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Dwolla is going to eliminate ACH (dwolla.com)
219 points by ScotterC on May 8, 2012 | hide | past | web | favorite | 116 comments

Who owns ACH? The banks do.

Who owns Dwolla's replacement? Dwolla.

Banks are smarter than that. Adoption of this will be zero.

Instant transfers mean that someone can bankrupt an entire bank - instantly. If someone hacks this brand-new untested system and issues 100% withdrawal orders for every customer account, B of A and Citibank and Wells Fargo and HSBC can all be bankrupted between 10:32:24 and 10:32:25. Ooops!

ACH is slow and revocable on purpose.

Indeed. I wish Dwolla the best of luck, but realistically it's going to take a lot more barbarians at the gate to bring down the existing system and replace it with something better.

Most importantly, anyone who talks about financial transactions at the level of shuffling bits around and doesn't address the issues of fraud, money laundering, regulations, and legal compliance is just not serious about it. If you want to invent a new currency or a new banking infrastructure, go right ahead. But unless you are prepared to get into bed with the existing processors as well as world governments and law enforcement agencies then you are probably relegating your system to obscurity or worse.

> fraud, money laundering, regulations, and legal compliance

A billion times over. I'm very passionate about changing banking, but the reality is that every single 'new' model breaks down when you take into consideration the overhead created by compliance and fraud prevention.

It's a fundamental flaw in defining the problem correctly. If you think banking is just shuffling bits around, then it looks like a trivial problem. But if you think it's a problem of allowing legitimate transactions while limiting fraud and fighting money laundering et al then it's a much thornier problem to tackle.

I think your claim about fraud prevention is fair. However, because compliance and regulatory issues have dramatically shifted, Dwolla might have a competitive advantage in this area.

If you believe that recent regulation (Dodd-Frank, et al.) ensures better outcomes for consumers than past-regulation, you'd think it'd be easier for new entities to comply because they're not hindered by institutional baggage and said entities will share the sentiment and spirit of their regulators. If that's the case, it's a win for consumers.

Dwolla always talks about how friendly they are with the banks, but it's not clear why banks wold be friendly with them.

Easy answer: the banks don't see them as a serious threat, so it's easier (and better PR) to placate them.

Easier Conspiratorial Answer: "Keep your friends close, and your enemies closer."

The banks get to learn about their tech and keep abreast of whatever "new groundbreaking innovations" they have, whilst pretending to play along.

Projecting sinister and conspiratorial motives on banks has been a popular fad these last 3 years, but I don't really see why this is necessary to explain their actions here. There's nothing necessarily sinister about working with people introducing new ways to do your old business. Actually, that's what you want banks to do.

Well, I know of one market where this conspirational explanation is exactly what happened.

Commodity and future exchanges existed, one way or the other, for 5000 years. The modern commodity exchange traces its history at least to 15th century Europe, if not earlier.

If you need to change currency, you go to the bank. You would expect a currency exchange, where buyers and sellers meet to exchange currency, would have existed given that it's much simpler than a stock exchange / commodity exchange to run.

Well, bank stifled the money supply to any such attempt, until they couldn't in the early '2000s -- but they invested and bought the emerging players, to make sure that their lucrative money changing business is not harmed.

Look up who owns currenex, hotspot, EBS, and the other currency exchanges. Also, look up the rules - they favor the banks above other players.

As someone who traded large volumes of commodities, currencies, and their derivatives, this is false. Most trading of these assets happens OTC, between private parties, and never touches an exchange. This is far more de-centralized and efficient than having it happen on exchanges.

The retail money changing business is not so great if you're dealing in change (<$10k), but as someone who negotiated the rate at which he changed his Swiss francs into US Dollars at a JP Morgan Chase branch in New York, it isn't a regulatorily locked market. Having a private banking relationship will lower the threshold for negotiated rates, too.

I'm not sure what you thought I'm claiming.

> As someone who traded large volumes of commodities, currencies, and their derivatives, this is false. Most trading of these assets happens OTC, between private parties, and never touches an exchange.

I was not claiming that it does happen in an exchange. I was claiming that the banks were (successfully, for years) doing everything in their power to stop such an exchange from forming - do you think that is not true?

I was claiming that the big banks own the existing exchanges, currenex, hotspot, EBS, is that not true? (I've been out of the game in the last 3 years, the player names might have changed -- but I'd be surprised)

I have first hand experience of big banks exerting their influence on those (supposedly anonymous) exchanges to kick participants out when their trading style was not compatible with the banks' interest.

> This is far more de-centralized and efficient than having it happen on exchanges.

De-centralized, yes. Efficient? Only for the other party (which is a bank, the vast majority of the time).

If you want to change swiss francs to USD, and I want to change USD to swiss francs, if we had a two sided market ("an exchange") to meet in, we'd find each other, agree on a public, easily discoverable price, and that's it; The one of of us who was smarter (or could wait longer) would earn the spread, the other one would pay it; alternatively we would meet at the mid price, splitting the spread. This happens all the time in exchange traded shares, commodities and futures.

