This 28-Year-Old Wants to Kill Credit Card Use

DwollaAlyson Shontell reports in Business Insider:

There’s a tiny 12-person startup churning out of Des Moines, Iowa. Dwolla was founded by 28-year-old Ben Milne; it’s an innovative online payment system that sidesteps credit cards completely.

Milne has no finance background, yet his little operation is moving between $30 and $50 million per month; it’s on track to move more than $350 million in the next year. Unlike PayPal, Dwolla doesn’t take a percentage of the transaction. It only asks for $0.25 whether it’s moving $1 or $1,000.

We interviewed Milne about how he is building a credit card killer and Square rival from the middle of the nation where VCs and press are scarce.

Read more: Business Insider

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  • Haystack

    Seems pretty straightforward: a flat fee of twenty-five cents to electronically hand money from one party to another…It makes you wonder how the credit companies have been getting away with taking large percentages for so long. What exactly have they been using those fees to pay for, anyway? Commercials?

  • Haystack

    Seems pretty straightforward: a flat fee of twenty-five cents to electronically hand money from one party to another…It makes you wonder how the credit companies have been getting away with taking large percentages for so long. What exactly have they been using those fees to pay for, anyway? Commercials?

    • Redacted

      Commercials. Mistresses. Hush money. You know, the usual.

    • Mr Willow

      Considering the ‘handling fees’ are completely arbitrary percentages taken from computer digits, which are given value by the coins and paper they are meant to represent, which are, in turn, given value by representing (almost) completely useless stones, which are given arbitrary value for their visual luster, rarity, and difficulty to obtain, I wonder more about how our current monetary system has been accepted for so long. 

      • Test

        not to mention the holding back of stock to imply scarcity

    • Liam_McGonagle

      Frankly, I suspect even the $0.25 per transaction will ultimately prove to be bullsh*t as well.

      But there clearly are some costs that need to be legitimately recouped, and without a chrystal ball to tell us exactly how long and how widespread Dwolla will be used, any cost recovery algorithim must be somewhat arbitrary.  I just think that “price stickiness” in the long run may mean that these guys recapture all their up-front costs in the first 3 years and choke on non-value added gravey for another 20.

      Probably the real headline here should be that local credit unions are revolting against the big for-profit bank paradigm.  The 2 investors specifically mentioned by name are affiliates of Iowa credit unions.

      Credit unions have historically been accorded certain regulatory advantages by state governments on the principle that, by their charters, they represent local NON-PROFIT, community development institutions.  Of course, over time the distinction has tended to blurr a bit in places, but it’s still broadly true that credit unions are local institutions with nothing like national and international network and leverage to move markets a la Goldman Sachs.

      Which is not to say that greasebags like Bank of America et alia won’t eventually try to undermine them.  Who knows?  Maybe Death will come in the form of a Supreme Court case challenging Dwolla on the basis that it bypasses the Commerce Clause of the U.S. Constitution, being backed primarily by state rather than federally regulated institutions.  Maybe it’ll come in the form of a barrage of technology patent suits.  Those aren’t hard to come by.  Maybe it’ll die a quiet death behind the doors of some regulatory agency, on the grounds of violating some obscure agency standard whose final arbitration will never be published.

      Dwolla’s real importance is probably serving a wider range of payments.  Much wider than PayPal, but still excluding credit cards.  PayPal the large for profit banks could laugh off, because e-retailing was such a novel and negligible slice of the pie that it didn’t seem to matter at the time.  Dwolla could be different.

      I wish them all the success and competition they deserve.

  • Suddenly Spam!

    Commercials. Mistresses. Hush money. You know, the usual.

  • Mr Willow

    Considering the ‘handling fees’ are completely arbitrary percentages taken from computer digits, which are given value by the coins and paper they are meant to represent, which are, in turn, given value by representing completely worthless stones, which are given arbitrary value for their visual luster, rarity, and difficulty to obtain, I wonder more about how our current monetary system has been accepted for so long. 

  • http://buzzcoastin.posterous.com BuzzCoastin

    have used DWOLLA on a limited basis
    and it works just fine
    but you need a US bank account or
    other DWOLLA linked account to use it

    not sure how this kills a credit card
    since you need “money” in some sort of account
    before it gets to and from DWOLLA
    and credit cards manufacture “money” out of electricity
    for which the cardholder pays an enormous fee for that magic

    but DWOLLA does reduce “money” transfer fees
    in the right set of circumstances

    but it’s way more complicated
    than using a credit or debit card

  • BuzzCoastin

    have used DWOLLA on a limited basis
    and it works just fine
    but you need a US bank account or
    other DWOLLA linked account to use it

    not sure how this kills a credit card
    since you need “money” in some sort of account
    before it gets to and from DWOLLA
    and credit cards manufacture “money” out of electricity
    for which the cardholder pays an enormous fee for that magic

    but DWOLLA does reduce “money” transfer fees
    in the right set of circumstances

    but it’s way more complicated
    than using a credit or debit card
    MEH

    • Liam_McGonagle

      Yeah–it’s dependent upon the financial institutions opting in.

      Under the right circumstances, I could see local and regional banks wanting to bypass the traditional methods–but that’ll take time to achieve that critical mass or ”installed base”, as they say in business school.

      And you’re right about the credit card thing.  That’s an entirely different type of service all together.  The headline is more than a little off in that respect.

      • Haystack

        I think ordinary businesses that deal in high-ticket items would promote this. If I were selling $2000 widgets online I’d definitely have a big “We Accept Dwolla” icon, or even “$10 off for Dwolla users.” It saves merchants money, so they have an incentive to promote it. 

