Dwolla, the online cash transfer startup based in Des Moines, today introduced a feature to give its users instant access to cash, an alternative to its current two- to three-day waiting period for users to transfer funds into their accounts.
Dwolla’s CEO, Ben Milne, founded the company in 2008 on the premise of a flat transaction fee, 25 cents, to address a pain point he experienced when running his previous company: credit card fees. “There’s one pain point,” Milne said, “that now exists inside of our own system, like, ‘How do I get money into it?’ “
Dwolla’s solution to that problem is called Instant, and it’s available now on the Dwolla website. Next week, it will be released in iPhone and Android app updates.
“Instant puts the convenience of an ATM-like feature inside the pocket of our users,” Milne said in a press release.
For access to a line of credit up to $500, a Dwolla user pays $3 per month for Instant, an opt-in feature. No additional fees are charged for the first 30 days following the Instant transfer. If the Instant balance is not paid back in 30 days, the user will pay a $5 fee per month for every month he or she carries an Instant balance. “Those are the only two fees,” Milne said in the interview, “no percentage rates, no other penalties, no fine print.”
(Left: A graphic illustrating a use case of Dwolla Instant. Graphic courtesy of Dwolla.)
Making this possible is a partnership with TMG Financial Services, which is a sister company of The Members Group of Des Moines, a Dwolla investor. TMG is Dwolla’s back office processing group, processing all of its ACH (Automated Clearing House) transfers, the ones that take up to three days – the “pain point.”
“I don’t know if this is the best analogy,” said Jeff Russell, the president and CEO of TMG Financial Services and a Dwolla board member, “but it’s a little bit like an American Express in that sense of, you know, your whole balance is due at the end of every month and you have to pay the whole balance off.”
Russell added: “While technically (Instant is) credit, we don’t really look at it like a traditional credit card because it really is very different from that.”
To decide just how big a Dwolla user’s line of credit will be – as high as $500, initially – TMG Financial Services will research each Instant user’s credit history. “Just like if you were to apply for any type of a loan,” Russell said, “it is based on your credit history and other risks factors.” He said a brand new Dwolla user might experience a delay when signing up for Instant, possibly up to two days if a manual review by TMG is needed. But he said TMG expects to provide credit for a “vast majority of Dwolla users.”
“Our goal,” Russell said, “is, over time, that if you’re a brand new user in Dwolla and you qualify for Instant that you’d be able to get that at the time of sign up.” Current Dwolla users can expect faster load times, eventually becoming “nearly instantaneous.”
Dwolla, the network
“If you think about it, Dwolla really is a network,” Russell (far left) said. “Obviously, it’s very different than Visa, but it’s not too different in terms of you have multiple banks and credit unions that offer Visa card.”
Russell said TMG Financial Services’ view over time is that multiple banks and credit unions will offer the Dwolla network to their customers. FiSync, a Dwolla feature released in March, accounts for what Russell called a “pretty small number” of sign-ups of Dwolla’s 70,000 users, but its offering is similar to Instant – it cuts down ACH transfers from three days down to same-day.
“The way we look at it,” Milne (above, right) said, “is there’s features and products and so on and so forth, but we want to be able to solve pain points in ways that people can understand and charge as pretty much little as humanly possible as we can and make it work in a way that scales really well.”
Will that, as recent press has suggested, be a quest to kill the credit card?
“The likelihood in the marketplace is we’ll have credit and debit cards long into the future,” said Russell, noting that quite a bit of TMG’s revenue comes from processing credit and debit cards. “But what we do know is that there are alternative payment systems that are really important for consumers, for people who want to do their banking in a different way, and we want to be a part of that future, as well.”
The launch of Instant means a second revenue source for Dwolla, which collects a 25 cent fee for each transaction over $10. But for Milne and Russell, it’s just the start.
“(Instant is) one of many other sources of revenue that Dwolla will be able to leverage over time,” Russell said.
TMG Financial Services will collect the Instant fees, and, per an agreement between the two companies, TMG shares the revenue with Dwolla. Russell didn’t discuss details of the agreement.
When asked about his emotions today, which also marks the one-year anniversary of Dwolla’s national rollout, Milne said, “Des Moines is really good to us … I mean, Des Moines came out a year ago at Mars (Cafe for the Dwolla Meetup) and tweeted about it and wrote about it, and the world changed.
“I can only attribute work to so much, but … it’s all the people around us and it’s all the communities. And now I think the tech community on some level in small subsets has shown us a lot of love and just very humbled.”
Tonight, Milne will take the stage at another Dwolla Meetup at 6:30. Find the details on Facebook and stay tuned to Silicon Prairie News for the live stream.
For more on Dwolla Instant, see the company’s blog post: “Dwolla Evolution – It’s Instant“.
Photo Credit: Photo of Russell courtesy of TMG Financial Services; Milne photo by Anna Jones | Art of Photography.