However, the way it works today OTC is that instead you and I both find a big enough player (e.g. JP Morgan, or Goldman, or whoever), who makes a market in the currency - buys at the lower price, sells at the higher price, earning the entire spread, always. Unlike either of us, that player -- by virtue of its size and position -- knows the "buy" and "sell" orders of a lot of the smaller players, and can react accordingly.

> s someone who negotiated the rate at which he changed his Swiss francs into US Dollars at a JP Morgan Chase branch in New York, it isn't a regulatorily locked market. Having a private banking relationship will lower the threshold for negotiated rates, too

That's exactly my point: You would expect an exchange that would make this into a symmetric, competitive, information efficient market because there are hardly any regulatory issues (compared e.g. to running a stock or commodity exchange). The fact that this hasn't happened in 500 years of modern exchanges is a testament to the stronghold that banks have on currency trading.

Note that such exchanges have appeared for everything, from bandwidth to energy to pork bellies - but only in a very limited way for currencies (controlled by the same old boys network), where it is easiest to start such an exchange, and such a market benefits everyone except same old boys.

>if we had a two sided market ("an exchange") to meet in, we'd find each other, agree on a public, easily discoverable price, and that's it

Every trade is a two-sided market. An exchange differs from OTC only in that it is more centralised. The NASDAQ is no more an exchange than the currency markets (both are de-centralised, quote-driven markets).

>by virtue of its size and position

Market makers on traditional exchanges have information from volume that smaller players don't. In fact, the centralisation means the cumulative frequency distribution of market power trails off faster on traditional exchanges versus OTC markets (this is why mom and pop can stick guns to the banks in pink sheets but less so on the NYSE).

>stronghold that banks have on currency trading

You don't have to go through a bank. You can list your currency trade on a currency bulletin board. But they will still have market makers who amass advantage by volume. Most currency hedgers, except the very largest, go through a bank because they get good spreads. FX market making is very competitive (a border between you and your competitor doesn't help) and can always be dis-intermediated. Stock exchanges get a lot of volume from regulatory fiat. If you really want a centralised FX exchange note that currency brokerages internally crosses their orders - you can draw a box around those brokerages and call them exchanges if you'd like.

FX market making fails to make indecent profits save for the effects of insider information, usually from central banks. If there is a "stronghold" we were all playing our cards rather stupidly.

>exchanges have appeared for everything, from bandwidth to energy to pork bellies

Requiring everything be on a quote-driven exchange doesn't make sense - it is stupid to subject to an illiquid market (esoteric derivatives) and stupid to subject to a market that's already nearly perfectly liquid (currencies).

As an aside, I would guide anyone looking at Wall Street to note that the centre of gravity of influence has long since shifted away from the banks and towards proprietary market makers, e.g. GETCO, Knight, and hedge funds, e.g. Bridgewater, SAC. For the time being the new citadels of power are sufficiently de-centralised to be highly competitive with each other and, as a cohort, the banks.

Reading your reply, I see we're discussing two different things.

You are arguing against centralized FX trading (the logic, and viability of). But I'm not arguing for it. When I'm referring to an FX exchange, I'm talking about a symmetric, non-centralized, almost unregulated, two sided open market. An airbnb/uber for currency. What hotspotfx claimed to be, but isn't.

A place where I can come in and say "I have $100, I want to buy 80 euros", and you say "I have 100 euros, I want $130", and we'd find each other. TTBOMK, HotSpotFx and Currenex supposedly offer that, but with great limitations and favoring the bigger players (who own them). And there are no such venues independent from the large banks.

Such a system would eliminate paying (half) the spread, which is where currency market makers make their money -- by letting you trade directly with me, rather than force us to let the bank net with itself and pocket the spread. It works for stocks, it works for futures, it works for commodities. Why can't it work for currencies?

And I know, from working with them, that the big banks actively work against the formation of such a market; and they have the clout to sabotage that.

> If there is a "stronghold" we were all playing our cards rather stupidly.

Again, I'm not saying that the banks know something you don't. They make money on spreads (little on EUR/USD, more on JPY/SEK). The stronghold is on the ability of anyone else to build, say, a "currency ebay".

> Requiring everything be on a quote-driven exchange doesn't make sense - it is stupid to subject to an illiquid market (esoteric derivatives) and stupid to subject to a market that's already nearly perfectly liquid (currencies).

Nothing is required. But doesn't it seem strange to you that currencies, which are at least as liquid as other things which are traded in {symmetric, anonymous, information-equal} venues, aren't -- when the regulation around them makes operating such a venue much easier than, say, a futures exchange?

> For the time being the new citadels of power are sufficiently de-centralised to be highly competitive with each other and versus the banks.

I agree completely, except in FX, which is dominated by the banks. (Disclaimer: Up to date as of 2010. hedge funds were already at the center of gravity).

>A place where I can come in and say "I have $100, I want to buy 80 euros", and you say "I have 100 euros, I want $130", and we'd find each other

Sort of like what you do with an FX trading account? You wouldn't have to pay the spread. Of course the price could slip against you while you wait, which is why most hedgers just pay a market maker (MM) to take that risk.

