
This 28-Year-Old Is Making Sure Credit Cards Won't Exist In The Next Few Years - olegious
http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/11/10/businessinsiderthis-28-year-old-is-.DTL
======
thinkcomp
This article was posted a few days ago. I'm a competitor.

Having built the same kind of company from the ground up, I have good reason
to suspect that most of Dwolla's transaction volume does not come from mobile
payments, if the $350 million / year number is accurate in the first place.
Some revenue comes from Bitcoin transactions, which the article doesn't
mention, creating the false impression that Dwolla is already a mobile
payments juggernaut. It isn't.

Dwolla does not integrate with any point of sale systems to the best of my
knowledge, which means that the title of this article is basically fantasy.

Dwolla is also breaking California law by operating in a manner that allows
California users to use the service without a money transmission license.
(Having an investor that processes transactions for banks does not make Dwolla
exempt. Anyone who doubts this should read the list of exemptions:
[http://www.leginfo.ca.gov/cgi-
bin/displaycode?section=fin...](http://www.leginfo.ca.gov/cgi-
bin/displaycode?section=fin&group=01001-02000&file=1805-1806). If Dwolla were
considered a bank it wouldn't need a money transmission license in Iowa, which
it has.)

I'm not a fan of that law, so as of yesterday I've sued the State of
California over it.

<https://www.facecash.com/legal/brown.html>

~~~
viggity
I'm from Des Moines and know a couple of people that work at Dwolla. I haven't
heard anything about Dwolla doing a lot (if any) bitcoin transactions. Do you
have a source on that?

Dwolla has an API so any point of sale system can integrate with it if they so
choose, but I believe that most retail locations that accept Dwolla either
check the dwolla website, iphone or androids apps for incoming payments.

~~~
thinkcomp
Here are some Bitcoin/Dwolla links:

<https://en.bitcoin.it/wiki/Dwolla>

<https://en.bitcoin.it/wiki/MtGox#Dwolla>

[http://www.siliconprairienews.com/2011/07/as-bitcoin-
exchang...](http://www.siliconprairienews.com/2011/07/as-bitcoin-exchanges-
drop-dwolla-milne-says-company-stays-focused)

I'm not aware of any POS companies that have actually implemented the Dwolla
API, but I could be wrong.

~~~
eslachance
I don't see any source that would lead me to believe that "Most" of the Dwalla
transactions come from BitCoin, anywhere in your 3 links.

"A portion of" or "part of" does not mean "most of", any way you look at it.
So, do you have any _concrete_ sources?

------
kayoone
In Germany (and most of europe) credit cards arent used very much. I can wire
transfer money inside the country for free, i can pay in alot of Online Shops
by direct debit who get the money directly from my bank account. In stores i
use a card associated with my bank account (not a credit card) to pay which
also lets the merchant get the money directly from my bank account. I am
suprised that the US doesnt have a similar system, no wonder everyone uses
credit cards there. Thats also why i think Square wouldnt be very successfull
over here.

~~~
lucasjung
I use my credit card for almost everything. Before I explain why, it's
important to state that I pay my balances in full every month. Anyone who has
a hard time doing so should not be using credit cards.

There are three reasons why I use my credit card so much (in order of
importance to me):

1: It makes my finances much, much easier to manage. If I were using a debit
card, I would have to track every transaction to the penny throughout the
month in order to avoid overdrafts. Instead, I just keep a rough mental tally
of my expenditures to make sure that I'm not living beyond my means. If my
spending happens to get front-loaded on any particular month, no big deal:
I've got another paycheck coming before the bill is due at the end of the
month. With a debit card, I would have to manage my spending by pay period
(twice a month) rather than billing cycle (once a month). Also, if I _did_
happen to spend a little bit too much by accident, I'm looking at a few
dollars (possibly even just a few cents) in finance charges, as opposed to a
$20+ overdraft fee on _every_ subsequent transaction.

2: I have a rewards credit card, so everything I buy gets me points. If you
aren't using a rewards credit card, you're helping to pay for my rewards: the
credit card companies generally charge the merchants higher transaction fees
for purchases made with rewards cards (otherwise they would lose money on
people like me who don't carry a balance). Merchants pass those costs on to
customers by raising prices slightly. If you're not using a rewards card,
you're paying those higher prices without reaping the benefits. Some merchants
charge lower prices for cash, in which case I will usually pay cash because
the savings are worth more than the points.

3: Because I pay my balance in full each month, I'm getting an interest-free
loan from my bank each month. That money sits in my bank account accruing
interest for anywhere from 1 to 30 days (depending on when I make the
purchase). With interest rates as low as they currently are, I'm only making a
few cents each month this way, but that's still money I wouldn't otherwise
have.

