As a small business owner, I despise the credit card industry. As I’ve written in the past, the charges are ridiculously high for the value of the service (around 2-3% per transaction).
Start-ups have been trying for years to disrupt the credit card industry. Paypal created its own money network that can be tied into your credit card accounts. More recently, Square introduced a merchant service with a flat fee of 2.75%. Other services such as Google Wallet simply store all consumer accounts in one place. None of these really attack the core of the credit card industry because on many transactions, they still pay the credit card company’s interchange fees, which they must pass on to the merchant (me).
Dwolla, is taking it’s swipe (yuk, yuk) at the heart of the credit card industry. Actually, it’s going after the debit card industry, but I’ll get to that in a minute. To use Dwolla, a consumer must create an account attached to her bank account. The consumer can then make instant payments to merchants that accept Dwolla. The consumer can either manually transfer funds to her Dwolla account (free), or can have it done automatically after each purchase ($3/month) or “borrow” the amount from Dwolla – to be repaid at the end of the billing cycle.
So, who wants Dwolla? For merchants, it’s a slam dunk. Let’s see, should I pay 3% or $0.25 for a transaction? But for consumers, the picture quickly becomes murky.
- Anyone that wants to borrow and repay over time can’t use Dwolla. It’s the equivalent of a debit card, not a credit card. This fact shrinks Dwolla’s user base considerably. [click to continue…]
