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blog.dwolla.com

151 pointssant0sk183 comments

You pay $3/month for the privilege of allowing them to front you cash for up to a month. If you are late, they charge you $5. No broken legs, no threats, just $5.

According to one of the images 'simple terms apply'. What are those terms and why aren't they listed right now? That seems shady to make a big announcement and not clearly list all the terms.

I've got a few questions: How much cash can I borrow? What happens if I'm late multiple months? What prevents me from closing my account and just walking away?

I don't know, this seems like an awful idea to me. Rife for abuse. Dwolla will be one the receiving end of a lot of fraud really quickly and will be spending all their time and resources chasing down deadbeats.

UPDATE: A 3rd party has more details than their own site [1]. Up to $500. Still seems rife for fraud to me because now they are going to have to chase down a lot of people for only $500.

If my credit is good and my money management is sound, why would I need to pay $3 a month for the privilege of allowing me to get a loan for up to $500?

[1] http://www.siliconprairienews.com/2011/12/dwolla-introduces-...

Because they're avoiding "credit" entirely.

I suspect this is the start of their own implementation of "credit", and they're comfortable with losing some money at the beginning. In the long run, the traction they gain from the good customers could/should be worth more than the money they lose.

For the consumer, $3 on $500 is incredibly low interest.

$3/month on $500 isn't 'incredibly' low: it's $36/year, on a net carried balance that's probably close to zero at least as often as it's close to the maximum $500.

If you could time it just right, so that your balance was $499 29 days of every month, and $0 the one day that it needs to be, the effective rate would be around 7%, a fair but not great consumer credit rate. But if your balance is often closer to zero, and you ever trigger the late fee, the effective rate becomes much, much higher.

It does compare favorably to foreign-ATM access fees.

Find a charge card (not a credit card) that has an annual fee of less than $36 and a late fee of $5 or less. Now consider that Dwolla charges less to merchants as well.

actually, if you have good credit, that's not a problem. I don't have any cards with an annual fee. in fact, they pay me, on average about 1.9% cash back per year.

on the late fee, you're right. but the answer there is to pay in time. not really an issue.

The financial industry runs on the fact that a tiny fraction of people have good credit. They love people like you who morally justify gouging poor people by saying "well, it's your own damn fault for having bad credit".

That conveniently glosses over the fact that it is your fault if you have bad credit. There are systemic causes of poverty. But nobody forces you to take credit you can't repay.

More importantly, your premise is wrong:

The average credit score in the US is just below 700 (690ish iirc.) And the median is above 700. This comes from numbers from the CRAs and is supported by the stats reported by CreditKarma.com.

That is not bad credit.

> I don't have any cards with an annual fee. in fact, they pay me, on average about 1.9% cash back per year.

How are you still getting that much?

My 2% for everything and 5% gas/groceries cards went away after Dodd-Frank. I've still got 3% Gas and dining and 2% travel with the occasional special but the rest, the majority, is only getting me 1%.

Grandfathered into the FIA (Formerly Charles Schwab) 2% visa signature card.

But if you have a couple cards with the normal 1% plus rotating categories deal, you can get near 2% on average.

Last I checked NASA FCU still has a 2% on everything card, and AARP has a great 5% on everything for an intro period.

> Grandfathered into the FIA (Formerly Charles Schwab) 2% visa signature card

FIA (nee Schwab) was my 2% on everything card but my account was sold to BofA, which changed the terms to 3% on gas, 2% on groceries, 1% on everything else. My usage dropped a lot with the sale, in part because my wife refuses to use anything BofA.

I received notice that there would be no changes to my account for the time being -- this was, oh, 6 months ago?

I do know that FIA (formerly MBNA) is owned by BofA, and that accounts were being switched to the BankAmericard. Not entirely sure how criteria was chosen?

For now I'm just enjoying it while it lasts.

Thank you for saying what I was just about to say. The real point here is that there is that no reason, for a responsible consumer (ie: someone who isn't running into debt each month), to use this 'service'. Since it is tailored to people who have good credit, I don't see how this is going to be popular at all.

Because the point is far more than just a credit line.

The name is "instant".

How exactly is everyone missing the entire "instant" part of the feature.

Instant costs $3/mo, and includes the credit line feature.

But the fronting of cash isn't the ONLY feature in 'instant', and thus not the only thing you're being charged for!