How many of these reasons would also apply in Europe? I know that #1 does, but
what about #2 and #3? There are plenty of reasons for _not_ using credit
cards, which I didn't really get into, but are there reasons that apply in
Europe which don't apply in the US?

~~~
DrCatbox
1\. What the hell man, you dont make enough to spend within your means and not
have to worry if you run out of cash by the end of the month!? I only use a
debit card, because I know that if I even have to consider by the end of the
month how much I have on the bank account, I am then doing something seriously
wrong, either spending too much or my job is not bringing in the cash. And in
Europe, among my friends, it seems this works out very well. Make enough cash
so you dont have to worry, not make enough cash AND risk collecting debt (even
for a few days) just because what, you want to feel you always can buy
everything? I dont understand american mentality.

2\. I have a rewards debit card, everything I buy at certain places gives me
points and discounts at said places. Never going into debt.

3\. interest-free loan? Thats a funny concept, coming from a bank especially.
Are you serious?

Simply put, in Europe you make enough cash so at the end of the month you dont
ever have to consider you will be in debt unless you want to buy a ferrari on
your way back from work. You collect points using your debit card. Debt is
only used for fancy house/apartement, brand new car to show off, or starting a
business. Never for spending.

~~~
kahawe
> * Simply put, in Europe you make enough cash so at the end of the month you
> dont ever have to consider you will be in debt unless you want to buy a
> ferrari on your way back from work.*

I am from Europe and this is a completely ludicrous and false statement. If
anything I would expect my USA counterparts to get way more salary after tax
each month simply for the ridiculous taxes I am paying here (48%) plus we are
paying some more taxes on ANYTHING we buy including food and water.

There is, however, a big difference between spending mentality - most
Europeans shy away from going deep into debt and will typically only take
loans on housing and cars but not to spend on luxury and entertainment; we by
and large don't have that culture of ver-spending is ok and then keep shifting
the debt from credit card to credit card. Matter of fact, I don't even know if
VISA here would let me do that more than once...

~~~
ahoyhere
Food and water is cheaper in all the European countries I've been to -- all
staple foods like milk, eggs, butter, vegetables, most meat, and most
groceries, including bottled water (local!) which is $1.20 for a liter. Good
bottled mineral water in the US costs $3-5 per liter, for example. I lived in
Austria, spent lots of time in Germany, and have gone grocery shopping also in
Italy and Portugal. (The UK is not "really" Europe in its laws, so I don't
count it.)

~~~
kahawe
As complex as this might be to actually measure, here is a stab at it - the
Big Mac index seems to disagree:
<http://en.wikipedia.org/wiki/Big_Mac_Index#Figures>

~~~
ahoyhere
Big Macs barely qualify as food and are not a staple, or even remotely
desirable to have your people eating.

Fast food and restaurant food is relatively expensive in Austria. Good,
healthy, whole food ingredients are subsidized.

~~~
kahawe
I am Austrian (born and raised) and am working in Germany now and have been
around Europe and the world - what are those subsidies for food you are
talking about? You probably mean the Austrian government and the EU are
subsidizing local farmers?

Buying local farmer products will vary in cost and when you go to the
supermarkets (Lidl, Aldi and Hofer EXcluded, their "food" is absolutely
horrible) and buy organic food it definitely is expensive; a bit less in
Austria than in Germany though really good and very delicious food is scarce
in Germany in comparison. I found the food you can buy in the US cheaper when
you go by price per unit since packages are way bigger there and you have a
ton more to choose from.

------
vsl2
I wish him well on his endeavor because I'm not a fan of CC fees, but from a
consumer standpoint, I don't see any benefits. CCs provide (i) a line of
credit, (ii) fraud protection, and (iii) rewards/bonuses. All of these can be
incredibly valuable, particularly (ii) - you never appreciate the no-liability
fraud protection of a CC until you discover how difficult it is to deal with
situations in which your bank account is affected.

If credit cards were not already the dominant electronic payment mechanism
(i.e. VISA/MC were just starting like Dwolla is), Dwolla could possibly win
out because businesses could refuse CC's. Not going to happen now, at least
with regards to business-to-consumers. And I don't think most B2B transactions
were conducted through CC's anyways.

They seem to be doing okay now, but I don't see any secret sauce that's going
to make them anything more than a fringe player in the payments industry.

~~~
nickik
Isn't it really easy to steel somebodys card? Isn't credit card theft a big
problem in amerika? Dept cards are protected with a code so there not that
easy to steal.

Im from europe and this is just how it is in my view of the Amerika but I draw
my knowlage from movies and stuff so correct me.

~~~
jedbrown
It's easy to steal a card, but the card companies do pretty good fraud
analysis and in any case, the card owner is never responsible for the
fraudulent charges. Of course the cost of the fraud monitoring and insurance
system are passed on to merchants and those who carry a balance. But if you
don't carry a balance, there is no question that a rewards card is the best
available payment mechanism. If you use something else, you are subsidizing
those who use rewards cards.

------
Aloisius
Credit cards exist because people need a line of credit and debit cards seem
to offer the same benefits as Dwolla, at a lower interchange rate for the
merchant. The P2P feature is nice, ACH generally isn't used directly by
individuals and wire transfers/EFTs can be quite expensive.