Or, if you think the spread is so sinister, you can go and make a market on the spread as well. There are upstarts doing this all the time, once again laying waste to the claim of banks having a stranglehold on the FX market.

>...rather than force us to let the bank...pocket the spread. It works for stocks, it works for futures, it works for commodities.

You pay the spread to an MM on all of these. Plus a commission to your broker which includes a commission to the exchange. If you trade a stock on the NYSE you always trade with specialists; on NASDAQ you only mostly trade with MMs.

The reason there isn't a currencies exchange is because there are a number of de-centralised, inter-linked currency trading venues in place. It would be more expensive to trade FX on a stock-exchange model.

>FX, which is dominated by the banks

You seem to have a faith-based conviction on this, so I'm not going to argue it any further. The currency markets are one of the most efficient, i.e. fair, markets on the planet. As a former trader at a multi-trillion dollar Swiss bank I can say with supreme confidence that you're far off the mark in that charge.

P.S. The currency markets work like Craigslist, except where there are tons and tons of Craigslists that are constantly talking to each other and that everyone is always connected to.

Note: there are banks that have a strangle on the FX market. Central banks. And the market still runs away from even them. Trust in the fact that if there was any pinch point in the FX markets the central banks would have found it.

I see where you are coming from: You're from one of those big banks that (IMHO) strangle the innovation, almost without paying attention. But as you seem so much more knowledgable about this, a few answers from you can save me a lot of money - hopefully you'll agree to answer?

> Sort of like what you do with an FX trading account?

Can you name an FX trading account that matches two users (rather than user and market maker?) I'd like to move my money there. Doubleplusgood if it's anonymous like the CME.

> Or, if you think the spread is so sinister, you can go and make a market on the spread as well.

Have you tried that? I have. And got thrown out of multiple FX venues because I was profiting at the owner's expense; all of these venues profit by making markets and netting locally. In a symmetric market, there's no other player who can throw you out when you're smarter than they are. The best they can do is not trade with you (and if the market is anonymous, they can't even do that without stopping trade entirely).

And depending on your strategy, the spread might be very sinister. I can (could, anyway) make money on the super competitive EUR/USD if I'm allowed to make markets. I can break even on the buy side if the spread is <1 bp. I can make more on currencies with larger spread if I'm allowed to make markets. But I'm not.

> You pay the spread to an MM on all of these.

Dude, have you ever traded CME, Eurex, Liffe or almost any exchange other than NYSE and NASDAQ? (or, traded NYSE/NASDAQ these through the old INET or ARCA?) If you paid to an MM when you did, your broker was cheating you. There were no privileged market makers on these exchanges.

> As a former trader at a multi-trillion dollar Swiss bank

Funny. As a former quant whose software traded trillions in notional (not that it says much, given that 3 eur roundtrip could get you >120,000eur notional) I can assure you I know what I'm talking about. And no, it wasn't in the NYSE or NASDAQ. And no, I wasn't paying any MM. And yes, if I had to pay the spread, I wouldn't be able to make any money.

> there are a number of de-centralised, inter-linked currency trading venues in place.

Can you name one that has symmetric anonymous trading, like CME or Eurex or LIFFE does? Because the biggest names that claimed to (Currenex, HotspotFX) didn't - and I know that because I witnessed that first hand.

If you can, I'd be happy to start trading there. Please let me know of one.

Hmmm, yeah, that is a potential reason I suppose. What better way to find out exactly how to disrupt your disruptor (likely via regulation) than working hand in hand with them? I'm not quite sure I buy it, but it certainly wouldn't be outside of the realm of possibility for banks.

As a former employee of one of those banks, I can tell you that you are overestimating them. They are not even thinking about keeping their enemies' close or disrupting the disruptor. Who gets paid a bonus for that??! Nobody.

One thing to remember about Dwolla is they're located in Des Moines. Besides being flyover country, that town's economy is about 80-90% financial services. Insurance. Mortgages. Retirement funds (401(k)/pension). Banking. Des Moines is the back office for much of the country. I shudder to think of how much money is in, and flows through, that town.

Another thing is Wells Fargo has several businesses HQ'ed there--mostly in their consumer "division". (I'm flying blind with regard to their corporate org chart names.) I'm betting besides the credit union guys, WF is lurking quietly in the background, guiding, protecting, waiting to acquire when the time is right.

Because banks no exactly how antiquated their current systems are.

I agree.

However, why have you assumed Dwolla isn't cooperating and establishing relationships with existing market participants and regulators? They appear knowledgeable and are treated fairly within the present industry (e.g. they've consistently received favorable and auspicious attention from industry press).

Well, there are some people cough who think that "fighting money laundering" is not a plus, and that the process of fighting fraud (NOT hacking, but "oops my credit card got stolen) shouldn't be at the API level.

Granted, the United States won't look fondly on a protocol they can't have total control and insight into, so a launder-friendly protocol ala bitcoin isn't going to get the endorsement of Wells Fargo.

Dwolla has funding from a large credit union (Viridian, previously known as John Deere CU). So maybe they're looking for a way to give CUs an edge over the mainstream banks?