  • Anonymous

    Frankly, I suspect even the $0.25 per transaction will ultimately prove to be bullsh*t as well.

    But there clearly are some costs that need to be legitimately recouped, and without a chrystal ball to tell us exactly how long and how widespread Dwolla will be used, any cost recovery algorithim must be somewhat arbitrary.  I just think that “price stickiness” in the long run may mean that these guys recapture all their up-front costs in the first 3 years and choke on non-value added gravey for another 20.

    Probably the real headline here should be that local credit unions are revolting against the big for-profit bank paradigm.  The 2 investors specifically mentioned by name are affiliates of Iowa credit unions.

    Credit unions have historically been accorded certain regulatory advantages by state governments on the principle that, by their charters, they represent local NON-PROFIT, community development institutions.  Of course, over time the distinction has tended to blurr a bit in places, but it’s still broadly true that credit unions are local institutions with nothing like national and international network and leverage to move markets a la Goldman Sachs.

    Which is not to say that greasebags like Bank of America et alia won’t eventually try to undermine them.  Who knows?  Maybe Death will come in the form of a Supreme Court case challenging Dwolla on the basis that it bypasses the Commerce Clause of the U.S. Constitution, being backed primarily by state rather than federally regulated institutions.  Maybe it’ll come in the form of a barrage of technology patent suits.  Those aren’t hard to come by.  Maybe it’ll die a quiet death behind the doors of some regulatory agency, on the grounds of violating some obscure agency standard whose final arbitration will never be published.

    Dwolla’s real importance is probably serving a wider range of payments.  Much wider than PayPal, but still excluding credit cards.  PayPal the large for profit banks could laugh off, because e-retailing was such a novel and negligible slice of the pie that it didn’t seem to matter at the time.  Dwolla could be different.

    I wish them all the success and competition they deserve.

  • Anonymous

    Yeah–it’s dependent upon the financial institutions opting in.

    Under the right circumstances, I could see local and regional banks wanting to bypass the traditional methods–but that’ll take time to achieve that critical mass or ”installed base”, as they say in business school.

    And you’re right about the credit card thing.  That’s an entirely different type of service all together.  The headline is more than a little off in that respect.

  • Test

    not to mention the holding back of stock to imply scarcity

  • Real

    some companies are good most are not.

  • Real

    some companies are good most are not.

  • Hspa

    I suppose its better than paypal, but this shows its no alternative to the big banks:

    ” One of our investors is a $1.8 billion financial institution. That’s
    atypical anywhere, let alone in Iowa.  Having them on board allowed us
    to get into a lot of rooms. 
    We serve everyone from the landlord taking in one payment to the
    individual buying a coffee with their cellphone, to billion-dollar
    corporations.  Because we’re so atypical and look at mobile payments
    differently, we got in the room with the Federal Reserve and the U.S.
    Treasury who allowed us to have a conversation, not only from a
    corporate standpoint, but from a government monetary distribution
    standpoint.”

  • Hspa

    I suppose its better than paypal, but this shows its no alternative to the big banks:

    ” One of our investors is a $1.8 billion financial institution. That’s
    atypical anywhere, let alone in Iowa.  Having them on board allowed us
    to get into a lot of rooms. 
    We serve everyone from the landlord taking in one payment to the
    individual buying a coffee with their cellphone, to billion-dollar
    corporations.  Because we’re so atypical and look at mobile payments
    differently, we got in the room with the Federal Reserve and the U.S.
    Treasury who allowed us to have a conversation, not only from a
    corporate standpoint, but from a government monetary distribution
    standpoint.”

    • Liam_McGonagle

      ” One of our investors is a $1.8 billion financial institution.”

      Yes, I noticed that, too.  Worried me a bit.

      Based on the article’s furthe discussion, though, it seems likely that these financial institutions are credit unions–not for-profit banks.

      Admittedly the differences can seem a little abstract at times.  In my opinion, it’s really a question of the financial institution being local/regional vs. multinational.  On balance I think this credit union initiative may be a very good development.

      But as I touched upon in another post under this article, a lot remains to be seen as to how this whole thing shakes out.

  • Haystack

    I think ordinary businesses that deal in high-ticket items would promote this. If I were selling $2000 widgets online I’d definitely have a big “We Accept Dwolla” icon, or even “$10 off for Dwolla users.” It saves merchants money, so they have an incentive to promote it. 

  • Anonymous

    ” One of our investors is a $1.8 billion financial institution.”

    Yes, I noticed that, too.  Worried me a bit.

    Based on the article’s furthe discussion, though, it seems likely that these financial institutions are credit unions–not for-profit banks.

    Admittedly the differences can seem a little abstract at times.  In my opinion, it’s really a question of the financial institution being local/regional vs. multinational.  On balance I think this credit union initiative may be a very good development.

    But as I touched upon in another post under this article, a lot remains to be seen as to how this whole thing shakes out.

  • Anonymous

    ” One of our investors is a $1.8 billion financial institution.”

    Yes, I noticed that, too.  Worried me a bit.

    Based on the article’s furthe discussion, though, it seems likely that these financial institutions are credit unions–not for-profit banks.

    Admittedly the differences can seem a little abstract at times.  In my opinion, it’s really a question of the financial institution being local/regional vs. multinational.  On balance I think this credit union initiative may be a very good development.

    But as I touched upon in another post under this article, a lot remains to be seen as to how this whole thing shakes out.

  • Farquah

    Lobbying Lobbying Lobbying.

    Did I mention Lobbying?