I wish someone would make a real alternative credit processing network, but
there are so may laws and regulations, I wonder if it is even possible to ever
have something like a simple 1% transaction charge.

~~~
crikli
No, credit cards exist because in 1978 the Supreme Court released an opinion
allowing banks to export interest rates from one state to the other. So a bank
in a state with a 25% interest rate cap could lend to a family in another
state with a 12% interest rate cap. Politicians figured out quickly that if
they bumped up the credit rate ceiling in their state that the financial
institutions would come running, cash in hand.

Thirty(ish) years later we have an insidious industry that has saturated US
culture with the poison of unsecured credit. They set up stands at colleges,
snaring college freshmen with offers of free tee-shirts. They sponsor
educational curriculums in grade schools advocating the use of credit cards.
They even kick money to toy makers to include a little "Visa" or "Mastercard"
with their products. They lobby Congress to pass laws making it harder for
people who've dug themselves into a hole to include credit card debt in
bankruptcy.

Credit is not necessary for modern living, despite the propaganda that
permeates every piece of media to which we have access. I know this because 18
years ago I was that ignorant kid that wanted a free teeshirt. Ten years ago I
quit using credit as a means of purchase, and six years ago I made my last
monthly payment (with the notable exception of student loans, which is a rant
for another day).

~~~
eridius
I'm 26 years old and I have never owned a credit card. Unless you really need
to use a credit card as a short-term loan (which has always sounded to me like
a really bad idea), they're just not necessary.

~~~
flacon
"they're just not necessary"

I am 29 years old. I thought the same thing as you until about age 25 when
someone explained to me that CC's are a great way to build your credit rating.
Since I avoided getting a credit card for so long...I had no credit and a very
low credit rating! Whereas my wife who had had a CC for 10 years already had
great credit. As a result, we had to utilize her credit rating when getting
car loans/ home loans etc until my credit rating improved! Without good credit
you can really get owned (bad loan rates) when pursuing a loan for any reason.

~~~
crikli
Take a step back though.

Why were you pursuing these loans in the first place?

Did you really _need_ to get a car loan or did you just not have the cash to
buy the car that you _wanted._ Could you have bought a little less car, paid
cash, and have been payment free? Or could you have stayed in what you had,
saved up, and then paid cash.

Same with a home. Did you _need_ to buy a home? Or did you _want_ to buy a
home.

My point here isn't to indict your decision making, so please don't take my
questioning as a personal attack.

My point is that this idea of borrowing money to make purchases has become so
engrained in our thinking that very few people stop and question it.

There are cases where a clear _need_ exists and sometimes the only way is to
borrow money. I've been there. But the messages we hear on a daily basis don't
talk about borrowing to satisfy needs; rather they serve to support the idea
of borrowing to satisfy wants.

~~~
underwater
I'm completely with you on car loans (why pay so much interest for something
that depreciates in value so quickly; you're losing out twice).

But for the majority of people it is simply not possible to buy a house
without either making massive life changes or getting a loan. I don't think
that becoming a life-long renter is a smart choice either.

~~~
jarek
> I don't think that becoming a life-long renter is a smart choice either.

As someone contemplating if not life-long then seriously long-term renting,
serious question, why do you not think it's a smart choice?

~~~
rweir
if nothing else, most landlords have loans so you're subsidising their loan
(so paying at least as much as you would if you had the loan).

~~~
jarek
Perhaps, not certainly, but is that a drawback?

A mortgage is essentially a huge long-term bet, renting is a smaller, shorter
term bet. The owner is betting that everything lines up nicely: the value of
his property stays put or rises, nothing bad unexpectedly happens to the
property, undesirable people don't move in around it, a whole-sector bubble
doesn't pop. As a renter, there is no commitment: if the house is outdated you
can move to a newer one with far less hassle; you don't have to worry about
cost of maintenance; if you move during a bubble you can move once again when
the bubble pops and pay less. The owner may end up with a property in 20 years
if everything goes well, but a renter will never be underwater.

------
powertower
At 40MM/month, with average transaction of $500, and a $0.25 fee for each
transaction, they make $20,000 per month revenue... After you pay employees
(12 people), other costs (including legal), and take a hit from fraud, I can't
imagine there is a great upside to this business unless they start doing at
least 100x more volume. Concidering the nature of the business, I don't see
this happening.

~~~
derwiki
You could have said the same thing about Craigslist. Sometimes it's more
important to be disruptive.

~~~
powertower
Consumers arn't getting rid of their credit cards any time soon. Why would
they? They get 1) credit, 2) get to dispute anything they want off the bill,
3) don't pay any type of fee.

And the merchants don't drive payment options ... they simply accept what
consumers provide.

Also, IMO, the moment fraudsters target Dwolla, is the moment Dwolla realizes
that a 2-7% transaction fee is necessary to stay in business.

~~~
dethink
Consumers pay the fees. Just not directly.

~~~
icebraining
Costumers don't pay fees for having a CC. They pay fees because CCs exist,
regardless of whether they have one or not. Which means using Dwolla or a CC
is irrelevant in that regard.

~~~
breck
Many PoS merchants also now charge surcharges for using cards. (which I admit
for a merchant only makes financial sense if you underreport cash on your
taxes--otherwise it seems the costs of handling cash coupled with lack of
reporting is drastically more than the interchange).

------
stereo
Looks like he just reinvented the wire transfer. In Europe, a lot of money is
transferred like this; I can even make transfers from my phone.