Viridian might be large for a credit union, but with only $1.4 billion in assets (according to wiki) it's really not very big compared to many of the banks and companies that use ACH. In 2011 alone, $33.1 trillion was processed by ACH in 20.2 billion transactions (https://www.nacha.org/node/1130).

To my mind, as someone who works in the financial sector, Dwolla claiming they're going to take on ACH is a huge flashing red light saying that they're either dangerously naive or they really don't understand why banking works as it does - or a combination of the both. Either way, there's no way I'd let my money go near them.

"huge flashing red light saying that they're either dangerously naive or they really don't understand why banking works as it does - or a combination of the both."

I'll take the "combo".

To wit, from their support center:


1- "Dwolla.com is tested and certified daily to pass the McAfee® SECURE Security Scan. McAfee® SECURE is the world‘s leading provider of website security services and probes Dwolla.com daily for known vulnerabilities. To help address concerns about possible hacker access to your confidential data, and the safety of visiting this site, the "live" McAfee® SECURE mark appears only when this site passes the daily McAfee® SECURE tests."

2 - "Dwolla's data processing technologies are professionally hosted by a company that specializes in hosting solutions. All information provided to Dwolla is encrypted and securely stored to ensure the confidentiality and integrity of our customer’s transactions and Dwolla’s intellectual property.

The hosting provider also enables Dwolla’s solution to be highly available. We have worked with the hosting provider to build in redundancy in our primary data center, and a secondary data center as needed for disasters"

There you have it. 100% hosting uptime and absolute security. Because the security provider is best of breed and "Dwolla's data processing technologies are professionally hosted by a company that specializes in hosting solutions", as opposed to, say, Walmart.

They are hosted by Ongoing Operations, a company that specializes in building out big offsite backup call centers for Fortune 500s to use during natural disasters. They started doing the same thing for datacenters too, with mixed results.

Then, as someone in the financial sector, you can explain "float" and how banks profit from locking up transfers for an extra day or two before the funds are accessible by the recipient.

If Dwolla wants to provide an alternative to big-bank ACH with smaller vigs for the holding banks, what's your beef?

In practical terms, little to no money is likely made from that float - it's more than likely that any money they could make, would be offset by the losses from chargebacks/fraud/mistakes and the operational risk costs of the transactions (for example the risk that while the float is being held one of the two banks declares bankruptcy). I would suspect as well that the float money would be limited in terms of what the bank can use it for in terms of short term investments as it might well fall into regulations regarding the bank's capital reserve requirements as the money doesn't technically belong to the bank at that point.

I'll say though that retail banking is not my area - I work with derivatives and risk.

For what it's worth, I've got no beef at all with someone trying to do ACH better. I just think that for Dwolla to claim that they'll be able to do so is either massive hubris or massive naivety, neither of which I want in my payment processor. They're a tiny company backed by a small company, and that does not bode well for their ability to deal with operational risk when they're talking about these sort of ventures.

What is a vig?

Google "vigorish." It's a fee most commonly associated with gambling.

As someone who works in the financial sector, can you explain the relationship between assets and transaction volume?

In terms of Viridian vs. ACH? Mostly I'd consider it to be relevant just because Viridian's net assets are roughly equal to 25 minutes of ACH's transaction volume. On that basis I'd say that if they're backing a company that's trying to disrupt ACH, then it's an exceptionally high risk venture as their capital pool is tiny in comparison and with the way the venture is described on Dwolla's blog it doesn't sound like there's much (if any) recourse if there are fraudulent transactions.

Or to put it a different way - if you want to disrupt big money, you better have deep pockets.

For comparison with the 'Big Four' US retail banks (and baring in mind that these are international banks as well, so not all assets are US based)

Citi - $1.8T JP Morgan Chase - $2.265T BoA Merrill - $2.129T Wells Fargo - $1.313T

The worlds largest retail banks are somewhere in the $2.5-$3.5T range, with the same caveat about that being spread around the world.


If someone breaks the system the 5k limit doesn't mean anything. Is the $5000 limit for launch or permanent? I sure hope it's not permanent. Electronic transfers are most important for large amounts of money.

Very true. A standard Barclays business account (or at least my one) come with a transfer limit of £250,000.

It's worth noting that limits are usually balanced by availability.

I'm not familiar with Barclays, however, in my experience, many banks will process a transfer less than $5,000 USD in three to five business days, but take far longer to process a transfer greater than $5,000 USD. While it's understandable, I wish banks made this trade-off explicit.

You forgot to mention that the Federal Reserve is involved (as with domestic wires)

> Who owns ACH? The banks do.

But they don't own Visa or Mastercard. Visa and Mastercard do. And yet the banks play the Visa/Mastercard game.

Actually, the banks used to own Mastercard. It's now publicly traded (since 2006), but it was originally a cooperative owned by the participating banks.

The banks also used to own Visa. It was originally called BankAmericard and changed its name when it became owned by a consortium of banks.

Europe seems to do just fine with instantaneous (or near-instantaneous) bank transfers.

If somebody transfers €100k to your account, can you withdraw it as cash 5 minutes later?

