Dwolla is an online payment platform that allows users to send and receive funds directly from other users. The startup was founded in 2008 in Des Moines, the capital of the U.S. state of Iowa, by Ben Milne and Shane Neuerberg with the idea to move funds cheap and directly between users. In June 2011 Dwolla passed the $1 million in transactions per week milestone and is now processing more than $1 million per day. The company raised a $5 million Series B round of financing led by Union Square Ventures in February this year and most recently won Ashton Kutcher as investor.
The name Dwolla is a conjunction of “Dollar” and “web”; a good description of what Dwolla is: an online, cash-based payment method.
How does it work?
Dwolla is not a bank or credit card processor. The company provides a digital wallet and payment network much like PayPal. Transactions are made directly and instantaneous between Dwolla accounts, without using the credit card or ACH (=Automated Clearing House, the electronic network for financial transactions in the U.S.) infrastructure. Dwolla is partnering with U.S. bank Veridian Credit Union to securely deposit the funds of their users.
To use the service, customers have to sign up for a free Dwolla account that can be linked with a U.S. bank account for money deposits and withdrawals (takes 2-4 business days). Once the funds are transferred to their Dwolla account, users can send money to other Dwolla users or their social media contacts (non-Dwolla users have to sign up to claim the money).
Unlike credit cards and PayPal, which usually charge 3%-5% for each transaction, Dwolla charges a flat fee of just $0.25. Micro-transactions less than $10 are free. By default the recipient is responsible for paying the fee, but there is also the option that the sender takes over the fee (e.g. for charity donations). There are no additional fees, even for merchant accounts.
Business can sign up for a merchant account to accept payments through the Dwolla network based on their Dwolla ID or email address. Dwolla provides innovative solutions for retail merchants as well as for online shops. Users can locate nearby retail stores that accept Dwolla via Dwolla Spots or Proxi. To verify the incoming transactions Dwolla provides a web-based Dwolla Kiosk App. Check out the embedded video to see how Dwolla Spots work:
For online merchants Dwolla offers plugins for all main e-commerce shopping platforms and an API to their payment gateway.
The downside is that Dwolla is only available within the U.S. The company is focusing on national expansion and has currently no plans to expand internationally.