~~~
pge
Begs the question - why are wire transfers so expensive in the US? Most banks
here charge $25 (and also make it difficult to execute online), yet you can
send a check for free. Doesnt make sense. The only sensible application I've
seen is ING's person2person payment application that allows an ING customer to
transfer money for free to anyone with an email address. The recipient just
has to enter their bank's ABA number and account number.

~~~
roc
> _"why are wire transfers so expensive in the US?"_

Regulatory capture. There's a ton of financial incentive for the banks and
processing networks to push credit. Instead of a simple processing fee that
gets pushed to near-zero, they can get a percentage transaction fee from their
monopoly network, possibly participation fees from the merchants, lock-
in/network effect, they get to push credit debt to increase revenue from the
purchaser, they can run 'promotions' and 'rewards' programs to stimulate use,
etc.

Even before the overdraft racket had a light shined on it, banks and networks
were pressuring merchants (through 'incentives') to shift transactions back to
credit. They were raising debit processing and card fees in direct response to
the revenue effects of consumers switching to debit. Lowering potential debit
revenue by cleaning up overdraft nonsense just put the final nail in
establishment incentives to support debit.

~~~
wiredfool
I think the reason that they're so expensive is paperwork. They're not as
automated as some of the rest of the system.

~~~
roc
And why do you think they haven't been automated?

~~~
wiredfool
My impression from the banks I've worked with is that a wire is a one
transaction per file affair, and that a single wire is as much effort as a 10k
item ACH file.

~~~
roc
My point is just that if there were profit in processing transactions as wire
transfers, they'd have been streamlined/automated/replaced with a more-modern
equivalent long ago.

~~~
wiredfool
There is. The banks mark up their costs. Wires were $7 at my bank 12 years
ago, they're up to $25 now. Sounds like profit to me.

There are a ton of alternatives out there for transferring money. Wires are
just one Fed product that happen to have a specific
speed/security/limit/regulatory system.

Off the top of my head, if you want to move money, there's at least: ach,
wire, image clearing, paper check clearing, image exchange, the atm
network(s), the debit card network(s), the credit card network(s). That's
leaving out paypal, western union, dwolla, and whoever else has started a
money transfer business.

Almost every single one of those has different guarantees about timing,
reversability, regulations, and transaction limits.

Wires happen to be a ca. 2 hour difficult to reverse (but possible) from /to
banks connected to the FED. They're more expensive, probably on the order of
$1 + staff overhead.

ACH is a roughly overnight to/from any bank connected to the fed, pretty
easily reversible for 3-90 days. They're ~$.01/transaction at scale, and you
can batch huge numbers of them into one file, so they scale. That's where most
bill pay and direct deposits go, as well as a ton of other stuff.

------
tlrobinson
I did a double take when reading this line...

 _"The only fee would be if someone paid you. We take a quarter. We really
want that quarter. It's all we want!"_

He should probably say "25 cents" instead of "a quarter".

~~~
jerfelix
25 cents. 25 percent. whatever. we really want that quarter.

That's pretty funny.

------
ricardobeat
There's a lot of talk here on how credit cards trump every other form of
payment, on credit lines and rewards. Americans love their cards:

* 1.4 billion credit cards held by U.S. consumers

* Average credit card debt per household with credit card debt: $15,799

* Total U.S. consumer debt: 800 billion (down from ~1 trillion in 2008)

Yeap, look at that debt, credit cards are amazing.

Let me put my _f___ the system_ hat:

1\. $2 trillion in transactions per year.

2\. Merchants pay between 2-4% in fees for every transaction

Many people seem to forget about the second - _"I'm not paying any fees"_ :/.

That means around $40 billion in fees per year. A few billion short of the
_national budget for the US Department of Education_. I really, really doubt
it's costing all this money to send and track (mostly virtual) money around.
And we haven't taken into account the late fees (around $20b/year), overcharge
fees, annual fees, banking fees and others.

Credit cards are just money harvesting machines.

Why exactly do we need a third-party to handle our payments? Banks own our
data and most of the infrastructure. Electronic payments should be part of the
basic account package. "Reward" cards are just another marketing gimmick to
get you to use more cards.

 _/hat off_

Cutting myself short, I'm extremely excited with what Dwolla/Square and others
are doing. It's 2011, I want to make payments with my eyes!

------
underwater
I'd never written a cheque until I moved to the US; I was pretty shocked at
how backwards money transfer is here. In Australia, BPAY
(<http://en.wikipedia.org/wiki/BPAY>) is pretty much how all utilities and
services are paid for. Transactions between individuals are usually via
standard wire transfer and are free, and often instant.

------
wmf
Previous discussion: <http://news.ycombinator.com/item?id=3228816>

------
mcv
I love these kind of projects. We desperately need independence from the
Visa/Mastercard monopoly over international transactions.

