Dwolla: The Startup Which Plans to End the Reign of Credit Cards

Most of us use credit cards. We know the irresistible temptation of using it and the pain experienced on being handed the statement at the end of the month, all too well. Ben Milne and his startup, Dwolla, plan to ‘kill’ credit cards. Sounds interesting, doesn’t it? But, is it viable? And, what is the POA (Plan of Action)?Dwolla is based out of Des Moines,Iowa. It is an innovative online payment system, which takes credit cards completely out of the picture. Other well-known online payment processing services, like PayPal or Jack Dorsey’s Square, have met with success. The main and crucial difference between these and Dowlla is that in the case of Square or PayPal, having a credit card is a prerequisite and Dwolla specifically differs with that.

This startup has been making steady progress and month-on-month has been moving between $30 million and $50 million, which is quite a significant sum. Dwolla connects directly to the user’s bank account and transfers money to anyone the user wants, even if they do not have a Dwolla account. Current estimates are that this year, Dowlla will transfer more than $350 million.

Dwolla has two clear USPs it can bank on. To begin with, since it connects directly to the user’s bank account, the user will never be able to spend more than he has. Given that the western world is facing an economic downturn at present, which to a certain extent resulted from the over-dependence on credit, a service like Dwolla makes a lot of sense. Secondly, unlike other online payment services, Dwolla’s transaction fee is very low. A user will be charged 25 cents per transaction, irrespective of the amount being transferred.

Business Insider declared them one of the ‘top 20 innovativestartupsof 2011’. In an interview with Business Insider, Dwolla founder Ben Milne said, “Ultimately we're trying to build the next Visa, not the next PayPal.” Ben first had the idea to start Dwolla three years back. He had a speaker manufacturing company and realized that credit card companies were getting $55,000 of the money earned by him. This charged him to create a payment service which negates credit cards. For the first two years, a lot of testing went into the product as Dwolla could not be legally launched. A couple of investors, with a financial background, finally made it possible to launch Dwolla nationwide (US), legally.

Ben also mentioned during the interview that Dwolla believes that “sending money should be as easy and effortless as finding a friend on Facebook.” Currently a high 11% of the transactions processed through Dwolla are person-to-person transactions. Ben says that “a ton of transactions” generate from people paying monthly rent. Dwolla was originally meant to deal with payments made through websites. The APIs for this are in place, but this particular function has not yet scaled up as he had expected. Dowlla also offers a mobile payment solution. So if you have the Dwolla app on your phone you can keep a tab on merchants near your location who accept Dwolla payments and carry out a transaction through your phone.One of the most incredible things about Dwolla is that it is based inIowaand notCalifornia. Yet the startup has attracted investors and is doing some great work. Currently, the Dwolla team comprises 12 members and most of them are based inDes Moines.

What do you think of Dwolla? Do you think it can give credit cards a serious run for their money? Let us know.