I like the idea of instant transactions -- a lot. If I could use Dwolla instead of a debit card, you better believe I'd pay $3/mo to have all of my transactions post immediately.

I think the service could find a niche in situations where credit cards are not currently accepted (I'm thinking larger dollar amount payments for professional services).

And the instant feature would definitely be a bonus. I see it more like PayPal's instant transfer where PayPal fronts the money and then taps your bank account (which takes 2-3 days to complete). PayPal takes it a step further by covering a bounce with a credit card.

It is essentially a line of credit, sort of a cross between a term and demand loan I would guess (without more details of repayment terms). Many banks have something similar, only it's called "overdraft protection".

Of course, as someone else has commented, with good money management, you don't need this.

They should have focused on the merchant benefit and not the customer side of this launch. This change in my eyes is specifically to address the concerns of merchants that will not use Dwolla with the delayed payment system in place now.

I give them credit for trying to solve a merchant faith problem with a customer credit line. Someone that cant wait 2-3 days for money to be deposited in their account will probably not be the kind of person you would lend 500 bucks too, hence the 3 dollar fee, just sayin.

I was coming up with the exact same questions--and conclusion--as you while reading the post.

(I'll just copy my answer from reddit below)

That was an odd article from northern european perspective.

You really haven't had direct bank payments via web in US before this? We had those before web credit card payments and they are implemented by the banks themselves (it's a standard here, I have actually implemented some of this stuff with our company)

The article also talks about rent payments.. You don't have automatic recurring payment option in your web bank interface? can you make payments from one bank account to other via web interface at all?

(then someone answered that there are not bank-to-bank transfers or more advanced stuff like direct payments don't exists and I continued...)

Wow that's odd.

Just for comparison, people here would probably revolt if transfering money from one account to other would cost something. That's how everyone here pays bills. Before people would go to banks and make transfer form account to other to pay bills there, some 10-20 years ago banks themselves started to move all this to their web interfaces to reduce the need for physical locations (basically to cut costs).

The whole europe is now moving to "SEPA" system where all bank accounts are standardized so from now on this can be done europe-wide.

Sepa also has this new "e-payment" system that makes all kinds of things like direct billing possible EU-wide.

http://www.europeanpaymentscouncil.eu/article.cfm?articles_u...

i feel you. in 3rd world Brazil we had all that.

here, i kid you not: - they are just getting chips on credit cards - you pay your credit card that your own bank manages by transfering money from one account to credit card account... and that can take DAYS to show up. so I usually have to pay my credit card some 20 days before i would. - most bills came with an envelope for you to mail your check. - most people i know pay annuity on cc.

Not Brazilian here, but I wouldn't call Brazil Third World, and especially not their banking system.

it was a thong in cheek joke (which i can make because i'm brazilian :) ok that was another bad joke, but this one i blame on seinfield.

anyway, i wouldn't consider it's banking system so good if you account it's the most profiting bank system in the world, if the fees arena.

it's modern, ok. but i wouldn't go singing love balads just yet for them.

When Dwolla does this for consumer to consumer, internationally (US->other countries), they will eat Moneygram & Western Union's lunch, and diner, and breakfast, and snack.

Or they themselves will be eaten by fraud of all scales coming from a million different places, like most of PayPal's competitors 10 years ago. The odds are not weighed in their favor.

Paypal, and other companies, have a pretty good handle on fraud now. They can aggressively hire security engineers from the industry.

Are those companies really doing that many web transactions? I assumed most of their business immigrants wiring cash home from storefront offices. Which Dwolla isn't really a competitor for.

I'm sorry, but there is nothing that is so compellingly 'Instant' about 'Instant' that it begs my $3/month ($36/year) for me to use it.

As it stands now, if I want to buy something, I have several options. Use paypal, wepay, dwolla (regular) or some other similar provider, use a credit card, use a debit card, use cash, get someone else to buy it for me. None of which costs me anything to do the transaction.

Sure, there is some noise about charging for debit cards, but that noise turned into massive backlash, so I don't think that'll happen anytime soon. Plus, there are still other options, like another bank with a debt card that doesn't cost me anything.