~~~
suivix
Except that dealing with the Dwolla people is far worse than Visa/Mastercard.

~~~
dethink
Can't be worse than PayPal. Depositing 2k, then spending none of it and
withdrawing it 2 months later might be odd. Either way, sending a photocopy of
your ID is not unreasonable.

~~~
suivix
It's very unreasonable since they deposited the money and had zero
transactions. Dwolla got the money from their bank account, and my parents
wanted to send it back to the same account.

It's even more unreasonable since they gave no notice that there was a hold on
the withdrawal.

------
davidcollantes
When I use my credit card to pay what I normally have to pay for each month
(groceries, utilities, etc) I get money back (yes, a check in the mail).
Dwolla can't beat that.

When I buy electronics with my credit card, I get an extra year of warranty,
and buying protection. Dwolla can't beat that.

When I travel, or rent a car, I get insurance coverage with my credit card.
Dwolla can't beat that.

When I buy anything with my credit card, and something goes wrong, I lose no
money. None at all. Dwolla can't beat that.

Long live, Credit Cards!

------
rcraft
I'm using Chase QuickPay to pay my rent. No fees for either of us and it works
great, I don't even have a Chase bank account, but quickly set up an account
and linked it to my BofA account. Only problem is I believe the daily limit
for payments is $2,000.

From this example, clearly some banks are figuring out how to sidestep the
credit card companies and provide value. How would this and other similar
products like the ING product not be serious threats to Dwolla?

~~~
mahyarm
Issuing banks (the bank name on your credit card) get the majority of the
credit card fee revenue, visa/mastercard and the requesting merchant bank get
considerably less.

~~~
rcraft
Chase QuickPay has nothing to do with credit cards. I'm under the impression
its all ACH transfers linking my checking account (at bofa) to my landlords
(at chase).

------
miles_matthias
I got the opportunity to listen to Ben speak at Startup Weekend Des Moines and
I have to say I'm really impressed with him. Regardless of Dwolla's future
(personally I think they will transform the industry), Ben is a shining
example of working hard and being a successful entrepreneur in a place that
really isn't very supportive of people who think differently. There are now a
few legitimate VCs, college courses, and frequent startup events in the Des
Moines area and every single person I've talked to gives a lot of credit to
Ben for helping that grow. Des Moines even just recently launched one of their
first incubator programs (Startup City) and is seen as a legit player in the
Silicon Prairie. My team at Startup Weekend Des Moines (Fundle.co) revolved
does group payment systems and Ben brought his team from Dwolla to meet us and
offer their expertise for coding the backend payment processing part of it.
Even if they don't kill the credit card, Dwolla deserves a lot of respect for
helping to jump start the entrepreneur community there.

------
yason
In Finland, account-to-account wire transfers are practically free and there
are two internet buying options in general use that rely on them alone.

First, most internet shops can do what the mail order companies have done for
decades: they send you the product along with a bill that you can pay with a
wire transfer. These days it means you go to you internet banking site and
issue the transfer directly from your account to the merchant's account.

Second, a majority of big merchants provide "internet banking payment" where
the merchant's site is linked with the top ten major banks' internet services.
From the merchant's site you choose your own bank and they will redirect you
to the online banking services of that bank, along with the amount they want
to charge and some other metadata. Now, your bank will ask you to login to
your own internet banking account and use it to authorize a wire transfer for
the given amount. After that's done (securely, on the bank's own website), the
bank will redirect you back to the merchant's site, again with a token that
the merchant's software can use to verify that the transaction went through.

Also debit cards are in high use: they are usually free to obtain as well and
it costs a merchant much less to charge a debit card than a credit card. This
is sort of related because debit card transactions are practically just wire
transfers. Some of them, such as Visa Electron, will actually require an
online connection to your bank so that the balance can be checked prior to the
wire transfer.

It all comes down to the fact that Finland's banks have been historically well
interconnected and they also have a long history of electronic inter-bank
transactions. Wire transfers have been a commonly supported and cheap way to
transfer money since the 80's: also private individuals can use them to move
money to each other free of charge. Further, wire transfers are immediate
between accounts in the same bank; between two different banks it takes one
night to get them cleared.

------
EREFUNDO
Maybe the current downturn (bankruptcy filings, closing of CC accounts)is
forcing people to start using cash instead of credit. I am a cash person
myself, but asking people direct access to their bank accounts would be a hard
sell, at least with credit cards there are many situations where they would
allow chargebacks. They will have a niche market of cash based merchants, that
is for certain. But it is way too early to say that their system can make
credit cards obsolete within the next few years. Credit cards are just
becoming popular in emerging markets where eCommerce is relatively nascent.
The real issue now is securing cross border and long distance payments, being
able to provide an unprecedented level of security demanded by the globalizing
peer-to-peer and business-to-business transactions.

------
igrekel
I don't know about in the US but I regularly transfer money througgh email
with an ING Direct canadian account. I know other financial institutions here
have similar functionality.

