Payments Day

Yesterday was payments day at USV. Two pretty big things that our firm has been involved in for a while now were coincidentally announced on the same day.

First, our newest portfolio company Dwolla announced the closing of a round we led on their blog. Dwolla is building a large network of engaged users via a radically lower cost payment system. How much lower? Zero for transactions below $10 and a $0.25 flat fee for transactions over $10. If you move $10,000 over the Dwolla network, you or the recipient (your choice) will be charged $0.25. That's it.

Dwolla does this by avoiding credit cards. They see credit cards as the enemy. They want to build a system where the money moves directly from my bank to your bank as quickly and inexpensively as possible. They have big plans and we are bought into them.

Dwolla also offers "Instant" which is a way to instantly load your Dwolla account with funds via an immediate loan from a third party bank. The cost of the Instant service is $3/month and a $5 late fee if you don't pay down your instant loan to zero each month.

If you want to try Dwolla on the web, the iPhone, or the Android phone, go here, sign up, and start moving money less expensively.

Another major payments initiave was announced yesterday by our portfolio company Etsy. For a while now, Etsy has realized that checking out via PayPal was suboptimal for many buyers and also many sellers. But PayPal is deeply ingrained into the Etsy community and the company did not want to do a "rip and replace". So yesterday Etsy announced Direct Checkout. PayPal will remain a checkout option for sellers. But starting yesterday some sellers on Etsy will offer the option to checkout directly on Etsy. And Etsy will be gradually rolling Direct Checkout out to all of its sellers over time as they scale the service and the support system around it.

Both of these situations recognize something fundamental about payments. And that is that being in the payment flow allows you to do other more imporant things for your customers. In Etsy's case, that means things like gift cards, better shipping options, better marketing opportunities. In Dwolla's case that means making payments essentially free and making money on value added services like Instant and others to come.

Payments are one of those things that are fundamental to the online experience. And there are large networks that are being built with payments at the core of them. We are proud to be involved in companies like Etsy and Dwolla who are working at the intersection of networks and payments and we certainly would like to be meeting more companies like them.

#VC & Technology#Web/Tech

Comments (Archived):

  1. RichardF

    Great investment in Dwolla, I hope they are successful.  Taking payments is such as pain point for online business.

  2. Avi Deitcher

    I have been following Dwolla for a while now, interesting to see you guys invest there.Under the covers, it sounds like Dwolla is “PayPal made inexpensive using ACH.”But PayPal already supports ACH, which has none of the percentage charges, and has the name brand to boot. So, in the end, is Dwolla just PayPal’s ACH, without credit cards, but made easier? If so, is the only differentiating factor process?

    1. fredwilson

      constraints are important in the construction of a service

      1. Avi Deitcher

        You are saying that beyond an easier-to-use service, PayPal has intrinsic constraints that Dwolla does not, which will enable it to operate in a manner that PayPal cannot.1) What material constraints does PayPal have that Dwolla does not? Something core in product, or just questions of legacy overhead and required margins, or management poor in innovative thinking?2) How will that impact the service offered to customers?Put in other terms: why would an ecommerce site (or me paying you for a drink) choose to use Dwolla over PayPal ACH? What is fundamentally better for the ecommerce site (or me)?And.. is anyone else having disqus problems? Cannot get to the comments, get an error message, but says all green. I am responding to this one by email.

        1. fredwilson

          no, i was saying that dwolla has constraints that paypal doesn’tthey don’t deal with credit cards

          1. Avi Deitcher

            The other way ’round, then.Are you saying Dwolla’s constraints force it to be nimble/flexible/better in some way?Original question remains: why would a site or individual choose Dwolla over PayPal?

          2. fredwilson

            web services have to start somewheredwolla will start with merchants who take cash but not credit cards because they don’t want to give up 3.5% to the credit card system

          3. Avi Deitcher

            Sure. But if you are investing, you see huge upside. You see them disrupting credit cards in a way PayPal cannot. Same q: what is so special about them?

          4. fredwilson

            the team, the vision, the market entry point (free or almost free)

          5. Avi Deitcher

            Will let it go.

          6. JamesHRH

            same three reasons: save me money, save me from an impending doom (likely does not apply), make me feel smart / successful / attractive to the opposite sex.there are no other reasons

          7. Avi Deitcher

            The three basic needs? Where does that fit on the hierarchy? (psychologists in the audience?)

    2. jason wright

      What is ‘ACH’?

      1. Avi Deitcher

        Automated Clearing House. It is what gets your checks cleared between banks, makes direct deposit from your employer, how PayPal does “Fund from bank account”… and what Dwolla uses.Also the German word, “Ach!” ūüôā

        1. jason wright

          Genau. Vielen dank.

      2. John Revay

        Electronic¬†exchange¬†of funds – think Payroll¬†direct¬†deposit, low cost/free – just not instantaneously like bank wire transfers. They typically take 1-2 days before funds are posted¬†…

  3. Rohan

    Head on with PayPal then..Begun, the clone wars have.. 

    1. Avi Deitcher

      So “Dwolla” in Yoda-ese is “Allowed”? ūüôā

  4. Zumanoff

    So, the obvious question: when will Etsy support Dwolla payments? 

    1. fredwilson

      good question. i don’t know the answer. i haven’t brought it up.

      1. Matt A. Myers

        Dwolla will disrupt many industries. No real rush for when that happens and will be scary for many businesses, too.I foresee the tipping point being once consumers demand Dwolla as a payment (or similar service; if one even exists).


      OR STRIPE?

      1. fredwilson

        def not stripe. they’ve built their own payment system. i believe we introduced them to stripe, who we like a lot.

  5. Cole Reuben

    Long time/first time -I am currently living in Brazil and am amazed at the banking system here. Coworkers go out to dinner together, one guy pays the bill and everyone transfers money to the payer instantly regardless of where the bank account is held. For larger transactions, I believe over 5k take up to 24 hours, but anything under is instant… and free. Just type in the account number and bank number and it transfers.

    1. William Mougayar

      True. Countries that have had a history of hyper-inflation have since developed real-time settlement systems that pale in comparison to what’s available in North America.

      1. Cole Reuben

        Yes – the 80s were not kind to Brazil. Prices changed daily. I was living in Argentina last year and saw prices change regularly as well. Inflation in Brazil is stable.. for now. The benefit of 80s is that I can settle a payment in seconds for free. Jason – i believe it is 5k brl – roughly $3k. That is an impressive amount to be instant and over 5k brl doesnt take long either.Thank you for the welcome ShanaFred- I agree

    2. fredwilson

      that’s awesome. we need it to work that way here in the US

      1. Brandon Marker

        There is a start-up working on group pay here in the states. Hopefully we have something very similar soon.…¬†My mooching friends will finally be put to the task of paying me, regardless of cash.

      2. Researcher

        When we talk payments and payments platforms, it is hard not to introduce the patent debate. I am particularly interested in the views of the vc’s, the angels, the entrepreneurs, not in a general sense, but specifically on patents within the payments space.

        1. jason wright

          Do you mean ‘business method patent’?

      3. Brad Lindenberg

        Australia is the same Рit is very easy to transfer money electronically between banks, and its free. 

      4. Cole Reuben

        Just to follow-up for those who are interested, I went to a bank and asked more about the limits. For transactions over $3k BRL – roughly 1700usd, the transaction is instant as well, but you must do a different type of transfer. You have to have your account verified (1 time process) and then you are good to go. Love that.I was also told that there is a law that once a check is received at the clearing house, it must be deposited within 24 hours. Banks were hoarding deposits to grab yield here – they still do with credit card payments to merchants.

