8 ms·

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

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 15y ago
You forgot to mention that the Federal Reserve is involved (as with domestic wires)
joezydeco 15y 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 15y 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 15y ago
    As someone who works in the financial sector, can you explain the relationship between assets and transaction volume?
    - elemeno 15y 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 15y 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 15y 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.
    - dfc 15y ago
      What is a vig?
      - Nrsolis 15y ago
        Google "vigorish." It's a fee most commonly associated with gambling.
  - larrys 15y ago
    "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: http://help.dwolla.com/customer/portal/articles/86685-security-amp-partner-overview http://help.dwolla.com/customer/portal/articles/86685-securi... 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.
    - dsl 15y ago
      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.
michaelleland 15y 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 15y 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 15y 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 15y ago
  [deleted]
deleted 15y ago
[deleted]
- driverdan 15y 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 15y ago
    Very true. A standard Barclays business account (or at least my one) come with a transfer limit of £250,000.
    - Q6T46nT668w6i3m 15y 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 15y 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 15y 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 15y ago
    Easy answer: the banks don't see them as a serious threat, so it's easier (and better PR) to placate them.
    - OzzyB 15y 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 15y 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 15y 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 15y 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 15y 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 15y ago
Europe seems to do just fine with instantaneous (or near-instantaneous) bank transfers.
- Daniel_Newby 15y ago
  If somebody transfers €100k to your account, can you withdraw it as cash 5 minutes later?
  - PeterisP 15y 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 15y ago
    Not with a SEPA transaction, AFAIK. Two or three days of clearance, average.
Q6T46nT668w6i3m 15y 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."

veyron 15y ago

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

joezydeco 15y 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 15y 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 15y ago
  As someone who works in the financial sector, can you explain the relationship between assets and transaction volume?
  - elemeno 15y 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 15y 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 15y 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.
  - dfc 15y ago
    What is a vig?
    - Nrsolis 15y ago
      Google "vigorish." It's a fee most commonly associated with gambling.
- larrys 15y ago
  "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: http://help.dwolla.com/customer/portal/articles/86685-security-amp-partner-overview http://help.dwolla.com/customer/portal/articles/86685-securi... 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.
  - dsl 15y ago
    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.

michaelleland 15y 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 15y 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 15y 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 15y ago
[deleted]

deleted 15y ago

[deleted]

driverdan 15y 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 15y ago
  Very true. A standard Barclays business account (or at least my one) come with a transfer limit of £250,000.
  - Q6T46nT668w6i3m 15y 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 15y 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 15y 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 15y ago
  Easy answer: the banks don't see them as a serious threat, so it's easier (and better PR) to placate them.
  - OzzyB 15y 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 15y 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 15y 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 15y 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 15y 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 15y ago

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

Daniel_Newby 15y ago
If somebody transfers €100k to your account, can you withdraw it as cash 5 minutes later?
- PeterisP 15y 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 15y ago
  Not with a SEPA transaction, AFAIK. Two or three days of clearance, average.

Q6T46nT668w6i3m 15y 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."