When the money is credited to your account, then you may act on it immediately - take it out in a bank, take it out in an ATM, pay for services with this money by a debitcard, transfer it so someone else, etc.

However, taking out 100.000 in cash might require advance notice, as it's a rather rare case and many smaller branches (say, 2-teller branch in a mall) by default wouldn't actually have that much cash in place, so they need to request extra cash to be shipped to them.

Also, any such cash transaction will be instantly reported to the government/police, as required by 'money laundering' laws; and identity verification when opening an account is a bit stricter than in USA - generally, account holders tend to be real even in fraud cases; identity theft/document forgery is very hard and rare.

There are fraud/money laundering cases where the recipient/account holder is a homeless guy that had earlier been washed&dressed in a suit&instructed by mafia to open an account. Internal security do get notice of such attempts immediately and verify the transactions. I have seen cases where "transfers €100k to your account, withdraw it as cash 5 minutes later" ends up in arresting the guy right there in the branch while asking to make the withdrawal.

In any case, ACH/wire transfers that take a day or less and cost no more a few cents are easily possible; but the banks aren't motivated to do this. In EU, the government forced us by law to offer better conditions for customers; otherwise the fees&float were good income (free rent) as long as everybody else is using the same ACH. A central ACH that has a lot of technical delays and high fees essentially allows a price-fixing cartel without technically/legally being a price-fixing cartel.

Not with a SEPA transaction, AFAIK. Two or three days of clearance, average.

This is an existing fear.

Velocity controls (bank-wide and per customer) should mitigate the prospect of someone issuing "100% withdrawal orders for every customer account."

Exactly. Why should we trust Dwolla to handle this?

I tried going to the FiSync site to see what'd happen if I claimed to be a financial institution. Apparently their security is so tight that it won't let me log in because it claims I don't have a phone number on my account, which I do.

Isn't it "slow" because it dates back to the practice of flying cargos of checks across the country to be cleared by other banks? For each check, that process could take up to a few days to complete. Hence the applicable time periods for clearance.

Not sure about Dwolla, but if banks can acquire (or develop, though that seems unlikely) a payment method that is easier to use that the ones we currently have, and thereby it increases consumer spending, I would take that seriously.

Why would banks promote banking via smartphones and iPads as they do? Seems like that would be opening customers up to considerable insecurity and a host of potential technological glitches.

Maybe it's because those devices are so easy to use they stimulate customers to use bank services more liberally and frequently.

Not to mention reducing the costs of providing face to face customer service.

Just moved to the Bay Area from the Netherlands and I feel like I took a few steps back in time when I received _checks_!? from the bank I signed up to here.

People pay each other through bank transfer in the Netherlands and can expect to receive the money on the same day (if sent before noon). On top of that it doesn't cost money to do a transfer.

I've already gone to a bank more often here than I would in the Netherlands in a whole year. Setting up recurring transfers for example, or transferring to someone in another state is just difficult via online.

In other words: there is definitely room for improvement here, America has been held back in banking

As an American who has lived and banked in the Netherlands in the past, I couldn't agree more.

I loved the free transfers and how easy it was to send someone money. The efficiency of Dutch banking left me in awe. I remember specifically a banker telling me while I was opening an account: "Oh, and we don't use checks here. We like it that way"

"Random readers" are pretty awesome as well. I kept mine after I moved away.

America needs to catch up.

I'm in the UK, currently I have one cheque based transaction a year (paying for the maintenance of our shared gardens) and one cash transaction a month (getting my hair cut).

It feels very odd going to the US where you have to sign with a pen when paying by card (rather than chip-n-pin).

It feels very odd going to the US where you have to sign with a pen when paying by card (rather than chip-n-pin).

The fun part is that that signature doesn't seem to do anything. It used to be that occasionally the cashier would check it against the signature on the back of the card (years ago), but now they never do that. They seem to have stopped asking to see my ID in the last few months as well... so now I can just swipe my card (or presumably someone else's card that I "found") and draw a smiley face on the signature pad, and that's it.


Recently, an engineer I work with (I work for Simple) asked if we could add an image of the signature to transaction metadata in our web and mobile applications. I thought it was a neat idea, so I started asking around, but was dismayed when I found out that the whereabouts of electronic signatures was completely unclear.

Can any network or point-of-sales people tell me if the signature is being transmitted? Stored? Analyzed?

The signed reciepts are stored; and in case of a chargeback or transaction dispute the merchant has to provide them. Only then they are analyzed, but in practice it doesn't matter, any scrawl is considered as good as another. The only case where I have seen signature analysis being actually useful was a case where the customer was attempting to defraud the bank/merchant - claimed a stolen card but actually bought the stuff himself. But that is very rare compared to real stolen or skimmed cards, where signatures are pretty much useless in fraud prevention or shifting liability to someone else.

And I feel the pain of this system when I travel to the UK. I live in Belfast 1/3 of the year and there isn't a single American bank that will issue me a chip-n-pin card. I haven't investigated how hard it would be to set up a UK credit card. Large stores usually accept American cards but I've had many smaller shops tell me they can't do a swipe anymore.