    3. ShanaC

      What caused Brazil to develop such a system(and welcome good sir)

      1. William Mougayar

        Hyper-inflation caused that. If it took 2-3 days to clear a check & if someone gave you a check for $100, it would be worth $90 by the time it cleared.  

        1. JamesHRH

          What an interesting insight…….thx william,

    4. Nathan Lustig

      Its the same in Chile.  Everyone has little digipasses and you can transfer money to any other chilean bank account instantly and for free.  Makes paypal completely unnecessary.

    5. jason wright

      5k Рwhich currency is that? 

    6. John Revay

      Chase Bank in the states has a TV commercial which shows a similar type cash exchange between friends while out to dinner Рbeaming cash back and forth using a smart phone app.

  6. Bill Clark

    It will be interesting to see how Dwolla deals with large fraud attacks with such a small fee. When Fraudsters start to notice the company they will figure out ways to manipulate the system and with such small fees and at times no fees it will eat away at their bottom line.

    1. fredwilson

      that happened over the summer. they were attacked in a bitcoin scam. the amounts involved were quite large. they came through relatively unscathed.

      1. Bill Clark

        ¬†I guess they probably have something in their terms to cover them but companies like Paypal have 100’s of Millions in losses die to fraud that they have to cover. This is unauthorized fraud from an account that is used in a phishing scam etc. Who would pay in that scenario. Dwolla often will be held paying and they will need reserves to cover that. I assume they have a pretty good fraud/risk management team to handle this.¬†As a former Paylpay employee I am amazed at how creative fraudsters can be.

      2. John Britton

        Funny, my first interaction with Dwolla was through Bitcoin. I signed up for Dwolla and got $1 in my account for free. I sent it to someone on IRC and in return he gave me some bitcoins.

  7. Don White

    Do PayPal and Dwolla allow free ACH transfers to individual’s personal paypal account or does the transfer have to be made to the individual’s bank account?Also, where can Dwolla bucks be used (anywhere like Paypal)?

    1. fredwilson

      you can transfer into someone’s bank account but i don’t think you can transfer into a paypal account

  8. Matt A. Myers

    Both examples of reducing the amount of middlemen.Only can reduce costs for consumers (and/or increase profits).Go-go innovation!

    1. Researcher

      When we talk payments and payments platforms, it is hard not to introduce the patent debate. I am particularly interested in the views of the vc’s, the angels, the entrepreneurs, not in a general sense, but specifically on patents within the payments space

      1. Matt A. Myers

        In my view, anything that prevents or slows fluidity is bad for society/consumers. Patents make things less fluid because they block innovation. They also increase cost. The argument that innovation will not occur because people can’t patent is fear-mongering / misunderstanding.That statement is in the general sense, though the increasing costs is how it affects the payment space. The added cost (say through licensing or effect on society) is a huge negative — assuming you care about people first, as a whole.The point of capitalism is/was/should be again to incentivize innovation, innovation which increase efficiencies, which thereby reduces cost per, thereby allowing the ‘profits’ (or freed up time) to be used on other things that will help move humanity forward; Currently we aren’t really directing that ‘freed’ time, and really we’re just ‘creating work’ for the sake of having jobs to give people. I could rant on longer.. and I think I will!Regarding patents and fear of no innovation occurring: Any gaps that exist that must be filled, will be filled. And in reality no patents existing may allow very large opportunities to exist, where they only get filled once certain amount of thought, prep-work, educating and agreement takes place for something to be accomplished – the time and effort of a ‘community.’ For example, imagine a database of innovations that can be viewed and the technology inside of it can be pieced together in infinite possibilities to create something new. We could really just create schools to educate people on how to puzzle build for their other specific vocation(s). And the web these ideas, for form and function (design and otherwise) are easily accessible by browsing – and then borrowing and merging ideas together to create something. Imagine this same kind of database of actual technology, and giving people the same level of access to it – engineers or tinkerers of any degree – and you’ll see the same explosive growth in innovation that you do on the web — with people creating and coming up with ideas for free, because they have time – and there’s a need to fill, it will help people, and people don’t like to be bored either.The base issue with patents to deal with is fear, fear of survival. If people are taken care of, healthy, have lots of loving relationships then money and business and ‘guaranteeing’ the most successful business ever doesn’t have as much pressure on it. There will be competitive rules and boundaries that still exist in business, it will just force the other factors to be much more important (such as service, who you are as a person, as a company, how you treat people, etc) that will determine your success, how successful people want you to be because they actually want to support you.</end>



      1. Matt A. Myers

        Agreed. Reminds me of the cycle that capitalism needs (needed?) to exist to propel innovation, opening the gates to the bad as well as good, though now that we have the knowledge and innovation we can start to put up ‘boundaries’ to allow more of the good to come through.

    3. John Revay


  9. William Mougayar

    Very cool. This is the “money” quote from Albert’s blog: “money consists solely of data”. Our smartphones are about to become much more valuable with all the “money data” they’ll include.¬†I recently lost our Scene card, a movie points card. Over the phone they gave me a code I entered into their iPhone App, and it turned the App into the card itself, with bar code check-in, balance, etc…I’m so glad that someone is finally and seriously going to disrupt the blood-sucking credit card companies and Paypal.

    1. Researcher

      When we talk payments and payments platforms, it is hard not to introduce the patent debate. I am particularly interested in the views of the vc’s, the angels, the entrepreneurs, not in a general sense, but specifically on patents within the payments space

  10. mdudas

    While innovation in payments is super exciting, I’m more excited about the opportunity for innovation in transactions over the next decade.One definition of payments: “The action or process of paying someone or something, or of being paid”One definition of transaction: “The action of conducting business” – this can include payments, loyalty, offers/coupons, customer interaction & experience, etc.Square is a good example of starting with payment innovation (Square dongle to allow new merchants to easily accept credit cards), moving to transactions (Card Case to allow for personalized, no-physical money exchange transaction experience from selecting good(s) to leaving the store) and beyond (who knows what brilliant ideas are bouncing around in Jack Dorsey and colleagues’ minds).I’m excited to see Dwolla grow from innovation in payments to transactions and beyond.

  11. RacerRick

    It’s nice to see Paypal suffering the Innovator’s dilemma. ¬†Their service has been stagnant since before ebay bought them and has stifled innovation in the banking/credit cards.

  12. hypermark

    As Apple, Amazon and the carriers have all proven, having a billing relationship with the consumer is a game changer.¬†There’s just so many different ways that you can leverage, extend, and provide a better workflow for your user base.Arguably, it’s the last mile that Google’s has never been able to bridge with its user base to date (AdWords/AdSense, notwithstanding). And it’s the game-changer that if/when Facebook finally cracks via Facebook Credits, etc., they will be unstoppable. Congrats on both plays.

  13. Dave Pinsen

    Congratulations on investing in Dwolla. Just used them to pay a contractor for the first time a couple of weeks ago. Great service, and great example of what Paul Graham blogged about last month of a start-up that takes on something difficult (“schlep” as Graham calls it). I mentioned Dwolla in a tweet of Graham’s post last month from the PA account:Great post. @Dwolla is another example in the payments space. And we are one in hedging. $$ @paulg: Schlep Blindness:‚ÄĒ Portfolio Armor (@PortfolioArmor) January 14, 2012

    1. fredwilson

      i should have emailed you during our due diligence dave. i’m so glad you like the service.and i like that you were able to embed a tweet in a blog commentvery cool

      1. Morgan Warstler

        I was glad to see you make the investment, I kinda expected, but I thought it might be outside your scope.How they do merchant outreach I think will be the big decision.

