There is a fledgling company in Des Moines, Iowa, called Dwolla that is attempting to make credit cards obsolete. The premise behind Dwolla is that it is a payment network that eliminates the expensive interchange fees associated with credit cards by operating with cash. The founder Ban Milne has developed a digital wallet that enables users to pay for goods and services in a store or in person (such as a cleaning lady or a dog walker) by using a Dwolla application on a mobile device. Their innovative payment system may be of particular interest to merchants as it has the potential to lead to bigger profit margins on sales in the form of lower interchange rates. As of recently, any transactions under $10 are free to the merchant when the customer pays via Dwolla. Purchases over $10 cost a merchant 25 cents.
However, although that may sound very appealing to shop owners, it is not so great for consumers as, under Dwolla`s structure, they would now be responsible for paying for their transactions. Milne`s theory is that if the costs to use the system are made wholly transparent, people will have an understanding why they have to pay and feel OK about the fees. “There`s a cost to the network and we think everything should be apparent and upfront to everyone,” he explained, according to online news source All Things D.
Dwolla recently announced a new component to their system called “Instant,” which would allow users to have immediate access to “cash” to pay for transactions, “cash” being defined here as a fee-free exchange of funds between customers and merchants such as occurs when cash is used as the method of payment.
To use Dwolla, an individual must sign up online and link it to a bank account. To use the Instant feature costs $3 per month and subscribers are granted a credit line topping out at $500. Instant users are encouraged to pay off their balance at the end of every month to avoid incurring a $5 fee. Without utilizing Instant, Dwolla users must transfer money from their bank account into their Dwolla account each time they wish to use it, a process that can take up to three days.
Digital payments are becoming a big trend as myriad cell carriers, Google, PayPal, American Express, MasterCard, Visa and innumerable other start-ups are trying their hand at cornering a piece of the potential market.