My experience visiting the UK from the USA was that everywhere would accept a swipe transaction, but that the staff didn't necessarily know how to do it (many were too young to have ever had direct experience of swiping a credit card).

The two things that helped were 1) being patient, and 2) carrying a pen.

The thing that didn't help was having a British accent and an American credit card...

There are a couple options now. See http://www.flyertalk.com/forum/credit-card-programs/1304271-.... Also note that any shop which displays Visa/Mastercard symbols are required to accept swipes - if they say they can't, they're just being lazy.

I've noticed a chain of grocery stores in my area installed new card readers recently which appear to have a slot above the LCD screen. What I haven't figured out yet is whether or not that slot is aesthetic or a chip-and-PIN reader.

I have a Wells Fargo credit card that has a chip in it, I just haven't bothered to try yet.

Has anyone else seen these readers?

Wow thank you! This is an awesome resource.

This is the standard way of operation in Germany, too. Like many other things in the U.S., we're about 30 years behind Europe. (That would explain why I'm wearing leg warmers today, too. ;)

What are random readers?

They are authentication tokens -- put your debit card in and it generates a login code after you input your PIN instead of using a password --.

Info: https://www.abnamro.nl/en/prive/slimbankieren/edentifier2/ve...

Picture: http://www.abnamro.nl/en/prive/slimbankieren/edentifier2/vis...

They do two-factor authentication: you put in a passphrase and/or a debit card and it generates a token that you enter on your bank's website before you can make a transaction. The purpose is to make it impossible for somebody who has installed a keylogger on your computer to transfer money from your account by using your password. Other banks use your mobile phone: they send an SMS with a token to your phone, which you enter on their website.

A problem with them is that somebody can install a program on your computer that intercepts the code you enter, and then makes a different transaction than the one you intended to make. In this sense SMS based tokens are safer, because the banks send the amount of money and the recipient in the SMS along with the code. If a program was installed that changed the recipient and/or the amount, you'd be able to detect this in the SMS because then the SMS would display the wrong recipient and/or amount. On the other hand, your smartphone can nowadays be infected too, which those key generators cannot be...

Ah, right. In the UK they have the ones that read the credit card, in Greece we have simple number generators. Every bank uses them, though (I didn't know what they were called, we call them "tokens").

I don't know how it works in the US, but in other countries I've seen also something that's pretty inconvenient: you have to manually pay your utilities every month (water, electricity, etc) instead of the charge being done into your account automatically every month. If there is a problem and you don't agree with the bill (99.99% of the times you don't), just complain to the company and if necessary, they'll reimburse you.

"just complain to the company and if necessary, they'll reimburse you."

This is exactly why I don't do auto payments. Would you rather fight to get your money back from a utility bill mess up, or refuse to pay it before it is fixed?

If you don't get anywhere with the company, or just don't feel like talking them, you complain to your bank. I had to do this recently. It took all of 3 minutes to get my money back with no questions asked other than "did you authorise it?" and to get a block put on my account to stop that company ever taking money again.

This costs the company money and a lot of paperwork, so the threat of doing it is often enough to get them to sort themselves out.

That's generally not how automatic debit payments work in the US.

Too: even when getting a direct deposit authorization for an account, you are almost always (US) also allowing withdrawals from your account, in the event the depositor claims they made a deposit in error.

Increasingly, banks seem less secure and more porous when it comes to holding my money.

I would (and do) vastly prefer to optimize for the common case. The chance that someday I might have to dispute a bill I already paid for is totally worth not dicking around with bills every month.

You don't have to fight. You just say "I don't like that particular debit" in the internetbank or by phone, and the bank is required (by law) to credit you back; and then the (angry) utility company can try to deal with you.

I don't pay any bills manually; all of them (utilities/heating/electricity, mobile, internet, kindergarten, insurance, creditcard invoice) happen automagically - I just review online how much was paid and how much I have left :)

In my bank, your bills go to your bank, but you have to log in to click and pay them. You have the option of setting up auto-approval, but if you'd rather review all of your bills, this is the default.

I typically spend about 1 minute per month paying bills.

Most of the comments on the first page here are about how Dwolla can't possibly succeed because either the banks won't let them, they don't understand what they are trying to do, or there will be some sort of financial event which will ruin everyone's day and destroy the company.

I don't know if that is true or not, but I do know that these are their problems to attack and I'm glad they are attacking them. Having known people who were victims of ACH Fraud it makes you wonder where all those billions of fraud dollars/euros/etc go.

So unlike PayPal, these guys have investors/partners that are in fact financial institutions. Further, those institutions can no doubt provide things such as an account that is 'plugged in' to the financial infrastructure that is the world.

I can see no barrier at all to someone opening up an account with Viridian, depositing some money in it. And then using the Dwolla payments system to make payments too it and get money from it. That is all you need for one seller on Ebay, or Etsy, or whatever to set up their store.

Now if that person has any success at all, and I see no reason that the payment system would be any more of a barrier than the original use of PayPal with Ebay before Ebay sanctioned them was, then the payment stream will grow.