      2. Dave Pinsen

        Twitter’s embedding feature is great. I think I am going to start a weekly blog post where I just embed a select handful of tweets or retweets from that week.

        1. andyswan

          Would subscribe

          1. Dave Pinsen

            Tune in this Friday. 



  14. Rob Hunter

    Dwolla’s pretty absurd (in a good way) – being able to kill off transaction costs is a pretty important (and disruptive) thing. ¬†For person to person settling, it sounds like a great idea, but I’m a little concerned about weening Americans of rewards cards. ¬†If I’m going to spend $100 online, the $1 I’ll get back using my Amazon card is pretty trivial, but it does affect how I pay for things. ¬†What’s more, the $3 the merchant gets dinged for obviously doesn’t make up for it – payment processors do seem to be overtaxing the economy – but I wonder how you get the incentives right such that Dwolla is the obvious processor of choice.It sounds like a great investment, and congrats to the Dwolla team for all the progress they’ve made to get to today – I wish them the best of luck.

    1. fredwilson

      i like absurd



      2. JamesHRH

        normal behaviour………..

  15. awaldstein

    Not a PayPal fan so glad to see Etsy blaze the way for marketplaces that are free of them.Need to dig into their service to understand more of how it works.

  16. Dave Pinsen

    It’s worth noting too, by the way, that Dwolla wasn’t founded in Silicon Valley, New York, or Boston, but in Des Moines, Iowa. By coincidence, the first time I heard of it a couple of months ago (in Alyson Shontell’s Business Insider interview with founder Ben Milne), Bloomberg TV was running the finale of its reality show about NY Tech Stars. The juxtaposition between some of the small ideas mooted on that Tech Stars show and the scope and originality of Dwolla was striking.

    1. Jess Bachman

      I¬†totally¬†agree. ¬†I know most investors and Tech Stars “invest in teams” rather than ideas… but it just seems like there is so few big ideas coming out of these accelerators.The dwolla founder EXPERIENCED a pain point, then attacked the problem. ¬†Everyone else seems to be searching for a pain point to experience.

    2. fredwilson

      getting entrepreneurs to really push the boundaries is not easy

      1. Dave Pinsen

        Some don’t need the push. You’ve got one who doesn’t in Dwolla’s founder.

  17. ShanaC

    I am internally cheering for joy about etsy. Yay for making awesome vintage purchases easier!!!I wish I knew more about ACT(?) transactions. ¬†Its really hard to make a judgement call about the future of credit cards (and debit cards) without knowing how the fee structure really works. I mean, it seems like a good idea that is picking up, but still, I just don’t know.

  18. ShanaC

    And we’re back!

    1. John Revay

      Hi Shana,What happened, I was trying to read comments this AM ( NY time) – disqus was not loading.

      1. ShanaC

        Honestly, I don’t know.I went to look at my email to moderate and I realized I stopped receiving comments. ¬†I also had loaded the page and disqus was not loading for me either. ¬†Then I emailed Fred and William to make sure it wasn’t me (it wasn’t). ¬†They emailed disqus. ¬†Then we got another round of errors. ¬†Then it was fixed.So I guess the solution is to ask¬†@disqus:disqus¬†

  19. LE

    This is great especially the free micro payments.¬†But since dwolla is unknown there is no “assumption of legitimacy” in the eyes of any potential user or merchant. So they need to be hit over the head with that info. Front and center.It takes to many clicks to determine that that funds are not held by dwolla at all. Also users will have concerns about releasing any bank info to dwolla so that issue has to be addressed.To find why money is secure took a click on “peace of mind” which takes you to three choices of which 1 is “security” which then slides up more info. You can then click on “learn more about our security policies” which takes you to this page: displays this:InsuredDwolla is not a bank. Dwolla’s core network connects to financial institutions to act as the depository and protector of your money. Funds in your Dwolla account are held in federally insured, regulated, US financial institutions.Another link elsewhere labeled “security” brings up this page:…On that page this info is shown:Dwolla account holder funds are deposited with Veridian Credit Union. ¬†Founded in 1934,¬†Veridian has grown to become the largest credit union in Iowa and among the top credit unions in the nation. Today, Veridian Credit Union is a modern, full-service financial institution offering a broad range of products and services to fit a variety of member preferences and lifestyles. ¬†Your money is secure at Veridian Credit Union.So why is the money secure at Veridian?¬†That says nothing about being insured by NCUA which is the equivalent for credit unions of FDIC. FDIC is the brand that consumers understand. So at the very least they have to be made aware of that by analogy.I haven’t read the entire site so this is off the top. As a merchant also one thought I have is that it appears that there is no possibility of chargebacks once we receive payment. That’s actually a big merchant benefit but a drawback for consumers. If I am right (and once again I haven’t studied the site only a quick look like I would do before deciding to sign up) there needs to be some consumer protection I would imagine.

    1. William Mougayar

      Yes on micropayments. In 1998 we thought micropayments will be big on the Internet. Maybe now, they will be.

      1. Max Yoder

        I’m still waiting for someone to really pull off the concept behind Flattr ( Their micropayment system could do great things for journalists, bloggers, apps, and all kinds of things. But, for whatever reason, the system hasn’t caught on.Also, on a different note, I love that Dwolla is bypassing anything credit-card related. Congrats to that team. Seems to be a fantastic product. I like that their space is getting more competitive.

        1. LE

          Haven’t followed that company but I notice this as their tag line:”Join the movement to support bloggers and other creators.”So supporting bloggers and other creators is to removed from supporting a particular blogger or creator. People are willing to support but I don’t feel (and I guess this shows) that they don’t when they are grouped anonymously.¬†I’m not seeing anything compelling here: of course all of it is available without paying.¬†If I decide to use flattr do I get some kind of a thank you from the blogger (no) or it’s just supposed to make me feel good? ¬†The benefit needs to be better than “support bloggers”. That’s why it hasn’t caught on (your words I don’t know what the story is).

          1. Max Yoder

            I’m not sure how much you looked into the company, but it works like this: you add a Flattr button to your content‚ÄĒsay, every blog post‚ÄĒthe same way you’d add a Tweet button.If I like your content, and I have a Flattr account, I click your Flattr button, donating a percentage of my pre-determined donation pool to you.The donation pool works like this: if I set aside $10 each month to donate, and a I Flattr five things in a month, I’m effectively giving $2 to each piece of Flattr’d content. Somewhere in there, Flattr takes a tiny, little cut of the transaction, I think.Anyhow, the model probably never caught on because of a standard chicken/egg issue.

      2. LE

        Right. Hard for the legacy providers to do micropayments since it cannibalizes and also they have all that dead wood in their system.This is really no different then a new airline cherry picking and having nothing to loose and everything to gain.

      3. leigh

        Micropayments are already here they are just hiding in plain sight.  huge money here:

      4. Cynthia Schames

        @William Mougayar do you know anything about a guy named Nat Goldhaber? He was the founder of a startup I worked for years ago, and had a patented micropayment solution which ultimately was the basis of the company being acquired by MyPoints. The cool thing about the technology was that you could actually send someone a payment of any size and forgo all transaction/processing fees. We did deals where we’d pay out $0.50 at a time (to thousands of CPA/CPCs) and entirely bypassed the credit card and merchant account gambit. Pretty neat stuff back in 1998, and I FULLY agree with you that it’s got potential to be really neat stuff now in 2012.PS: Nat is now a VC and Managing Director at Claremont Creek Ventures

        1. William Mougayar

          Interesting guy…No, I didn’t know about him. Thanks.- posted via Engagio

  20. Dave Pinsen

    The only current downside of Dwolla (unless this has changed recently?) is that it only works domestically. I wanted to use it for a transaction with someone in Europe a couple of months ago, but we ended up using a bank wire, which dinged us $35 on each side.