------
rmc
_Where we've seen a ton of transactions right now is with people paying
monthly rent._

I don't understand this. Perhaps it's an American thing, but here in EU, I
just put my landlord's account numbers into my online banking and I can
transfer them money for essentially free. I even set up a standing order so
it'll pay the same amount at a fixed day per month. I don't have to worry
about paying rent. How does a landlord accept money via their credit card?

~~~
itsnotvalid
If somehow I can check exactly who send me the money it would be great,
however times are, banks don't always show you who is sending you money in the
statements (at least happen to me with my non-EU non-US bank). If one uses
such service, the statement would have clear indication of who makes the
transaction and would be much more traceable.

~~~
rmc
Yeah that would be a problem. Here you're allowed to put a ~ 20 character
string to appear on the receipients bank statement that you should use to show
who's paying.

------
bryze
It really surprises me how many nay-sayers have posted negative comments,
here. Bottom line is that, because of the popularity of paying with credit
cards, merchants have to pass on the cost of transaction fees to consumers.
Consumers pay. Will your reward points make up for the increased prices that
you unwittingly pay? I doubt it. Even if Dwolla isn't the one to do it,
toppling credit card profits is in everyone else's interest.

~~~
smackfu
Why are merchant credit card fees somehow different from all the other costs
that merchants silently pass on to the consumers? Costs that the merchants
choose to pay in order to get more sales?

~~~
nickik
The are diffrent because the can be avoided easly. Visa/Mastercard are not
really doing much but the suck lots of cash out of the real economy and you
think thats fine because other people/things suck out money too. We should the
consomer keep paying for this when it can be avoided. If there are other
silent cost you too should do a start up to help avoid those.

------
kin
As a customer, I prefer: <http://venmo.com> Lets me easily pay my friends and
vice versa, 100% free, no transaction charges. Funds get pulled out of my
credit card like a regular purchase (OR out of debit card or checking if
preferred) Funds paid to me get automatically deposited into my checking
account.

Usage is effortless.

They make money by charging a percentage on transactions that businesses
receive.

------
rcraft
Anyone out there paying their rent with a credit card while maintaining no
fees for the landlord?

I played around with Venmo in the past and thought this would be perfect for
this use case. Been a while, but I believe you can accept credit cards
directly and pay no fees. Seems crazy, but I think the only downside is the
amount limits.

Would be awesome to collect cc rewards on rent payments every month.

~~~
luser001
I do. :) Corporate-owned apt complex.

~~~
rcraft
Thats awesome. Is this common practice for corporate-owned complexes? And they
obviously don't charge you anything extra to use a card?

I've always rented from individuals, so don't have experience.

~~~
luser001
wrt common practice: I don't think so. They added this feature quite recently
(a year or so ago).

------
nl
_Only the person sending it has to have a Dwolla account to initiate the
transaction. The person receiving it will have to sign up for an account, but
we've been surprised at the conversion there_

"been surprised at the conversion" when someone is sending you money?! I think
that's pretty much the ultimate dream - one customer paying another person to
sign up!

------
Ezku
Link to TFA on one page without the fluff: [http://www.sfgate.com/cgi-
bin/article.cgi?f=/g/a/2011/11/10/...](http://www.sfgate.com/cgi-
bin/article.cgi?f=/g/a/2011/11/10/businessinsiderthis-28-year-old-
is-.DTL&type=printable)

------
eduardordm
Well, dwolla is a credit card company. I'm a CTO (and co-owner) of a medium-
sized credit firm in Brazil (full stack: processing, credit, gateway, etc). We
offer plastic cards, iOS & android apps, NFC, IVR calls, web app, e-CPF
(Brazilian electronic "social security" card) as form of payment methods.
Guess what? Most people WANT the damn card. We would LOVE not to spend 1.4 U$
on every card we have to manufacture. I don't see Dwolla as the future of
payments, they offer a limited solution. My company is planning for a future
where there will be many ways to make a payment, fit for every social class
and/or preference. In brazil, it takes 3 minimum payments to buy a smartphone.
In the US, 49 million citizens are poor. Let's not deny the economic reality
we are living in right now.

------
latch
"Our generation actually understands that when you buy sh*t, it comes out of
your bank account and you have to pay for that."

Money quote. Makes me want to work there. This is our generations equivalent
of Jobs' universe quote.

------
jaggederest
I just want to find his PR agent/agency. I've seen this story in 8 different
outlets and forums over the last little while.

------
feralchimp
The 28-year-old in the story is a sympathetic protagonist, and gives the
venture plenty of indie cred, but let's all take a moment to reflect on the
fact that he's only being allowed to do this because one of his primaries is
an entrenched inside player. He managed to pitch someone one layer deeper
inside the onion of oligarchy, and those folks decided the glass slipper fit.

Anyway, well played, sir.

~~~
kfcm
Agree. After all, he did have another, non-tech $1MM/year business. Suppose
his banker was just going to blow him off when he approached with this idea?

Personally, I think this is Wells Fargo (and maybe a couple others)
outsourcing the development of a new payment system/network.