If Viridian goes from having 1.4B$ in assets to have 10 - 20 - 30B$ in assets because folks are creating accounts there to hold money for their endeavors, the other banks will notice, and the world will respond. I could be a negative response like they did against Discover Card but again that is a challenge that Dwolla apparently has signed up for.

So I'm interested in the ways instant payments can be used usefully. In game purchases? Kickstarter like funding? Etc.

I agree with your general thrust. I believe their founder, when asked why he wasn't moving the company to SV, replied "We could never have launched Dwolla in the Valley"

Dwolla is "old school" start up. Taking on big, entrenched, B2B problems. That just doesn't happen in the Valley anymore like it used to. Look at all the comments here "It's too hard, it'll never work, we're doomed" Not surprising but still sad nonetheless. Back to developing mobile apps.

Um...Veridian is a credit union. As such, it's not open to the general public, one has to meet membership requirements and become a member.

In Veridian's case, one has to live and/or work in certain counties of Iowa to qualify for membership.


I thought depositing money in a bank creates a liability for the bank, not an asset.

Isn't it both? An asset (the cash) and a liability (the responsibility to give you cash when you want to withdraw)? The cash is often turned into other kinds of assets (loans, say), but it still starts out as an asset.

Ah yes, of course :-) The cash is an asset and the liability is what is owed to the depositor.

No, cash deposits are the basis for a banks liquidity, they need a certain percentage of deposits (set by the Fed in the US) to cover the risk associated with their liabilities (loans).

I'm pretty sure that if you are a bank then the loans you make are assets on your balance sheet, not a liability.



This is the kind of thing that legislation does help with. Here in the UK the faster payments[1] system was introduced about 5 years ago, providing near real time payment services between banks. It's fairly common for British people to pay each other with an instant bank transfer rather than paypal o similar when buying stuff online.

[1]: http://en.wikipedia.org/wiki/Faster_Payments_Service

I actually worked on mobile and online ACH payments system for one of the largest Banks in the United States. The entire mentality of startups of "get it going and refine it later" does NOT work with banking. Before you even launch you have to get your risk of fraud and security breaches down to 0.001% or less. The bank I worked with had risk on the order of 0.00001% (1 dollar was at risk or suspicious for every 10 billion dollars transfered).

On top of that take into account integrating into existing payment and collection systems and you've got a whole lot to overcome at a relatively high price.

This is not a place I would even WANT to disrupt. The banks have established, high quality, insured, and regulated ways of handling ACH (you can even do it on your mobile).

The whole instant transfer thing seems downright crazy to me, as the banks still would have to do eMoney/Fed verification on the transfers which has mandatory delay times. I don't know what Dwolla is thinking...

>The banks have established, high quality, insured, and regulated ways of handling ACH (you can even do it on your mobile).

The main problem is speed. The fact that it takes two days, sometimes more, for a few bits in a few computers to flip, in 2012, is absurd, regardless of how many fraud checking algorithms you have to run it through.

The fact that you'd call the mass transfer of funds from 10,000 plus parties to a single source 'a few bits flipping' shows you have no idea how ACH payments work. There are multiple checkpoints, several systems, including the eMoney/FED that these payments need to pass through.

You also need to deal with the actual transition of funds (which are NOT BITS). You forget, you are moving real currency here which needs to be accounted for and balanced between the parties.

While I agree it's a misnomer to summarize ACH as trivial (NACHA's Operating Rules & Guidelines are mind-numbing), a far-reaching near-real-time payment platform isn't impossible. Establishing such a network is obstructed by bureaucracy, not technology.

Wait, we actually move money in the US nowadays?

I figured the big banks just had stacks of gold and cash in a central vault and moved it around cells every quarter.

Why shouldn't a fiat currency be bits?

Wow, so many Cassandras and hostile comments here on HN about what seems like a courageous idea to me.

Does anyone here believe that the current system of ACH, checks, Visa, and Mastercard is good?

Anything involving banks and credit cards (in the US at least) is choked with government regulation (steadily worse every year), entrenched players, and big built-in fees. We pay probably 3% more for every single consumer item thanks to credit cards.

What Dwolla is proposing is not impossible -- it's not like a perpetual motion machine. At least they are heading in the right direction: trying to bypass some of the regulation, oligopoly, and fees.

Assuming the status quo in direct payment sucks--we can agree it sucks?--then, why beat down someone who's trying to do something about it? Especially if no one is offering a good alternative.

It's not choked with government regulation - it's not being forced by government to improve. Do you know how EU got from the exact same mess to where it's payment services are now?

What the EU did a number of years ago was to issue a directive (approx. a federal law in US terms) about consumer payment services which essentially said "consumers have the right to have their payments be credited to the beneficiary within 1 business day. If it doesn't happen, consumers have the right to demand compensation from their bank for each such transaction. Banks have a transition period of 5 years to make it happen."

The US ACH systems are slow and expensive because the banking industry benefits them from being that way, and there are currently no powerful incentives to improve.

OTOH, overhyping stuff that is unlikely to succeed starves more reasonable approaches.


Nothing inspires confidence in a brand new replacement for the fundamental backbone of our global financial system like the use of the word "FREAKING".