    1. jason wright

      What restricts Dwolla to domestic transactions? 

      1. Dave Pinsen

        I don’t know.

        1. John Revay

          Might be ACH is restricted to US banks (members of fed).My understanding is that today you can not send ACH payments outside of the US.  You can only send wire transfers Рwhich banks charge larger fees $40+/- per transaction, collected on both sides

  21. schof

    This is such a huge win for the hard working merchants out there paying 5% of their sales to the Interchange cartel. ¬†This is long overdue. ¬†It will be to everyone’s benefit if they succeed.

  22. Brad

    Struggling with disqus today….Would love to implement this on, we have struggled with the transaction side of the business and this seems ideal.

    1. fredwilson

      disqus went haywire on AVC todaybut not any other blogs apparently

      1. Brad

        No big deal. I love Disqus, wish all websites used it.Dwolla has a very similar market to what we are creating, would like to chat about what we could do together. Small merchants are still the backbone of US retail.Here is our newly released video.

      2. John Revay

        AVC has to be one of the larger / most active blogs that use disqus…They have a great product……….just has to be a bad way to start a day when one of your investors that uses your product and their site/app is down.

        1. fredwilson

          and you have a board meeting with him that morning ūüôā

          1. John Revay

            And his day get worst….I was thinking -It’s the 5:00 AM call that an entrepreneur does not want to get, – Caller ID showing Fred’s cell phone.They really do have a great product- posted via Engagio

  23. andyswan

    I like Dwolla but so far I don’t get the advantage to the consumer. ¬†Granted, I haven’t dug in deep.On the business-side, it’s obvious — lower fees.¬†But on the consumer side, it feels like you’ve just transferred the fees over to me with this $36/year deal. ¬†Why would I want to use that and pay out money instead of my AMEX that will give me 1-2% cash back?As far as Etsy goes…this is big. ¬†Floats earn money ¬†(well, if the FED would let rates move) and allow businesses to provide greater services to their clients (the sellers). ¬†We will be doing the same thing with voomly.Bullish on both in a big way, just more confused on one than the other.

    1. William Mougayar

      I think the end run is to the merchant, so when more of them accept it, the consumer will be compelled to use it.

      1. andyswan

        Why? ¬†Just because it’s there? ¬†Amex just sent me a check for $1200, plus they protect me against fraud in a big way….

        1. LE

          Discover (intro 1985 by Sears) is (still) an also ran and accepted many places.According to wikipedia “At the time the Discover Card was introduced, Sears was the largest retailer in the United States.”So right off the bat you have big boost right there.Actually, all of this is relevant to things you have said:the Discover Card quickly gained a large national consumer base. It carried no annual fee, which was uncommon at the time, and offered a typically higher credit limit than similar cards. Cardholders could earn a “Cashback Bonus,” in which a percentage of the amount spent would be refunded to the account (originally 2%, now as high as 5%), depending on how much the card was used. Retailers[who?]¬†were wooed by merchant fees significantly lower[citation needed]¬†than those of other widely-accepted credit cards. We accept discover cards. Off the top I don’t have the exact % of purchases but it’s really really small a few points maybe. If it wasn’t really simple to accept the cards I probably wouldn’t even fill out an application form the demand is so small.

    2. LE

      “Why would I want to use that and pay out money instead of my AMEX that will give me 1-2% cash back?”Good point. There has to be some reward for usage (maybe access to some exclusive offers and deals the same way they sell premium credit cards).The security angle for personal info isn’t a big enough benefit to get people to adopt. Identity fraud is a big deal but it’s really just fud and way overstated.They need to do a deal with (as only one example) So if I used opentable to book a reservation and then paid with dwolla I get a discount which is greater than the 2% that I earn on a credit card. I can see this being a benefit to the restaurant and would seem that has the muscle to get it adopted and to also benefit from it. ¬†In other words they have to partner up to fix the chicken and egg.By “partner up” I mean they aren’t going to be able to get a salesforce to sell restaurants.Also foursquare could also help with this angle.

      1. andyswan

        To be clear I’m not bashing Dwolla, I’m genuinely curious. Is the game plan to completely flip the history of transactions and say “the merchants will drive payment choice”? It could work, who knows.I think AMEX and Visa get rid of merchants that offer discounts for cash or other payment methods….I’m just sure I’m missing something at this point.

        1. LE

          “I think AMEX and Visa get rid of merchants that offer discounts for cash or other payment methods….”Correct years ago but they got rid of that:http://www.merchantcouncil….VISA states that “you may not impose any surcharges on VISA transactions. You may, however, offer a discount for cash or another form of payment (e.g., proprietary card or gift certificate) provided that the offer is clearly disclosed to customers and the cash price is presented as a discount from the standard price charged for all other forms of payment”11 – Source: “Card Acceptance and Chargeback Management Guidelines for VISA Merchants”, Section “VISA Rules”, “No Surcharging”

    3. PhilipSugar

      One thing we have to remember is that the world does not look like us.  That goes two ways.  All these things that are cool for Alley/Valley can have no meaning to the rest of the U.S. and some things that sound stupid to us are very applicable.Only half of all U.S. citizens even fly once during a year.  I bet less than 25% can actually get an Amex Card.  I know acceptance rates for some cards are slipping into the single digits at certain venues.So that being said I too once said why would ANYBODY use a debit card?  Well fortunately I live in a very diverse area and I can tell you there are many people that are only going to use one for a ton of different reasons.So it will be interesting to see what they do.  I do have some thoughts around the merchant rewards and how to incentivize the consumer.I will say this I work in the land of credit cards (Delaware)  and Fred Smith always say go after big and stupid, i.e. the Post Office.  Being right next to MBNA now Bank of America, that is an area ripe for disruption.You will like this since you are in the land of horseracing.  Once an MBNA exec said to one of my partners.  Gambling is just a dirty dirty business.He shot back: Well yes a Casino or Track might want all the money you have in your pocket today, but a credit card company wants all the money you have in your pocket for life.

      1. andyswan

        Phil I think you’re right. ¬†Maybe we both are.There is no question that payments is ripe for disruption. ¬†

        1. PhilipSugar

          Yes. ¬†See my other comments. ¬† A marketing professor taught me this. ¬†Made us raise our hands at things we’ve done and then showed how much in the minority we are.When I came into HomeDepot with enough eGiftCards because Amex had a sale on those to buy all the structural lumber for a huge deck even the store manager could not process it in their mind.People cannot process you got $1,200 back from Amex, they can’t even do the math to figure out how much you spent.I’ve watched as people have looked up my airline miles balance. ¬†Maybe because I wear shorts it doesn’t compute, but I’m sitting there with a black card. ¬†When they realize I have 7 figures available you just see even club agents turn their head and think they must be misreading.

      2. awaldstein

        PhilTo me this is the money quote and has a place on my desktop:’a Casino or Track might want all the money you have in your pocket today, but a credit card company wants all the money you have in your pocket for life.’Thanks. Been a pleasure getting to know you better through your post and these comments.

        1. PhilipSugar

          ¬†Yes, I’ve broken my rule of never helping others financially three times all for credit cards.¬† Once you are on that cycle you can’t get off.¬† You can stop going to the casino but interest compounds at 26.99% every day and night.If you saw the buildings, cars, houses, lifestyles credit card execs lived you would swear them off, at least at a casino you get to go into the buildings that your losings built.

