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A couple of weeks ago, when it announced it was dropping fees on purchases less than $10, Des Moines, Iowa-based Dwolla promised another big announcement on Dec. 15. True to its word, the mobile payment company rolled out a new product today: Instant.
The new Instant feature shortens the time required for Dwolla users to access money to fund their Dwolla accounts and makes it possible to send cash immediately. In the past it could take a couple of days before money to fund an account was available to use. Account holders simply log into their accounts and turn the feature on.
Once Instant is activated on an account, customers are asked how they would like to fund the purchase. They can either pull the money directly from a bank account, or Dwolla will even float the user a free loan to complete the transaction. Users can receive up to $500 to complete the transaction and there's no cost so long as the amount is paid back before the end of the user's billing cycle. A $5.00 penalty fee is assessed for balances not paid off by the end of a cycle.
There is also a small fee for instant access to cash as well. To participate in Instant, Dwolla users pay a flat $3.00 monthly fee. For merchants, the cost to accept payments remains at $.25 for any transaction over $10.
Even with the small monthly fee, Dwolla is betting the transparency and simplicity of its payment method will represent an advantage over established electronic payment methods.
According to a post on the company's blog, CEO Ben Milne called the current system "fundamentally broken." Milne said the fees levied by credit card companies are in place "to subsidize the costs of an expensive legacy architecture that is over 50-years old. Consumers are losing their identities as merchants are eating the costs of compliance, and we are all paying the price," Milne said.
Instead, Milne said, Dwolla set out to create a system that eliminates those fees and creates what he calls the nation's "lowest-cost sustainable payment network."
"In the end," Milne said in his blog post, "(t)his is a new style of transaction, a new shift in what we believe to be a fair, transparent, and innovative type of payment product."
For more stories like this, visit the Mobile Banking research center.
