighters merchant is that most processors do NOT pass through the savings to the customer, you only get that with interchange-plus billing (which only about 10% of merchants are on, mostly big merchants).
3) Doing some quick math, that $350 million in transaction volume gets them to $175,000 in revenue per year ($350M/$500 transaction size)*$0.25 = $175,000.
Still, they have a fantastic opportunity and I for one am rooting for them. Ben has the same roots as FeeFighters (had another company, was pissed off at how much he was paying in processing fees). He chose to tackle it a different way, one that is probably harder to execute on but can make more change in the long-run. Having met him, I bet that he didn't quite say the words in that headline.
They can also be used as a source of payday/personal loans, but that strikes me as suboptimal. Justifying the existence of credit cards as a source of credit doesn't make sense. One, why must the credit be tied to a card? Two, how often is a responsible spender gonna need that card as a lender of last resort? In fact, the idea of a "charge card" predates the idea of attaching a revolving line of credit to one, and you can still get charge cards from American Express, among other firms.
The only argument in favor of credit cards is the freedom-oriented one that people should be free to have easy access to run up revolving debts. I'm fine with this argument, but let's not obscure the issue by pretending that a significant number of people actually need access to that credit and that they need it in card form. The utility of credit cards lies in making payments, not having credit, and they're clearly an inferior solution--the space is ripe for disruption.
I want to make this comment just so people reading these posts aren't confused--charge cards, which I talk about in the above post, aren't the same as debit cards; charge cards are much closer to a credit card that you have to pay every month. These are a great option for people who want to avoid revolving credit and can afford the annual fee most of them charge (but they come with perks). Anyway the charge card demonstrates it's possible to do easy electronic payments, in a way safe for consumers, without tying them to credit.
If the credit card fees were passed through to the customer it would work, but with the current "socialized" model there is no customer incentive.
They are rare these days as they usually charge a significant annual fee. This is probably since there are no over-limit fees nor usurious interest rates (unlike a credit card).
No damn way I'm giving random vendors permission to ding my bank account. Credit cards are about cash flow safety & billing safety. Debits from a bank account are no substitution for this. Would you use a debit card at a strip club?
However, from a purely selfish perspective, they also reward people who pay on time - if you play the "rewards" game, which I have avoided throughout most of my adult life. I regret that now. The rewards are pretty substantial and based on my math they almost make up for the transaction fees (I would say you can get 2% cash back - which offsets most of the 3% the card company takes).
The question is will merchants offer discounts for dwolla? I doubt it. Instead Dwolla will have to offer cash back or other rewards to customers. Given their financials as described in this article, I don't see why they couldn't succeed. Clearly their model works better for merchants. Does it work better for consumers? Only if they offer rewards, which would cut into their attractiveness for merchants. Still with a flat $0.25 they could gain serious traction with large item merchants.
I am hoping the likely outcome of this is a further weakening of the conventional financial industry.
It will be fun to watch. I wish them the best of luck.
The real reason I wouldn't use dwolla for a consumer web transaction over my credit card is not the credit aspect but the risk aspect. With a credit card I'm protected against fraud fairly well whereas with debit or dwolla the protection isn't nearly as good.
The Competition Bureau (federal government agency in Canada) is currently battling the credit card companies on this point: http://www.cbc.ca/news/story/2010/12/15/con-credit-card-fees...
If you already have a credit history because you already bought a car or a house, good for you, but how did you get there?
so I'm told.
Approximately 74.9 percent of the U.S. families surveyed in 2004 had credit cards, and 58 percent of those families carried a balance. In 2001, 76.2 percent of families had credit cards, and 55 percent of those families carried a balance.
So, assuming the balance hasn't shifted too drastically, it's true that the majority of Americans need (or at least find convenient) the credit. But there's also clearly plenty of people who don't; 15 to 20 percent of Americans is a pretty big market.