    4. fredwilson

      good question andy.¬†first of all, you don’t need to use instant if you are willing to do the same thing you do with paypal to move cash into your account. you connect your bank account with your dwolla account and wait three days. instant is only to help you instantly fund your account or if you need to borrow money during the month from time to time.but there are other benefits to consumers. you can transfer money at the same rates to your friends. lets say you are out to dinner with friends. you can send money via dwolla, or via twitter or facebook, to your friends to settle the dinner bill. that’s pretty handy.

      1. William Mougayar

        Yes, the peer-to-peer aspect is very interesting.- posted via Engagio

      2. andyswan

        So…. venmo, but with a sustainable model and traction? ¬†:)edit: I LOVE venmo

        1. fredwilson

          venmo is certainly the closest thing we’ve seen to dwolla

    5. Dave W Baldwin

      Interesting responses to your statement.¬† I’d add in the higher fee charged to businesses by AMEX¬†compared to VISA and MC.¬† Plus a lot of people use the debit card because it is no interest, so doing something with low fees has potential.

    6. John Revay

      Think Gas stationsCredit price/gal Cash price/gal

  24. Jess Bachman

    As a small merchant, I have always viewed paypal as a necessary evil. ¬†I even use paypal to¬†process¬†CC transactions…evil compounded. ¬†Any serious disruption in the payments space is welcomed. ¬†For too long the¬†difference between options has been evil at 2.5% or evil at 3.5%.

  25. Rafi Kronzon

    Thanks for this Fred. As a small business merchant, this is a slam dunk. Problem is trying to convince the consumer. You inspired to me to write a post about this:

    1. fredwilson

      you are right

    2. andyidsinga

      On the opposite side of the coin I was trying to convince the owner of my local coffee shop to adopt square because they have an app to “pay by name”.¬†( I guess I was a little¬†infatuated¬†with square ).¬†Turns out that when he looked into it the amount of volume he already does doesn’t make it worth while to switch.gonna read your post and then talk to him about dwolla next ūüôā

      1. Rafi Kronzon

        ¬†Yeah, Square is really just a merchant service provider dressed in Dwolla clothing. Their differentiators are a good iPhone app (which other merchant services have too), a flat rate (which they can always change), and a cool brand. They’ll have a harder time than Dwolla convincing merchants.

    3. Brad

      Great blog. What kind of merchant are you?

      1. Rafi Kronzon

        ¬†Thanks. We’re an IT – managed services company, mostly for small businesses. About 25% of our revenue is on credit cards. I’ve been working to shrink that, but small business owners love charging their Amex cards so that they can get the points. If Dwolla wanted that niche, they would have to compete with those addictive points.

  26. William Mougayar

    When will Dwolla be available in Canada? And when it does, pls make sure you don’t ding us with exchange rate surcharges like the credit card companies do.

  27. Patrick Campi

    Great Investment indeed. I’ve been following Dwolla for some time and have been amazed at how many people in the tech community aren’t aware of them. That’s about to change.

  28. Geoff

    & once again we in the rest of the world get left out! Maybe we can get the Brazilians to set up their  system here :-)& yep Disqus is being a real pain too! with System Error after going to

  29. andyidsinga

    I’ve been following dwolla a tiny bit – seems very interesting.With the instant loans and late fees they’ll have to be careful about getting into payday loan territory with $20 loans and $5 late fees.I didn’t quite understand this statement :”Why should you exchange your financial well-being for a latte every time you swipe your card?”(from :¬†…¬†Am I really sacrificing my financial well being by using by credit/debit card at my local coffee shop?[EDIT – after digging around the dwolla site (… I think part of the answer might be in how they deal with (or don’t have to deal with) PCI compliance ].

    1. Dave W Baldwin

      Remember you are not the average consumer.¬† So the answer is regarding the coffee shop, you’re fine with debit (cash covering) vs. buying coffee with money you possibly won’t pay before interest is charged.

      1. andyidsinga

        hmm . sorry I still don’t really understand ( probably being dumb here – oops ūüėČ ).¬†I don’t really understand how dwolla (or any solution like this) helps with my financial well being when I buy coffee ..over and above debit or credit.¬†I’m missing something fundamental about how this part of the equation works.

        1. Dave W Baldwin

          Sorry, I had typed that quick. Interest charging cards make money off of money owed. Credit Card companies make their money on all the people who do not pay the entire amount owed next bill. So whether coffee or fancy apparel, it is interest owed. The normal bank debit card goes against money in your account.On the subject of Dwolla, using extremely low fees, I’d be looking at scaling to the level where a bill paying service utilizing the transfer of funds in a more immediate time frame. Current bill pay services usually follow the time frames of the bank where there can be a space of time between ‘paying’ the bill on your computer and the money getting to the payee.Last, but not least, do not say you’re dumb, for apparently you keep current paying bills ;D

        2. PhilipSugar

          Again….we aren’t the target market.I was talking to someone who normally is upbeat and she was really down. ¬†I asked her what the problem was.She was really bummed, she just paid $40 for a Starbucks Coffee and $40 for a Subway Sandwich.I said well how could this be???She said she swore off credit cards after getting in trouble, went to debit, filled up with gas and then got stomped on overdraft for the other two.Again we’re not the target market, she could not even fathom how many miles or rewards points I have.. ¬†

          1. andyidsinga

            good points… so the instant loan would have allowed your friend to avoid $80 in fees or alternatively simply denied the transaction due to insufficient funds. where the stupid debit system time lag really F’d with not totally ready to concede we’re not in the target market ūüėČ

        3. Dave W Baldwin

          Sorry, we’re going different directions. Dwolla won’t solve the coffee issue. Was just making point regarding replies related to fees , both business and consumer.

          1. andyidsinga

            no no ..i appreciate the discussion – a lot of education for me in here ūüôā

    2. LE

      The “instant” stuff is way to confusing for a layman to understand quickly.¬†This, re: “What is Instant”:Whether you‚Äôre in a combine, on the streets of New York, walking down the Embarcadero in San Francisco, or stopping in at Mars Caf√© in Des Moines, if you have access to the Internet, you have cash.”Combine?” ¬†Wow and I was just cow tipping last night….

      1. andyidsinga

        they need to simplify a little for sure …some marketecture going on in there ūüôā

  30. Carl J. Mistlebauer

    One of the fascinating things about our current financial situation is that no one has mentioned “consumer spending” in regards to how to get us out of the current financial mess we find ourselves in; normally, during your typical recession the President would go on and on about how fundamentally sound our economy is and then press consumers to spend.The reality is that consumers have fundamentally changed their spending habits; in 2010 consumers paid down over 100 billion dollars in credit card debt and they increased their savings rate to 6%. ¬†If you realize that between 2007 to 2011 consumer prices increased by 5.2% and consumer spending was cut by 3% that leaves you will a 8.2% drop in consumer spending.It is believed that consumer spending has been changed permanently and by 2020 consumer spending will account for only 65% of our GDP (vs. 70.3% today and down from the July 2008 high of 73%) and the US Savings rate will eventually increase to 10%.Then you have the whole Occupy movement and the general distaste for financial institutions. ¬†I can see a real advertising campaign around “Stick It To Wall Street: Pay Cash!”Thus, the idea that a company comes along and makes “cash” an option for purchases, cash that does not involve carrying around wads of dollar bills nor ones checkbook.Dwolla also gives the retailer a means to discount cash purchases and to discriminate against consumers who use credit cards (who have enjoyed a free ride for years leaving fees to the retailers, which all consumers end up paying for in higher costs).Dwolla represents a long term investment that plays very well into social trends; yes, they need to build their foundation on brick and mortar retailers, that in turn will give them the credibility to eventually be a player in internet transactions too.

