12 ms·

Dwolla is going to eliminate ACH

219 points by ScotterC 14y ago

jellicle 14y ago
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.
- veyron 14y ago
  You forgot to mention that the Federal Reserve is involved (as with domestic wires)
- joezydeco 14y ago
  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?
  - elemeno 14y ago
    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 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.
    - rhizome 14y ago
      As someone who works in the financial sector, can you explain the relationship between assets and transaction volume?
      - elemeno 14y ago
        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.
    - joezydeco 14y ago
      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?
      - elemeno 14y ago
        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.
- michaelleland 14y ago
  > 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.
  - mbreese 14y ago
    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.
    - ecopoesis 14y ago
      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.
  - deleted 14y ago
    [deleted]
- deleted 14y ago
  [deleted]
  - driverdan 14y ago
    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.
    - elemeno 14y ago
      Very true. A standard Barclays business account (or at least my one) come with a transfer limit of £250,000.
      - Q6T46nT668w6i3m 14y ago
        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.
- InclinedPlane 14y ago
  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.
  - wmf 14y ago
    Dwolla always talks about how friendly they are with the banks, but it's not clear why banks wold be friendly with them.
    - InclinedPlane 14y ago
      Easy answer: the banks don't see them as a serious threat, so it's easier (and better PR) to placate them.
      - OzzyB 14y ago
        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.
        InclinedPlane 14y ago
        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.
- driverdan 14y ago
  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.
- LilValleyBigEgo 14y ago
  Also a lot of financial institutions depend on slow transactions to make money. The longer the funds sit in their accounts the more interest they make. So if they delay a ACH transaction for two days while it's "processing" (because really it takes two days to flip some bits in a computer) the bank earns two days more interest on those funds.
- thespin 14y ago
  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.
- superuser2 14y ago
  Europe seems to do just fine with instantaneous (or near-instantaneous) bank transfers.
  - Daniel_Newby 14y ago
    If somebody transfers €100k to your account, can you withdraw it as cash 5 minutes later?
    - PeterisP 14y ago
      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.
    - lolcraft 14y ago
      Not with a SEPA transaction, AFAIK. Two or three days of clearance, average.
- Q6T46nT668w6i3m 14y ago
  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."
lvh 14y ago
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...
guimarin 14y ago
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.
- wmf 14y ago
  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.
antidaily 14y ago
One of the few instances where you can use the word "disruption" seriously. Holy cow if this takes hold.
- untog 14y ago
  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.
  - drumdance 14y ago
    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.)
- pgeorgi 14y ago
  Then the US finally has as good a banking system as Europe. (About time)
draz 14y ago
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)?
leoedin 14y ago
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 http://en.wikipedia.org/wiki/Faster_Payments_Service
mbreese 14y ago
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.
- wmf 14y ago
  It may cost the banks nothing, but Dwolla does charge fees.
- hinathan 14y ago
  From the site — "same price as an ACH transaction" — so a few to tens of cents per transaction.
  - mbreese 14y ago
    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 https://fisync.dwolla.com it does say the same cost as an ACH transaction.
    - xanadohnt 14y ago
      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.
nohup 14y ago
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 https://en.wikipedia.org/wiki/Check_21_Act
c4urself 14y ago
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
- fiatpandas 14y ago
  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.
  - groby_b 14y ago
    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. ;)
  - arethuza 14y ago
    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).
    - seanalltogether 14y ago
      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.
IsaacL 14y ago
I've heard that these guys (YC S11) are doing something very similar in the UK. https://gocardless.com/ https://gocardless.com/
18pfsmt 14y ago
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): http://www.americanbanker.com/issues/175_123/same-day-ach-1021567-1.html?zkPrintable=1&nopagination=1 http://www.americanbanker.com/issues/175_123/same-day-ach-10...
mritun 14y ago
FYI, in India NEFT (http://en.wikipedia.org/wiki/NEFT#National_electronic_fund_transfer 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.
ChuckMcM 14y ago
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.
- arethuza 14y ago
  I thought depositing money in a bank creates a liability for the bank, not an asset.
  - ChuckMcM 14y ago
    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).
    - arethuza 14y ago
jarin 14y ago
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).
alister 14y ago
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.
- wmf 14y ago
  OTOH, overhyping stuff that is unlikely to succeed starves more reasonable approaches.
- PeterisP 14y ago
  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.
abalone 14y ago
> IT’S FREAKING REAL-TIME!!! Nothing inspires confidence in a brand new replacement for the fundamental backbone of our global financial system like the use of the word "FREAKING".
- larrys 14y ago
  "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.
wheelerwj 14y ago
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.
shtylman 14y ago
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. http://www.shtylman.com/archives/319 http://www.shtylman.com/archives/319
- toomuchtodo 14y ago
  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.
tsunamifury 14y ago
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...
- Karunamon 14y ago
  >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.
  - tsunamifury 14y ago
    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.
    - Q6T46nT668w6i3m 14y ago
      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.
btipling 14y ago
I am fine with banking being boring.
Codhisattva 14y ago
Epic disruption going on.
kfcm 14y ago
Here's a question for those in the banking world: How would near-real-time payments impact a bank's reserve requirements?
- PeterisP 14y ago
  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.
wamatt 14y ago
Naive hype.
PeterisP 14y ago
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.

