7 ms·

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 A

by pitdesi 15y ago

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 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 15y ago
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 15y ago
  "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 15y ago
    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 15y ago
      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 15y ago
        Except that the CC companies forbid merchants from passing the extra costs on to CC users.
        callmevlad 15y ago
mquander 15y ago
Regarding #1, I found these statistics from: http://www.creditcards.com/credit-card-news/credit-card-industry-facts-personal-debt-statistics-1276.php http://www.creditcards.com/credit-card-news/credit-card-indu... Approximately 74.9 percent of the U.S. families surveyed in 2004 had credit cards, and 58 percent of those families carried a balance. In 2001, 76.2 percent of families had credit cards, and 55 percent of those families carried a balance. So, assuming the balance hasn't shifted too drastically, it's true that the majority of Americans need (or at least find convenient) the credit. But there's also clearly plenty of people who don't; 15 to 20 percent of Americans is a pretty big market.
- microtherion 15y ago
  Actually, these numbers mean that LESS than 50% of families cary a CC balance (58% of 74.9%)
mgrouchy 15y ago
Its weird how they did the math here, they said 30-60M/Month or 350M/yr, that math is busted, is 360M on the low end and 600M on the high end. Which puts them at $360M/$500 transaction size)$0.25 = $180,000 or on the high end, $600M/$500 transaction size)$0.25 = $300,000
ricardobeat 15y ago
To get payers on board, you need credit, rewards, and exclusivity That's like telling Apple of 1997 that to get consumers on board, they needed faster processors, lots of software and open hardware. Common sense doesn't led to innovation.
itsnotvalid 15y ago
I think the ease of using them for accounting is one of the major reason. If you have no way of ensuring the transaction is done, it would be pretty hard on automation of accounting. Like so, this service provides an API for that matter. At least most banks are reluctant to provide APIs for accessing the statement, not talking about instant statement already.

by pitdesi 15y ago

cynicalkane 15y ago

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 15y ago
"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 15y ago
  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 15y ago
    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 15y ago
      Except that the CC companies forbid merchants from passing the extra costs on to CC users.
      - callmevlad 15y ago

mquander 15y ago

Regarding #1, I found these statistics from: http://www.creditcards.com/credit-card-news/credit-card-industry-facts-personal-debt-statistics-1276.php http://www.creditcards.com/credit-card-news/credit-card-indu... Approximately 74.9 percent of the U.S. families surveyed in 2004 had credit cards, and 58 percent of those families carried a balance. In 2001, 76.2 percent of families had credit cards, and 55 percent of those families carried a balance. So, assuming the balance hasn't shifted too drastically, it's true that the majority of Americans need (or at least find convenient) the credit. But there's also clearly plenty of people who don't; 15 to 20 percent of Americans is a pretty big market.

microtherion 15y ago
Actually, these numbers mean that LESS than 50% of families cary a CC balance (58% of 74.9%)

mgrouchy 15y ago

Its weird how they did the math here, they said 30-60M/Month or 350M/yr, that math is busted, is 360M on the low end and 600M on the high end. Which puts them at $360M/$500 transaction size)$0.25 = $180,000 or on the high end, $600M/$500 transaction size)$0.25 = $300,000

ricardobeat 15y ago

To get payers on board, you need credit, rewards, and exclusivity That's like telling Apple of 1997 that to get consumers on board, they needed faster processors, lots of software and open hardware. Common sense doesn't led to innovation.

itsnotvalid 15y ago

I think the ease of using them for accounting is one of the major reason. If you have no way of ensuring the transaction is done, it would be pretty hard on automation of accounting. Like so, this service provides an API for that matter. At least most banks are reluctant to provide APIs for accessing the statement, not talking about instant statement already.