    1. fredwilson

      that is exactly how we see it carl. this is a long term bet based on our macro view of where we are headed

      1. Carl J. Mistlebauer

        Well, when I saw the title of today’s post “Payment Day” I thought you were going to write about the fact that USV made a killing on some investment and that now you were richer than God. :)I know from my own personal experience (I have gone to going 6 months not using a credit card) and from my experiences with retailers and consumers an electronic means to instantly transfer cash funds is going to play an ever increasing role in the post mass consumption consumerism world.I also read Dwolla’s blog and I like the logic of how they picked the VC’s that they did; that shows a level of seriousness and logic that has to be respected.

    2. Dave W Baldwin

      Well put Carl and it fits the ‘average’ consumer who does pay some of the bills out there.

      1. Carl J. Mistlebauer

        Based upon most of the comments on this post I realize that there is a big gap between the readers of this blog and the “average” consumer.

  31. another cultural landslide

    Beyond just the ease for small online merchants/businesses, Dwolla has real growth potential in a so-far untapped group: users who don’t have (or can’t get) credit cards – but would like to make online purchases without jumping through serious hoopage.Sure, you can (sorta) do this with PayPal – but this could be quite an attractive option for many people, small businesses & consumers alike.I also like that they use a credit union. ;)We’re definitely looking into it.¬†

    1. fredwilson


    2. John Revay

      I have a good friend that I use to work w/. He went to work for a company that was in the phone card biz, their business morphed into funds transfers between people in the US and other countries ie Mexico, South AmericaThere is a whole sub culture out there.

    3. LE

      ”¬†users who don’t have (or can’t get) credit cards – but would like to make online purchases without jumping through serious hoopage.”Keep in mind though that payment cards are now sold in every ¬†bank and drugstore. ¬†So all you need is cash and you can buy something online at any merchant by buying a prepaid card.And to use Dwolla you need a bank account.¬†The entire check cashing industry exists because there are people who don’t have bank accounts. Same thing with the huge payday lending industry, people living “hand to mouth”.

  32. jason wright

    “They see credit cards as the enemy”They should see credit cards as the opportunity. If credit cards disappear Dwolla disappears.Fred, as an investor in Dwolla you don’t see credit cards and the companies that issue them as the enemy, do you? You would see one of them as the potential buyer of Dwolla if it gains the disruptive traction you expect to see, no?Do you think Dwolla (a Dwolla) could become long term a platform for a global currency, based on a Bitcoin model?

  33. jason wright

    Where does the name ‘Dwolla’ come from?

    1. fredwilson

      i’m not sure. i always thought it was related to dollar

      1. MParekh

        Congratulations Fred.Curious on the name too.As someone who came from Asia, the name rhymes a bit with Hawala, which is a payment system used in Asia, Africa and Mideast for over half a millennia.Hawala obviously got a bad connotation post 9/11, but it’s history is noteworthy nevertheless.More here:

      2. Danny Schreiber

        I think they used to have this equation on their homepage, but it’s their fusion of the words “dollar” and “web,” i.e. “Dwolla = Web + Dollar”. Here’s a page showing that equation:…Great question, by the way, I always enjoy learning how companies choose their names, and there’s probably more to Dwolla’s story than just that equation. I’ll have to ask.

  34. CJ

    Dwolla – I don’t get it. ¬†How do I pay with this at Starbucks? ¬†

    1. fredwilson

      not until starbucks accepts it

      1. CJ

        How do we get this to them? I mean, it seems cool to be able to pay without compromising my card #, etc, but how do we drive acceptance? Though it’s security lies in the fact that it it exists outside of the current infrastructure, therein lies the problem of acceptance too.

  35. lushfun

    Hopefully this puts pressure on credit networks but the true freedom lies in autonomous portability it seems. Ergo trading system that links with all and bound to one. That is my perception for the long term.

  36. Digikist

    Fred this is a fantastic platform for a large and growing segment of Americans that play fantasy sports.¬† As a fantasy football commissioner, I abhor collecting checks and chasing down team members for transactional true-ups, holding onto money for months to disperse it later.¬† I tried to use PayPal one year and the fees severely affected the payouts and was difficult to ascertain specificity going in.¬† I used Venmo the last two years but some of the technophobe teams didn’t like an Internet company holding the money in their bank accounts so I had half use Venmo and half send checks, which made the management even more difficult.Using Dwolla will give me a technical solution to collecting and disbursing money in a manner that does not significantly impact payouts.¬† As well they are not holding our money only transactingit.¬† This is a fantastic service and one I’ve been praying for to be built for years.¬† Now, if they can blaze a partnership with CBS Sports and other fantasy sports platforms, they would kill that market

    1. Digiksit

      ¬†and I mean ‘kill’ in a positive way

    2. fredwilson

      this is awesome, i am sending this to the dwolla team right now.

      1. Morgan Warstler


  37. bantic

    Curious how this compares to venmo. For moving money to and from my friends, venmo (no fees at all for me the consumer) wins, right?  Any reason I would want to switch away from venmo for person-to-person payments?

    1. fredwilson

      venmo is the closest thing i’ve seen to dwolla. that’s a very apt comparison and great question. to me its mostly about network effects. your friends are on venom. so you use venom. if your friends were on dwolla, you’d probably use dwolla.

      1. jason wright

        Venom? I’m not sure I’d be too keen to accept that currency.

        1. Max Yoder

          Ha, Jason, it’s Venmo. I met up with their founder a couple weeks ago‚ÄĒhe’s a smart, stand-up dude. I’d trust him with my wallet any day ūüôā I’m sure the same can be said for the Dwolla folks.

        2. fredwilson

          Typo. Did it twice. Probably auto complete fail

      2. LE

        I’m not seeing any similarity to Venom. And Venom is linked to a credit card and it doesn’t appear to have any benefit to a merchant. Seems to be targeted to “friends needing to split a check”.Venmo is an iPhone, Android and Blackberry App that lots of people use to pay back their friends. It’s completely¬†FREE (no transaction fees)¬†to use, and it makes splitting the bill at a restaurant between a group of friends very easy, and kind of fun. There are plenty of other ways to use Venmo, for example paying your roommates back for living expenses like rent, utilities and groceries, or getting your co-workers back for lunch runs or coffee runs. It’s even useful to send friends birthday cash, or other cash gifts instead of writing checks. Whenever a friend owes you money, just use Venmo.