Sure, a credit card has a fee associated with it and I probably end up paying that fee either in the price of the item I'm buying or directly. But at this point, is the total sum of those fees >$3/month? Maybe, but who really cares anymore? There is a cost to doing business and it can't be entirely free. That said, I'm going to support companies, like WePay, who are at least trying to put a good customer service experience on things and keeping their fees straightforward and relatively low.

I can see how Dwolla is trying to disrupt the whole industry. I like that and I sure believe that it needs to happen. The credit card companies are essentially just another evil empire. ;-) That said, I don't think 'Instant' is the right product for this disruption. It isn't being marketed correctly at all. The documentation is missing from their website and the whole $500 thing seems like a gimmick that is only going to get them into a lot of fraud trouble.

I dunno. I get an ATM charge once every month or two because I need cash so I can buy things at places that don't accept credit cards (or at places where I want to buy <$10 worth of stuff). I always end up drawing far more cash from the ATM than I want just to reduce the occurrence of these fees. Even one ATM fee per month will be more than Dwolla Instant (usually $2-$3 for the ATM and another $2 from my bank). If this feature encourages more stores to accept Dwolla, then it may become cost-effective to turn on Dwolla Instant and use that instead of carrying cash.

There are banks that offer refunds for atm fees on their accounts. You should consider switching.

A quick google found this [1], I'm sure there are more.

[1] http://www.bankfox.com/c/no-atm-fees/

It looks like I'm just going to echo the sentiments of others on this thread, but I feel compelled to issue this warning:

Stay away. This "feature" could bankrupt even a respectable company. Do not trust your money to any company offering credit that cannot or will not provide a balance sheet to back it up.

Yes, I'm a competitor, but there's a very good reason my company did not and does not offer this service. We thought of it long ago, and long ago determined that even with small amounts of credit, the risk to the operator is astronomical.

Stay away, stay away, stay away.

I don't quite understand. It sounds like you're saying this is weighted too heavily in favor of the user, so why are you telling the user to stay away? Shouldn't the warning be directed at Dwolla?

The warning goes out to anyone who is or will be owed money by Dwolla (ie, mainly the merchants, or payers who pre-fund their Dwolla accounts).

PayPal performs a similar service but backs it with a credit card.

The risk is fraudsters setting up phony bank accounts, piling up a bunch of Dwolla credit, paying themselves and disappearing.

In that case they only hurt Dwolla, not any merchants or payers. Their money seems to be legally secure:

    Dwolla warrants funds property of their respective
    account holder. Warranty is only respective of Dwolla
    balance amount under FDIC or NCUA insured funds covered
    by financial institutions holding funds on your behalf.

I don't know what it's like in the USA, but setting up a "phony bank account" depends on a small list of crimes to be commited before...

I believe if Dwolla had a rash of stolen funds, the insurance of its partner bank would not cover it (since the insurance covers the bank, not Dwolla).

The US is much different from the rest of the world as far as I know. There are thousands of banks and even more non-banks that have established ACH routing numbers. Fraudsters look for banks or companies with the laxest account opening procedures.

There are some notable payments companies that went out of business because of fraud (NextCard, BankOne EmoneyMail). When that happens, there's a very real possibility of customers losing money.

Disclaimer: I've not read details on ALL the different payment platforms that are around, or the regulations when dealing in this market.

With that said, why don't the platforms make it easy for merchants to pass these saving back onto the consumer. You can pay by credit card, but that would cost you 4% more than [insert payments system].

In that way, I'm incentivised as a merchant (more sales/discount with no loss), and as a consumer (real discount).

I believe that is against the terms of service for Visa and Mastercard. If you were to offer such a discount they would simply cut off your access to credit cards.

Edit: From the visa terms (http://www.fivecentnickel.com/2010/02/26/visa-credit-card-ac...)

Merchants must always treat Visa transactions like any other transaction (with a minor exception). They may not impost a surcharge for using a Visa card, but can offer a cash discount. This discount cannot be offered for use of a “comparable card” such as a different credit card.

I guess I had some idea such a clause existed, hence my up front disclaimer.

Basically, it's just straight-up anti-competitive behaviour though.

There are indirect ways of rewarding someone for not using a credit card - like providing a coupon for their next purchase (I saw that at Ikea before). Although if these loopholes gain in popularity the credit card companies could always revise their terms.

Similar to how Canadian Tire gives 'Canadian Tire Money' when paying some way other than credit cards.