------
ck2
So why do ACH transfers take 4-5 days in 2011 anyway?

~~~
wiredfool
Short answer, They don't.

Longer answer, they're usually overnight, the transaction goes out one day and
funds are available the next (to the bank anyway). In some cases, there's same
day stuff if you hit the early window, but that takes a cooperative bank.
Retail wise, they can take up to 2 business days if you try to do it at a
small bank with a correspondent relationship to a real bank in alaska.

But when you see 4 or 5 days, it's because the bank is holding access to the
funds because the transaction is reversible. 3 days is the window for things
like NSF and incorrect account numbers, but in the case of unauthorized stuff,
it's 90 days. Frauds can claw back even farther.

------
pitdesi
This is interesting. I really like Dwolla as a company and the ambition, and
think the are executing well, but there are some things you should know.

1) Most Americans use credit cards because they need the credit. That is
something that won't be solved. Many of us also like the benefit of rewards
(miles, dollars, whatever). To get payers on board, you need credit, rewards,
and exclusivity (i.e. is this the only payment method available at somewhere
where I want to shop). The last 2 meaningful companies were paypal and
discover card. PayPal had millions of Ebay sellers using PayPal AND they
initially paid people to become members. Discover card started the cashback
movement and was the only electronic payment option at Sears (largest retailer
in the world at the time).

2) Due to the Durbin amendment (which went into effect October 1st of this
year), debit card cost to a FeeFighters merchant for the average transaction
in the US is about $0.25. (<http://feefighters.com/durbin>). They now cost 22
cents plus 0.05% of the transaction. The reason that I mentioned a FeeFighters
merchant is that most processors do NOT pass through the savings to the
customer, you only get that with interchange-plus billing (which only about
10% of merchants are on, mostly big merchants).

3) Doing some quick math, that $350 million in transaction volume gets them to
$175,000 in revenue per year ($350M/$500 transaction size)*$0.25 = $175,000.

Still, they have a fantastic opportunity and I for one am rooting for them.
Ben has the same roots as FeeFighters (had another company, was pissed off at
how much he was paying in processing fees). He chose to tackle it a different
way, one that is probably harder to execute on but can make more change in the
long-run. Having met him, I bet that he didn't quite say the words in that
headline.

~~~
cynicalkane
Credit cards right now are used by a lot of people because they're the best
payment option. Easy to use, limited risk of loss to theft, many offer cash
back or airline miles.

They can also be used as a source of payday/personal loans, but that strikes
me as suboptimal. Justifying the existence of credit cards as a source of
credit doesn't make sense. One, why must the credit be tied to a card? Two,
how often is a responsible spender gonna need that card as a lender of last
resort? In fact, the idea of a "charge card" predates the idea of attaching a
revolving line of credit to one, and you can still get charge cards from
American Express, among other firms.

The only argument in favor of credit cards is the freedom-oriented one that
people should be free to have easy access to run up revolving debts. I'm fine
with this argument, but let's not obscure the issue by pretending that a
significant number of people actually need access to that credit and that they
need it in card form. The utility of credit cards lies in making payments, not
having credit, and they're clearly an inferior solution--the space is ripe for
disruption.

~~~
jedbrown
"Check cards", or whatever name is used for bank cards that you can use as a
credit card (instead of only with a PIN) are unequivocally a worse deal for
consumers. You don't get any of the benefits (cash back/miles, insurance, etc)
and in the case of fraud, the money is gone until the claim is processed. The
physical form (card) is irrelevant, but it will be very hard for any system to
compete with rewards credit cards. Since the card companies do not allow the
merchants to pass on the fees to the consumer, unless you can make a system so
pervasive that merchants can afford to _not_ accept credit cards, I don't see
how you can compete on the basis of low fees. You have to give at least 1%
back to the consumer (more to get people to switch), and then you have only
removed a tiny bit from the status quo. The people who subsidize the rewards
cards, those who carry a balance, probably aren't interested in a system that
doesn't offer credit.

~~~
lutorm
Yeah, this was my thought too. Since everyone else who uses a credit card pay
_no_ fee, and I have to pay 25c to Dwolla, I'm actually subsidizing everyone
else's credit card fees.

If the credit card fees were passed through to the customer it would work, but
with the current "socialized" model there is no customer incentive.

~~~
ricardobeat
Credit card fees _are_ passed on to the customer. They are included in the
price of everything you pay. The merchant is the one saving money with Dwolla,
and hopefully passing on the savings to you.

~~~
URSpider94
Except that the CC companies forbid merchants from passing the extra costs on
to CC users.

~~~
callmevlad
Yes, in the sense that they can't charge customers paying with a credit card a
different price. However, because payment fees are an expense to their
business, merchants absolutely pass on that cost to customers - it is
reflected in the final price of whatever they are selling. In a sense, the
non-credit paying customers subsidize those paying with a credit card.

~~~
URSpider94
Of course they/we do. But, the Nash equilibrium is at 100% credit card use: if
I stop using credit cards at vendors, I lose out on the benefits (interest-
free loan, chargeback ability, rewards, purchase tracking through Mint), in
return for a savings of 1 - N/(N-1) * transaction fee = zero. I have an
incentive to keep using charge cards.

