Des Moines-based payments company Dwolla decided a year ago to make all its transactions free.
The company had started in 2010 with free transactions under $10 and 25-cents for all transactions over $10.
“That worked out really well for a long time,” said Jordan Lampe, Director of Communications and Policy at Dwolla. “But what we started seeing was that the network we were creating was a very powerful wrapper to the bank transfer system called the ACH, Automated Clearing House.”
At the same time, Dwolla noticed that an increasing number of its customers were looking for a service that didn’t have the Dwolla brand on it.
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“We found that our business model just didn’t jive with their expectations for the platform,” said Lampe.
After some soul-searching, the company decided to switch their revenue model from transaction fees to creating products that customers would want to pay for.
That decision was a major leap within the payment processing industry.
“For the last 40 to 50 years, the business model has been taxation, a percentage of the transaction,” said Lampe.
It was also a major leap for the Dwolla’s marketing team.
“We had really created a brand around our price point,” said Lampe. “As someone who is responsible for making that brand extremely well known, it was a scary moment for me.”
Lampe considers that decision a year ago as a “watershed moment” for the company.
Evaluating the impact
Since switching their model to free transactions the company has seen an average of 30% revenue growth month over month. The company now processes nearly $2 billion in payments yearly with over a million accounts.
Dwolla has also jumped into national policy discussions surrounding payments. In May the company was elected to the steering committee for the Federal Reserve’s Faster Payments Task Force which is working toward developing real-time ACH payment processing between banks.
The ability for banks to transfer money without a delay has the potential to radically transform the way everyone does business from immediate payroll changes to instant bill pay.
“I put it on par with the app economy,” said Lampe. “Apple said they paid out $50 billion dollars to developers yesterday. That’s $50 billion dollars of economic value that was created because of something changed in the market and people found a way to make value out of it.”
For several years now Dwolla has been ahead of the curve, but they are starting to see the rest of the world catch up.
“We’re finally at a point in this country where people are taking [payments] extremely seriously,” said Lampe.
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Ryan Pendell is the Managing Editor of Silicon Prairie News.