To get payers on board, you need credit, rewards, and exclusivity
Like so, this service provides an API for that matter. At least most banks are reluctant to provide APIs for accessing the statement, not talking about instant statement already.
Anyways, what I learned is that Dwolla's customer service is terrible. I don't recommend it to anybody.
(They're still evil for many other reasons though)
This is a common marketing lie. This actually isn't trying to protect his parents. This is greatly inconveniencing his parents in order to protect themselves in a cheaper fashion.
Preventing theft is hard. Preventing theft while not punishing users is extremely hard. And so lots of banks and services take the easy route: forcing complicated passwords, OTP's, holds, "sitekeys", security questions, et cetera.
True protection would be: "Behind the scenes we are going to do everything we can stop thieves. And, in the very rare cases where they succeed and access your account, we'll cover it 100%. And, we're not going to make you stab yourself in the eye every time you want to create an account, or send, receive or withdraw funds."
Then it's up to Dwolla to build in strong defensive and offensive measures to combat online thieves, without making 99.9% of its users suffer for the 00.1% of people that are looking to steal.
tldr; these "security measures" absolutely suck and I can't wait for the service that comes along and says "we did the hard security work so you don't have to".
P.S. Dwolla looks awesome. I signed up. Am very impressed. I realize EVERYONE has these PitA security measures and I'm sure the Dwolla guys hate them just as much as me and have plans to eliminate them eventually. I just had to respond to the marketing bs.
You will always be inconvenienced by security measures. All of the things you described is the company working "behind the scenes".
"tldr; these "security measures" absolutely suck and I can't wait for the service that comes along and says "we did the hard security work so you don't have to"."
The problem is that if you got your money stolen, like you wrote above, you expect the company to pay for it 100%. If security was reduced to the levels you are describing, more money would get stolen and the company would be liable. Why would any company want to take this risk?
For any company or bank dealing with money, image is everything. Customers will leave if they can't trust someone with their money. I know I would.
"This is a common marketing lie. This actually isn't trying to protect his parents. This is greatly inconveniencing his parents in order to protect themselves in a cheaper fashion."
I would gladly start a company with less security if you sign a statement saying that my company isn't liable for any money stolen because of the inconvenience of higher security.
Ah, but we won't. Curious people will find a way. Look around you, they always do.
First, they are complaining credit card companies charge them for their service - on the other hand, those companies do have costs for building and maintaining their systems and all costs that come with it. We will leave the question whether their prices are reasonable or fair aside for now.
Another benefit I get from CC transactions: when I send money to the wrong person or got scammed, I can just have VISA cancel it and I get my money back. In the good 10 years I have been using my own CC(s) I needed to do that maybe 2 or 3 times and it worked absolutely flawlessly. You cannot just cancel a bank transaction and get your money back like that.
Also, wiring money abroad is going to be a much bigger problem for them.
But there is a far more fundamental flaw in their logic:
> "We think, in the long term, sending money should be as easy and effortless as finding a friend on Facebook."
The reason anything money-related is so over-regulated and cumbersome and full of regulations and bureaucracy is not just "the man keepin' ya down, bro" and neither is it only stupid people who only try to come up with empty regulations to bill you. All that is in place to fight against money laundry and help make it more difficult for worldwide organized crime to make easy use of their illegal cash. The very reason you can not just send money as easily and effortlessly as friending someone on facebook is: if you could, your first customers would be organized crime. They cannot wait for new possibilities to launder money easier and faster.
I am wondering how they can be moving 50 million a week without all sorts of agencies cracking down on them? This has got to be heaven for small and big time drug (or weapons, humans) sellers as of now.
So ultimately, it makes me sad this doesn't look like a promising replacement for the paypal overlords.
No, you can send money to anyone. Only the person sending it has to have a Dwolla account to initiate the transaction. The person receiving it will have to sign up for an account....
LOLWUT
In other words, you must have an account to receive money. Technically different, but that is some lawyerspeak if I've ever heard it.