219 points by ScotterC 14y ago

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.

veyron 14y ago
You forgot to mention that the Federal Reserve is involved (as with domestic wires)
joezydeco 14y ago
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?
- elemeno 14y ago
  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 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.
  - rhizome 14y ago
    As someone who works in the financial sector, can you explain the relationship between assets and transaction volume?
    - elemeno 14y ago
      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.
  - joezydeco 14y ago
    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?
    - elemeno 14y ago
      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.
michaelleland 14y ago
> 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.
- mbreese 14y ago
  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.
  - ecopoesis 14y ago
    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.
- deleted 14y ago
  [deleted]
deleted 14y ago
[deleted]
- driverdan 14y ago
  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.
  - elemeno 14y ago
    Very true. A standard Barclays business account (or at least my one) come with a transfer limit of £250,000.
    - Q6T46nT668w6i3m 14y ago
      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.
InclinedPlane 14y ago
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.
- wmf 14y ago
  Dwolla always talks about how friendly they are with the banks, but it's not clear why banks wold be friendly with them.
  - InclinedPlane 14y ago
    Easy answer: the banks don't see them as a serious threat, so it's easier (and better PR) to placate them.
    - OzzyB 14y ago
      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.
      - InclinedPlane 14y ago
        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.
driverdan 14y ago
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.
LilValleyBigEgo 14y ago
Also a lot of financial institutions depend on slow transactions to make money. The longer the funds sit in their accounts the more interest they make. So if they delay a ACH transaction for two days while it's "processing" (because really it takes two days to flip some bits in a computer) the bank earns two days more interest on those funds.
thespin 14y ago
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.
superuser2 14y ago
Europe seems to do just fine with instantaneous (or near-instantaneous) bank transfers.
- Daniel_Newby 14y ago
  If somebody transfers €100k to your account, can you withdraw it as cash 5 minutes later?
  - PeterisP 14y ago
    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.
  - lolcraft 14y ago
    Not with a SEPA transaction, AFAIK. Two or three days of clearance, average.
Q6T46nT668w6i3m 14y ago
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."

lvh 14y ago

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...

guimarin 14y ago

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.

wmf 14y ago
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.

antidaily 14y ago

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

untog 14y ago
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.
- drumdance 14y ago
  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.)
pgeorgi 14y ago
Then the US finally has as good a banking system as Europe. (About time)

draz 14y ago

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)?

leoedin 14y ago

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 http://en.wikipedia.org/wiki/Faster_Payments_Service

mbreese 14y ago

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.

wmf 14y ago
It may cost the banks nothing, but Dwolla does charge fees.
hinathan 14y ago
From the site — "same price as an ACH transaction" — so a few to tens of cents per transaction.
- mbreese 14y ago
  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 https://fisync.dwolla.com it does say the same cost as an ACH transaction.
  - xanadohnt 14y ago
    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.

nohup 14y ago

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 https://en.wikipedia.org/wiki/Check_21_Act

c4urself 14y ago

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

fiatpandas 14y ago
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.
- groby_b 14y ago
  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. ;)
- arethuza 14y ago
  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).
  - seanalltogether 14y ago
    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.

IsaacL 14y ago

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

18pfsmt 14y ago

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): http://www.americanbanker.com/issues/175_123/same-day-ach-1021567-1.html?zkPrintable=1&nopagination=1 http://www.americanbanker.com/issues/175_123/same-day-ach-10...

mritun 14y ago

FYI, in India NEFT (http://en.wikipedia.org/wiki/NEFT#National_electronic_fund_transfer 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.

ChuckMcM 14y ago

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.

arethuza 14y ago
I thought depositing money in a bank creates a liability for the bank, not an asset.
- ChuckMcM 14y ago
  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).
  - arethuza 14y ago

jarin 14y ago

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).

alister 14y ago

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.

wmf 14y ago
OTOH, overhyping stuff that is unlikely to succeed starves more reasonable approaches.
PeterisP 14y ago
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.

abalone 14y ago

> IT’S FREAKING REAL-TIME!!! Nothing inspires confidence in a brand new replacement for the fundamental backbone of our global financial system like the use of the word "FREAKING".

larrys 14y ago
"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.

wheelerwj 14y ago

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.

shtylman 14y ago

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. http://www.shtylman.com/archives/319 http://www.shtylman.com/archives/319

toomuchtodo 14y ago
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.

tsunamifury 14y ago

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...

Karunamon 14y ago
>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.
- tsunamifury 14y ago
  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.
  - Q6T46nT668w6i3m 14y ago
    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.

btipling 14y ago

I am fine with banking being boring.

Codhisattva 14y ago

Epic disruption going on.

kfcm 14y ago

Here's a question for those in the banking world: How would near-real-time payments impact a bank's reserve requirements?

PeterisP 14y ago
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.

wamatt 14y ago

Naive hype.

PeterisP 14y ago

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.