------
suivix
My parents put $2000 in a Dwolla account, did nothing with it, and two months
later decided to withdraw it. Dwolla put a hold on it for over a week without
any notification, and my father finally decided to call. On the phone they
said 'well you know, $2000 is a lot of money'. My parents had to send over
scanned photo identification just to get their money out.

Anyways, what I learned is that Dwolla's customer service is terrible. I don't
recommend it to anybody.

~~~
davidandgoliath
So because Dwolla's customer service tried to protect your parents, they're
horrible? Just curious. I used to think my bank was evil because they'd
process every check manually adding delays -- but it's saved me in a few fraud
cases.

(They're still evil for many other reasons though)

~~~
breck
> So because Dwolla's customer service tried to protect your parents, they're
> horrible?

This is a common marketing lie. This actually isn't trying to protect his
parents. This is greatly inconveniencing his parents in order to protect
themselves in a cheaper fashion.

Preventing theft is hard. Preventing theft while not punishing users is
extremely hard. And so lots of banks and services take the easy route: forcing
complicated passwords, OTP's, holds, "sitekeys", security questions, et
cetera.

True protection would be: "Behind the scenes we are going to do everything we
can stop thieves. And, in the very rare cases where they succeed and access
your account, we'll cover it 100%. And, we're not going to make you stab
yourself in the eye every time you want to create an account, or send, receive
or withdraw funds."

Then it's up to Dwolla to build in strong defensive and offensive measures to
combat online thieves, without making 99.9% of its users suffer for the 00.1%
of people that are looking to steal.

tldr; these "security measures" absolutely suck and I can't wait for the
service that comes along and says "we did the hard security work so you don't
have to".

P.S. Dwolla looks awesome. I signed up. Am very impressed. I realize EVERYONE
has these PitA security measures and I'm sure the Dwolla guys hate them just
as much as me and have plans to eliminate them eventually. I just had to
respond to the marketing bs.

~~~
rick888
"Preventing theft while not punishing users is extremely hard. And so lots of
banks and services take the easy route: forcing complicated passwords, OTP's,
holds, "sitekeys", security questions, et cetera."

You will always be inconvenienced by security measures. All of the things you
described is the company working "behind the scenes".

"tldr; these "security measures" absolutely suck and I can't wait for the
service that comes along and says "we did the hard security work so you don't
have to"."

The problem is that if you got your money stolen, like you wrote above, you
expect the company to pay for it 100%. If security was reduced to the levels
you are describing, more money would get stolen and the company would be
liable. Why would any company want to take this risk?

For any company or bank dealing with money, image is everything. Customers
will leave if they can't trust someone with their money. I know I would.

"This is a common marketing lie. This actually isn't trying to protect his
parents. This is greatly inconveniencing his parents in order to protect
themselves in a cheaper fashion."

I would gladly start a company with less security if you sign a statement
saying that my company isn't liable for any money stolen because of the
inconvenience of higher security.

~~~
breck
> You will always be inconvenienced by security measures.

Ah, but we won't. Curious people will find a way. Look around you, they always
do.

------
kahawe
While it sounds great that someone is taking a stab at making transferring
money easier and cheaper, they are clearly missing a few crucial points.

First, they are complaining credit card companies charge them for their
service - on the other hand, those companies do have costs for building and
maintaining their systems and all costs that come with it. We will leave the
question whether their prices are reasonable or fair aside for now.

Another benefit I get from CC transactions: when I send money to the wrong
person or got scammed, I can just have VISA cancel it and I get my money back.
In the good 10 years I have been using my own CC(s) I needed to do that maybe
2 or 3 times and it worked absolutely flawlessly. You cannot just cancel a
bank transaction and get your money back like that.

Also, wiring money abroad is going to be a much bigger problem for them.

But there is a far more fundamental flaw in their logic:

> _"We think, in the long term, sending money should be as easy and effortless
> as finding a friend on Facebook."_

The reason anything money-related is so over-regulated and cumbersome and full
of regulations and bureaucracy is not just "the man keepin' ya down, bro" and
neither is it only stupid people who only try to come up with empty
regulations to bill you. All that is in place to fight against money laundry
and help make it more difficult for worldwide organized crime to make easy use
of their illegal cash. The very reason you can not just send money as easily
and effortlessly as friending someone on facebook is: if you could, your first
customers would be organized crime. They cannot wait for new possibilities to
launder money easier and faster.

I am wondering how they can be moving 50 million a week without all sorts of
agencies cracking down on them? This has got to be heaven for small and big
time drug (or weapons, humans) sellers as of now.

So ultimately, it makes me sad this doesn't look like a promising replacement
for the paypal overlords.

------
lhnn
>Can users only send money to Dwolla members?

No, you can send money to anyone. Only the person sending it has to have a
Dwolla account to initiate the transaction. The person receiving it will have
to sign up for an account....

LOLWUT

In other words, you must have an account to receive money. Technically
different, but that is some lawyerspeak if I've ever heard it.