"Nothing inspires confidence in a brand new replacement"

Agree. You have to understand who you are selling to. Banks and the people that work for them are conservative. A total Kool Aid moment.

FYI, in India NEFT (http://en.wikipedia.org/wiki/NEFT#National_electronic_fund_t...) and RTGS (real-time gross settlement) offers instant free* fund transfers and all large and most small banks are members.

I wish them luck, but Dwolla probably doesn't realize that banking systems change only by Government & regulatory mandates. The amount of money that flows through the system and regulations are not trivial.

There is the Check 21 Act[1] which does not need ACH and is not subject to any of NACHA rules, regulations or fees. Banks already use it and if it is integrated well, it brings down the payment time to 24hr.

Check 21 describes a file format that is used by banks and service providers to upload payment information to FRB.

[1] https://en.wikipedia.org/wiki/Check_21_Act

I think this note from June, 2010 about same-day ACH payments is relevant (note: this project has been stalled as far as I can tell):


I really like dwolla, but I think this particular innovation should have been implemented differently. Instead of giving this product away for free to banks, et al. It should have been release open source for everyone to use for free, with support costing banks, et al. No requirement to use Dwolla as the vendor between banks and consumers. This would really have been disruptive. As it stands, Dwolla has just figured out how to be a better Mastercard. Still some progress is better than no progress, so I extend a heartfelt thank you to Dwolla.

Dwolla is a service, not a piece of software. I suspect the barrier to peer-to-peer payements between banks is not the software anyway.

One of the few instances where you can use the word "disruption" seriously. Holy cow if this takes hold.

Well, you can only use the word "disruption" if it actually disrupts. Given the vested interests at stake, I'm not convinced that it will.

Yeah, to me a disruption is something that incumbent players have no choice but to either adapt to or die, like Borders vs. Amazon. If the incumbents still control the value chain, then it's not disruptive. (I have no idea which is the case in this particular market.)

Then the US finally has as good a banking system as Europe. (About time)

Entrenched interests aside, the fact that is costs nothing worries me.

They are asking financial institutions to abandon (or at least partially switch) from the 40-year old ACH to a brand new system that has no means to support itself outside from the host financial institution, namely Dwolla. So, you're asking the banks to make the stability of Dwolla their concern. Is that really a good way to gain confidence?

If they wanted to make this a serious effort, they would have to charge some kind of membership fee, or transaction fee, just to make it an independently viable business. The fees could be as low as possible, but without them, you're left with banks relying on a "free" system. No one is going to take that risk.

It may cost the banks nothing, but Dwolla does charge fees.

From the site — "same price as an ACH transaction" — so a few to tens of cents per transaction.

That isn't mentioned in the linked article at all - they just say "free".

However, if you go to the actual API site: https://fisync.dwolla.com it does say the same cost as an ACH transaction.

I believe what they're implying is that what's free is use of the infrastructure but each transaction through the infrastructure incurs a fee. Contrast that with a CC payment gateway where you're paying $30-$40 per month in membership fees regardless of whether you even process payments for a given month.

I recently wrote a bit about why I think Dwolla doesn't understand their problem and what the core of their business really is. I have a strong doubt that a central entity is the best way to approach the problem of money transfers and after talking to Dwolla representatives don't feel comfortable ever giving them access to my bank accounts.

Popmoney is already partnered with many banks and I believe they are in a better position than Dwolla at this time to provide such services if they put an API on top of their system.


Popmoney is pathetic; three days to move money between accounts at the same bank (PNC Bank). I might as well go into a branch, withdrawal cash, and deposit it into the destination account, in which case the transfer is instant.

I've heard that these guys (YC S11) are doing something very similar in the UK. https://gocardless.com/

Trying to replace ACH has quite a few interesting elements that you must solve. A decent ACH must offer guarantees that payments are final and will be settled - even if the sending customer was banking with Lehman Bros, and the payment was received the day Lehman went down. Otherwise your system would go bankrupt with the first financial crisis; and since it's obvious, then no bank would use your ACH.

I really like what Dwolla is trying to do, but it's completely useless to me until I can:

a) Use a credit card to make instant payments on Dwolla

b) Get a Dwolla debit card to make payments online or at stores

I know they are trying to get rid of those ideas, but until they can make the transition easier I have to stick with PayPal (even though I hate them).

All of this awesome US payment stuff makes me sad to not be in the US :-(

Please make Dwolla available for HK customers. Pwetty please. Heck, we've seriously considered incorporating in the US just to be able to use Stripe/Dwolla...

I am excited for this. Very very excited. This is exactly the kind of disruption we need.

It is a bitcoin economy without the awkwardness of the bitcoin.

Here's a question for those in the banking world:

How would near-real-time payments impact a bank's reserve requirements?

From the mandated reserve requirements point, not at all. From the practical liquidity point, the bank's treasury dept might need to keep a bit more cash in hand, and would earn less on 'float', so they won't be happy, but that's as intended.

i dont know much about this industry, but I am guessing the delay works to some organizations' advantage. Don't they get to keep the money longer in their accounts and thus have better cash-flow (on paper, at least)?

Epic disruption going on.

Naive hype.

I am fine with banking being boring.

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