  38. Brad Lindenberg

    To generate $1mm in revenue, Dwolla has to do 4 million transactions.Square is processing $11mm in gross dollar value per day. Assume an average of $30 per transaction – thats 366,666 transactions a day.¬†IF Dwolla got to that level, they would generate $1mm in revenue every 11 days (approx)…The weakness of the model is when Square’s average sale price goes from $30 to $90… Or when inflation goes up or CPI goes up and Dwolla are still taking 25c whereas Square are taking a percentage of a higher dollar value… That makes a huge difference.¬†It’s an interesting idea however at the end of the day I think the consumer will dictate how they want to pay, not the merchant. The consumer¬†doesn’t¬†care if the merchant has to pay 2-3.5% to process a sale and it’s the consumer who is handing over their hard earned, not the other way around, so why would they change their behaviour for the sake of the merchant saving money? And if a merchant¬†doesn’t¬†accept credit cards, won’t you just pay with cash?Also lots of regulatory hurdles – yes they are doing the Schlep – but still lots to contend with for 25c per transaction. I.e. cost of entering new¬†territories¬†etc…Looking forward to watching this one play out.¬†Congrats on the Etsy work. This would have been a¬†challenging¬†engineering task from a software and financial viewpoint as you cant just integrate Etsy with a gateway like Braintree – you actually need a repository of funds that small merchants can withdraw from, individually as they do via PayPal, I think? Good work…

    1. LE

      The weakness of the model is when Square’s average sale price goes from $30 to $90… Or when inflation goes up or CPI goes up and Dwolla are still taking 25c Right now my bank lets me pay bills online at no charge. It’s a great deal not only is it easier but I don’t have to address an envelope and pay .45 postage. Nothing not to like about that. But they will charge at some point once everyone is addicted. And people will still use the service even if they charge. Because it’s still better. I would use it and pay .50 per payment easy, even more. And they will charge, wait and see.Dwolla charges .25 per transaction. After they hit critical mass and once people are using them they can easily raise that transaction fee to .27 (that’s an 8% increase) and keep raising it as long as nobody else comes along to compete (ok an if but you get the point). And most likely (as with airline bag fees and steel prices) others will follow suit anyway.¬†The advantage of the low price in the beginning is that it keeps out the pain in the ass bystanders that will try to compete with them because it doesn’t appear to be lucrative (note that groupon was a hog with their pricing and all the people they attracted who knew they could do it cheaper). So the .25 doesn’t bother me. It will go up. It could easily end up in a few years much higher and it will still be a value. ¬†If you’ve ever seen a merchant statement it’s a total mess. It’s hard to even figure out what you are paying.

      1. Brad Lindenberg

        To build critical mass, the benefit must be to the consumer, not the merchant. There are a lot of consumer benefits financed by the 2-3.5% of credit cards. Rebates, frequent flier miles, exclusive clubs,¬†concierge¬†services etc etc etc….¬†Consumers love that stuff. I haven’t paid for a flight in 4 years.Also don’t forget that banks themselves make a KILLING from interest charged on credit cards so disrupting that is tough.¬†The fact that Groupon spawed competitors further validates their idea. They defined a category and have still been super successful! $24 share price today! Plus they make 20-50% margins not 25c per sale. I’d rather hog pricing and make money than give away for free and not make money, but the benefit of VC money is that you can use OPM to see how the game plays out.¬†If Dwolla gets critical mass it might find itself in a position like Twitter where the cost of running the service is higher than the revenue it generates, but for some reason companies in that situation are getting huge valuations….¬†What I like about Dwolla is that they are working on a big idea – a fully fledged platform – its a product, not a feature. Too many people are working on features these days.

        1. LE

          The fact that Groupon spawed competitors further validates their idea. They defined a category and have still been super successful! $24 share price today!¬†Super successful? The fat jewish man has not sung on that one. They reported a loss today. Additionally, as someone who owned a business that sold coupons to small businesses I can confirm what others have said regarding why their labor cost is so high and why they are not profitable.¬†Selling to small business is labor intensive. And it never lets up. They are pains in the asses. ¬†You make appointments the owner isn’t there. You go to pick up a check promised for payment the owner says “come next week”.¬†Here’s another data point, livingsocial lost 558 million last year:LivingSocial generated $245 million in revenue last year, while incurring $686 million of operating expenses and $117 million of other costs, the filing said. http://www.chicagotribune.c…”I’d rather hog pricing and make money”One of the disadvantages of that strategy to keep in mind is that you invite competition. More competition than if others are scared off by what appears to be the slim profit potential. I’ve seen this many times.No right or wrong answers. Just different philosophy. My view is based on what I have observed over the years. ¬†If people see blood in the water it gets them interested.

          1. Brad Lindenberg

            Agreed – no right or wrong… Super successful was probably not the right wording, but they’ve thumbed themselves to an IPO and the founders and investors are probably rolling in it.¬†

          2. JLM

            There are only so many bikini waxes a fellow needs.  Groupon is going the way of Dr Koop.  It will just take time.  

        2. fredwilson

          the cost of running Twitter is not likely to be more than the revenue it generates.that was what people used to say about Facebook a few years ago

    2. PhilipSugar

      Reverse your thinking.How much money does Dowalla take away from the credit card companies for each million tranactions??That is the power of shrinking a market.  How many of those 7 series Bimmers and 500 Class Mercedes I see in my parking lot that belong to empty suits does that take away?

      1. Brad Lindenberg

        Agree РI hated paying merchant fees (I was in eCommerce until recently).  But how do we get consumers to use Dwolla instead of their cards?

        1. PhilipSugar

           Reward them.

        2. fredwilson

          merchants, especially local merchants who are most of the dwolla flow right now, do have the power to tell their customers how they want to pay. there are quite a few places i go to where they only take cash, for example.

          1. Brad Lindenberg

            Yes – florists, grocery stores, hair salons etc… I suspect they would be a good starting point for disruption.¬†

          2. LE

            Some of those places that only take cash do it because they are exclusive enough (certain restaurants) to be able to save the merchant fees. They have enough business.Others take cash so they can avoid paying taxes. ¬† Or because they pay employees under the table (especially true in NYC lest you think the kitchen help is getting paid on the books). Or to screw a partner. Or to hide it from the wife.¬†Also if you take cash there is less of a paper trail and you can more easily screw the state out of their sales tax. That gain dwarfs credit card fees.You might be surprised (I don’t mean you) how much business is transacted in a cash economy. People buying inventory for cash with the cash they receive from customers to keep the ratios in line that they need to present.

      2. Brad Lindenberg

        PS Maybe I’m mocking & misunderstanding ūüôā

    3. fredwilson

      all great points. but remember that dwolla does not intend to build its business (and its revenues) on transaction fees. they just need to cover the costs of the transactions and the fraud prevention systems and customer support that comes with the transactions. they will monetize the payment network in other ways.

      1. Brad Lindenberg

        I never doubted for a second that you have seen something that we have not ¬≠ hence your decision to invest :)The team has done a brilliant job. There are so many disciplines they’ve bought together and executed well.


        WHAT WAYS?

        1. fredwilson

          value added services. instant is the first of them.

    4. Todd W.

      I kind of agree; I can’t figure out what the value prop for the customer is here, I don’t care what the merchant has to pay, I only care how easy it is, how secure it is, and that it approaches universal usability for me. ¬†If I am a merchant this will ( initially at least ) increase friction if I try and force people to use it, if I offer an incentive then I lose my value prop, if I offer as and alternative then maybe I get some benefit but I have to support multiple payment API’s etc.¬†What am I missing here? ¬†¬†

  39. markslater

    love this.Dwolla is solving major pain for the merchant (ACH – processing) and simplicity for the user.we are talking with merchants and telling them that we can integrate payments in to our chat platform and they love it.¬†Our bet is that the youth wont call a business – they’ll chat every time if they can – and payments is the next logical step – we have high hopes teaming up with dwolla in the spring.And i personally absolutely love the fact that they are disrupting a usurous generation of antiquated businesses that i despise.

    1. fredwilson

      please let me know how it goes

      1. markslater

        will do – i emailed you also.

  40. Morgan Warstler

    SPECS Liquor (Austin’s big box candyland) offers a 5% discount when you pay with cash.Ya’d think Wal-Mart would buy Dwolla and turn the world on its ear.



    1. ShanaC

      also important truth.  we can abstract value to make things tradable.

