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The post is light on details, unfortunately. As far as I can tell, it's more similar to BillMeLater than it is to a credit card. The only other information I c

The post is light on details, unfortunately. As far as I can tell, it's more similar to BillMeLater than it is to a credit card. The only other information I could find on Dwolla Credit is a support FAQ[1]. Interestingly, the credit provider is Comenity Capital Bank, which is also behind BillMeLater[2]. I still don't completely understand the difference in models between something like Dwolla Credit (or BillMeLater) and a credit card. Why do credit cards cost the merchant 2+%, while Dwolla Credit only costs 25 cents? It seems like the same risks apply. [1] http://help.dwolla.com/customer/portal/articles/1330333-credit-faq http://help.dwolla.com/customer/portal/articles/1330333-cred... [2] https://www.billmelater.com/help/index.xhtml https://www.billmelater.com/help/index.xhtml

jeffreyjflim 13y ago
about your question: admittedly, part of it might be rent-seeking (which would be systemic; I make no attempts at pretending to know everything about the banking system but I wouldnt be surprised). I recall Ben goes into the "why" a bit more in detail somewhere in the early part of his interview with TWiST: http://thisweekinstartups.com/thisweekin-startups/dwolla-ben-milne/ http://thisweekinstartups.com/thisweekin-startups/dwolla-ben...
andrewfong 13y ago
If I had to guess, one thing that makes services like Dwolla less risky than traditional credit cards is that credit card security is built around end users keeping secret a string of numbers written on a plastic card that they hand out to random strangers on a regular basis. As a secondary fraud-prevention measure, merchants may ask you to sign a receipt that may or may not match the one on the back of your card. To be fair, there are a number of fraud detection algorithms at play as well, but those algorithms often have wholes in them or come into play only after the fraud has occurred. As an online service, Dwolla requires users to authenticate directly with them, where they can take steps to mitigate fraud by requiring two-factor authentication, etc. Authentication with merchants is handled via a token-based method. In addition, fraud detection may also be substantially easier because Dwolla is privacy to additional information about its users (IP address, purchase details, cookie tracking, etc.) that may not be available to traditional credit card providers. Dwolla may also be privy to additional information that allows them to assess the credit-worthiness of their customers and minimize the danger of default. This probably doesn't totally explain how Dwolla dropped the cost of fraud detection down to a flat 25 cents (e.g. it doesn't explain why PayPal charges a percentage-based fee), but I bet it's part of the story.
pbreit 13y ago
The bulk of the 2% goes to the bank that issued the card and they are very reluctant to give up that revenue. One big problem is cardholder affinity for rewards (airlines, cashback and such) which apply on 30-50% of processing volume and is pretty expensive.
PeterisP 13y ago
The issuing bank gets ~2%, which it can take in profit (if there's little competition) or spend it to make sure that the customers use the branded creditcards instead of, say, Dwolla - cashbacks, marketing, lower APR's, airmiles, or whatever else. It's quite a large budget - and if you charge 25 cents from the merchant, then it's hard to compete with a creditcard that could give the customer a dollar cashback for the same purchase.

jeffreyjflim 13y ago

about your question: admittedly, part of it might be rent-seeking (which would be systemic; I make no attempts at pretending to know everything about the banking system but I wouldnt be surprised). I recall Ben goes into the "why" a bit more in detail somewhere in the early part of his interview with TWiST: http://thisweekinstartups.com/thisweekin-startups/dwolla-ben-milne/ http://thisweekinstartups.com/thisweekin-startups/dwolla-ben...

andrewfong 13y ago

If I had to guess, one thing that makes services like Dwolla less risky than traditional credit cards is that credit card security is built around end users keeping secret a string of numbers written on a plastic card that they hand out to random strangers on a regular basis. As a secondary fraud-prevention measure, merchants may ask you to sign a receipt that may or may not match the one on the back of your card. To be fair, there are a number of fraud detection algorithms at play as well, but those algorithms often have wholes in them or come into play only after the fraud has occurred. As an online service, Dwolla requires users to authenticate directly with them, where they can take steps to mitigate fraud by requiring two-factor authentication, etc. Authentication with merchants is handled via a token-based method. In addition, fraud detection may also be substantially easier because Dwolla is privacy to additional information about its users (IP address, purchase details, cookie tracking, etc.) that may not be available to traditional credit card providers. Dwolla may also be privy to additional information that allows them to assess the credit-worthiness of their customers and minimize the danger of default. This probably doesn't totally explain how Dwolla dropped the cost of fraud detection down to a flat 25 cents (e.g. it doesn't explain why PayPal charges a percentage-based fee), but I bet it's part of the story.

pbreit 13y ago

The bulk of the 2% goes to the bank that issued the card and they are very reluctant to give up that revenue. One big problem is cardholder affinity for rewards (airlines, cashback and such) which apply on 30-50% of processing volume and is pretty expensive.

PeterisP 13y ago

The issuing bank gets ~2%, which it can take in profit (if there's little competition) or spend it to make sure that the customers use the branded creditcards instead of, say, Dwolla - cashbacks, marketing, lower APR's, airmiles, or whatever else. It's quite a large budget - and if you charge 25 cents from the merchant, then it's hard to compete with a creditcard that could give the customer a dollar cashback for the same purchase.