The bonus is that a fair number of 'mom and pop' shops will accept Canadian Tire money as cash...

IIRC, you're specifically not allowed (under credit card TOS) to charge MORE for accepting a credit card, but you can offer a discount for another payment method. This is how, e.g., gas stations can charge one price for cash and another for credit.

The gas stations near me all list only the cash price, then when you pull in you'll see that "not using cash" costs 5-10c more per gallon. It's pure semantics, people are "charging more" for credit cards all the time.

I rarely carry much cash around anymore. I buy everything with a CC and pay it off in full every month. Never late.

Mentally, I'd rather pay more per gallon at a place where I can use my CC than go to a place with a dual fee structure.

I'm sure the logic doesn't make sense, but I feel like I'm getting ripped off at a place that does that when I use a CC to buy gas. As a result, I tend to avoid those places.

This is actually illegal in NY, but most gas stations do it anyway.

IKEA gives you a discount for using a debit card.

My question to merchants would be..

Would you actually risk sales at not offering credit card payments and only offering dwolla? With companies like square they make the entire process incredibly easy.

Would you actually list two different prices on all your items or services based on paying with credit card vs dwolla, or would you just standardize and swallow the 3% or whatever it is ?

As someone mentioned in a previous thread on dwolla (re your second point), you don't list two different prices. When the customer is checking out, you give a cash discount if you use dwolla (e.g. 3% off your purchase if you use dwolla to pay!).

Are you even allowed to do that? I thought stores don't currently do that because the credit card companies have rules saying that you can't. Or does that not apply if you use Square?

Have you ever bought a plane ticket in Europe or Australia? They offer free transactions that are not credit-card based. It's fairly common to have an extra fee in a lot of non-US online and off-line stores.

> They offer free transactions that are not credit-card based.

If you're referring to RyanAir (and the other low-cost airlines), then they only offer free transactions on obscure payment types. From what I've seen the 'free' transaction type changes whenever a more obscure and impractical payment system becomes available.

They do that so that they can legally advertise lower prices that they charge in practise.

I'm referring to most travel agents outside of the U.S. and perhaps Europe, and many restaurants, shops, boutiques. They pass the credit card fee directly to the customer in many instances, which I'm usually fine with. Larger stores will eat the fee but many smaller businesses can't do that.

I believe those rules were made illegal last year.

http://www.fdic.gov/regulations/laws/rules/6500-500.html#fdi...

Does anyone know if this is correct?

If someone pays me $1000 with a credit card, I pay Visa $25 (2.5% transaction fee)

If someone pays me $1000 with Dwolla, I Pay Dwolla 25 cents.

That's what I could figure out, but it seems too good to be true.

Yes, that's correct. Keep in mind that Dwolla is based on ACH which has lower fees than credit cards; besides that it's just statistics.

So what? Why would I use Dwolla instead of a credit card?

Because the merchant in question may not accept credit cards. For example, if I do contract work and invoice you for $8,000 I except the full amount. So if you were to pay with credit card it would cost you an extra 2.9%/$232 to pay me.

The sweet spot is probably rent payments and the answer is "Because your landlord won't take a rent payment on a CC most of the time because their profit margins are only a little more than the CC fee."

I can't imagine my landlord doesn't make more than 3% on my apartment every month...

I would certainly hope so! But why should your landlord shave off 3% of his ENTIRE revenue stream? I mean, that percent is almost Wal-Marts entire profit margin.

If he is processing 200 payments of $1000/mo, that's $6000/mo in fees that he loses, or the equivalent of six entire rents! Dwolla, on the other hand, would cost him $50, or a 20X reduction in costs.

if google stopped providing free lunch, that's 20k employees times 250 lunches at $5/meal, or $25M. Give them a diet coke @ $0.20 instead for a 25x reduction in costs!!! that's more money saved than dwolla's entire busness!

lets not deliberately de-normalize our figures, yeah?

I'm not deliberately de-normalizing figures. What?

What I did is a fair comparison and one of the main reasons Dwolla is already very popular for paying rent and for paying wages.

How can you chastise me for improper comparison when I used their most basic use-case, the one they're actively working on, and you bring up a completely unrelated benefit an employer provides for their employees.

Google can spend what they want, but that doesn't change the fact that $0.25/transaction is crazy for a businessman used to paying 3% of his business!!

I accept payment electronically via Intuit Payment Network.

It costs me $0.50 per transaction for bank payments, or 3.25% if I choose to allow credit card payments.

No subscription charges, no setup fees, nothing.

And Dwolla would still cost HALF of what you pay.

Well, we can speculate on the reasons, but I've rented maybe a dozen apartments, some from individuals and some from management companies, and none of them has ever offered to take credit cards.

I can't think of any reason a consumer would benefit from this over a credit or debit card. Except maybe if they regularly overdraft and prefer a $5 fee to whatever their bank charges.

It's targeted more for situations where credit/debit cards are not currently accepted. For example, large transactions for professional services. Think of it more as replacing checks, not cards.

That is one of the goals but the other goal is reducing the cost for the merchant. Merchants will prefer you to pay with Dwolla as opposed to a credit card because they don't give up as big of a fee on each transaction, this earning them more revenue.

Maybe. But 2-3% is about the right price for a financial txn between strangers, especially when not face-to-face.

Why? Why should there be a percentage-based fee at all for financial transactions? This is an idea that credit card companies have pushed onto the world, but there's no reason it needs to be accepted as fact.

I didn't really mean all. I did say between strangers and especially when the two are not face-to-face. Two other qualifiers: 1) when "good funds" need to be transferred immediately and 2) for dollar ranges from around $10 to $1,000. This makes up the vast majority of retail commerce for which credit cards are so well suited and widely used.

Best approach is to look for areas where credit cards are not widely used instead of trying to displace them in areas where they work really (really, really) well.

I've been wondering why I would use this and I think this comment hits the nail on the head.

But why would want to pay $3? Big payments are usually pretty well-timed and don't need to be "instant."

Hmmm, not sure where Dwolla is going with this, it seems to make more sense to laser focus on those who would find the most use for their product (big ticket buyers and sellers, not people buying a t-shirt on a whim).

What about the ones they list? Merchants having to pay a lot to process your money makes things more expensive. That affects you.

But for it to turn into a direct benefit for you, merchants would have to give you a discount for using Dwolla.

Does that/can that happen?

I give my customers rewards points for using Dwolla which they don't get when paying with other methods. I'm more of a small business and have to micromanage this all though. (I didn't know this is supposedly against CC terms too haha)

I don't see why my average (online) customer is going to pay $3/mo for this, but then I am probably the only place they are using Dwolla. Also, I am very hands on with them and just take "their word" or fill an order when I get the notice that the 2-3 day travel of funds from their bank to Dwolla is good.

Again, I think this Instant thing all ties back to the CU Exchange feature I discussed before. Dwolla tries to forge a sort of deal where this bank's customers get Instant without the $3/mo fee and Dwolla + the bank chop the other half of money made in "transit time interest".

Long term, I see the success of Instant tied to this, banks being able to offer free Instant as a perk with an account with them, versus Instant used as a cheaper overdraft or standalone feature.

That's exactly my point. In order for me to want to use Dwolla (and pay the $3 set up) I would have to believe that enough merchants out there will let me pay with Dwolla that I would get some unique benefit for using it.

Dwolla is awesome for merchants and neutral for consumers.

That can't happen, since credit card companies won't allow this.

However, some merchants could accept _only_ dwolla, which could change the game.

CC would be against this but isn't the target merchant the one that does not already take CCs? Street merchant, plumber, kid that shovels my driveway, or wheeled merchant.

Don't discount the possibility that this might be fixed with legislation.

this is exactly the point, unless merchants actually display the discount you receive vs using a credit card then it doesn't matter. More than likely merchants will swallow the profits, and consumers won't see the benefit. I earn quite a bit from rewards points as well, the difference in monetary savings vs credit cards would have to be proportional.

I don't understand how they actually send you the cash immediately. Does it generate a temporary Debit card?

I believe if you are enrolled in Instant they will spot the money for any purchases you make beyond the amount you already have in your account, up to $500 worth. So it just enables you to use Dwolla for purchases without having to wait for a slow ETF transfer (around 3 days) from your bank to fund your Dwolla account.

I believe it's doing a bank transfer.

OOOooohh, when Dwolla goes international I'm so very much saying goodbye to PayPal.

Hmm. If I'd been able to use this for margin on mtgox a few months back...

International users need not to apply.

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