  42. albertdrouart

    Congrats on the investment! ¬†I think these, and many of the really compelling changes in the payments industry boil down to enabling merchants to have better, closer and more flexible relationships with their customers…. globally. ¬† Traditional “merchants” like Starbucks, Apple and Amazon have made the leap, now Etsy follows the same path. ¬† The experience of paying — the experience of the transfer of value — and getting people to that point is really important to manage now. ¬† It definitely goes beyond the execution of the payment. ¬†I have some concrete ideas about how to help merchants easily create great payment experiences for their customers, bring their data to life and directly address the conversion problem. Would love the opportunity to discuss more! ¬†

  43. Jon Olick

    Although I like the concept of Dwolla, fraud is obviously going to be a big issue. One nice thing about credit cards is the security to look at your statement and say “that was charged incorrectly” or “that was a double charge” or even “I didn’t pay for that?!” The credit card company will investigate and refund your money. I don’t see any similar protection from Dwolla. From what I can tell from their website, their form of protection is “hey, your password is secure… right?” and that just isn’t good enough. They need to do better and provide similar guarantees to make people feel safe in using it.

    1. LE

      ”¬†to look at your statement and say “that was charged incorrectly””I have ezpass and you end up having it setup to charge your credit card automatically, to “replenish” the account. Rarely did I ever login and when I did it’s not like I really studied the line items.I finally checked the statement and saw that I had a charge here and there for $45 dollars (or some large amt like that). When I looked carefully it seemed they had charged me for a trip on the entire length of the Pennsylvania Turnpike. Why? Because the Ezpass wasn’t read on entry so when that happens they charge the maximum fee.That said it would be fairly easy for Dwolla to take care of this issue. Just like Ezpass could simply email you a list of your charges every week or month that you could check over (so you wouldn’t have to login to get the same information.) In my mind the payment detail really needs to be pushed to users.

    2. fredwilson

      the good news is they have already been hit by a very large fraud attack and they came through it very well. the bad news is there will be more.

  44. Carl J. Mistlebauer

    I think the key for Etsy is to create a consumer loyalty program that would be multi faceted. ¬†First it needs to allow the individual store fronts/vendors to reward their loyal consumers and it also needs to allow Etsy to reward the loyal consumers (one for shopping and buying their products and the other for shopping at any Etsy store.vendor).I have found that when we switched from one ecommerce package that had a loyalty program to one that did not that our sales dropped over 20%. ¬†Loyalty and consumer recognition are very important in the impersonal world of the internet. ¬†Its one thing to say “Welcome Back” and its another to say, “Thank You and now let us reward you for your loyalty.”The recognition of consumer loyalty and a personal touch is what will make the future of ecommerce successful. ¬†My birthday is Saturday and Starbucks sent me a postcard for a free drink which even warmed my old cynical heart!Oh, and by the way, by “personal touch” I mean integrating direct mail and pop up shops into the ecommerce matrix.

  45. Steve Hallock

    Congrats on the Dwolla investment. ¬†As someone who often deals in P2P and C2B transactions involving large $ amounts, I can’t tell you in how many ways our current system makes no sense. ¬†Generally wire transfers are the accepted means, but they are a pain. ¬†No question that is an area ripe for disruption.Not to mention, as someone who puts almost everything on AMEX and pays the bill every month, I’d gladly give up rewards points and perks if there were some way to save 2-3% on most transactions (uncapped).

  46. stevekiesling

    You thought the inferred text messaging data rate was expensive? The credit card system is insane. Interchange fees, assessments, and markups leave the average processing fee at 2.5% to 3.5% of a transaction. And banks get to charge to premium interest rates on the credit balances created for this¬†privilege.What this does is hurt everyone but financial institutions. Costs are being injected into the system and make prices higher for everyone. Those reward programs for credit cards are just a minor rebate to the consumer for this huge expense level.Imagine a merchant that has 10% operating margins. Dropping from 2.5% to 0.5% would result in a 20% increase in profitability. And that’s a great thing. That money isn’t going to be trapped in a bank that is going to lend it back to the Fed. It’s going out to expand business, hire employees, and accelerate the economy.This is really a great step forward. The credit card system is based on ancient infrastructure and is insanely expensive to transfer a few packets of information. This is a ground shaking change that is going to be severely disruptive to the financial system. And all of us will benefit.

  47. John

    My first thought was that this seem limited to only those who pay for things with cash or money in the bank. ¬†Obviously, there’s a fair amount of this, but I wonder what percentage of people pay with a credit card because they don’t have the money to pay for it otherwise? ¬†Considering the credit card debt, I expect it’s a lot of people. ¬†At first I thought this was a limitation of the service, but Instant basically turns Dwolla into a credit card company for those that don’t have the money. ¬†Pretty interesting.I just wonder why it takes 3 days to make a transfer from one bank to another bank or from a bank to PayPal, etc. ¬†There must be a reason, but it seems like one that could and should be solved. ¬†Why can’t the money transfer instantly?

    1. William Mougayar

      Because there are human bottlenecks that still need to check things. In most banks, you need to provide a certificate of origin for large transfers. I think preventing terrorism & money laundering related transfers has to do with it, but for smaller amounts which might be Dwolla’s sweet spot, there is no reason why the money can’t float freely and quickly.

  48. Zumanoff

    I really like the idea behind Dwolla, the idea that Visa and MC can essentially shake down merchants for 3% is ridiculous to me.I signed up for Dwolla a few months ago, but have not used it. I live in 10011. The biggest issue I see is that my credit card co bribes me with 1% cash back. So effectively I’m in on the racket. I would have to “do the right thing” to switch over to Dwolla. I haven’t yet.Having said that I love the idea behind Dwolla and hope they are successful.Sorry if this point has already been made above, I didn’t get a chance to read each point.¬†

    1. William Mougayar

      These are good points. It’s possible that Dwolla disrupts Paypal and peer-to-peer transactions more than they would actually disrupt the credit cards which are quite entrenched.

      1. Zumanoff

        I see. My impression when reading about Dwolla was that they were really going after the credit card companies. Hadn’t really considered paypal, but my impression with paypal is that they also charge a hefty fee.¬†A few years ago I was looking for a way to collect rent and ended up using Chase Quickpay, which is free and ACH-based. If I were looking now I’d go with Dwolla.I guess it’s good to see competition in this space, and hopefully that will eat into the¬†incumbents¬†profits a bit. It just irks me that Visa and MC just sit back and collect 3% on all CC transactions. Hopefully competition will bring that number down.

  49. Ciaran

    Tried to leave this yesterday but there were disqus issues.Could someone tell me what this benefits me as a consumer? I can see that sellers would love lower commissions, but as I tend to use a debit card for all my needs, I really don’t see what I get from this.

    1. fredwilson

      you can send money back and forth to your friends almost cost free$0 for less than $10 transactions$0.25 for anything more

      1. Ciaran

        I’m honestly not trying to be difficult (and I realise that I’m looking at a focus group on one), but* I really don’t have to do that very frequently* I can send money free through my online banking. And it actually is free, no charge, not just on amounts below $10.

  50. LIAD

    In regards Etsy,Allowing customers to pay directly into an Etsy holding account is great for buyers but may bring up issues for Etsy as they will become the merchant of record for the transaction.If buyers for whatever reason bring chargebacks – Etsy will get hit for the refund and fee, even though they may have already passed on the funds to the seller. (Etsy say they will release payment when seller marks items as shipped, not when buyers mark items as received).We got a little burnt like that previously at Shoply. I’m sure Etsy have thought that through and arrived at a solution. Would love to know what it is

    1. fredwilson

      well for one they have a budget for this. it is a cost of doing business at some level. but they have also built a lot of systems to address this.

  51. pdobson

     As others have mentioned, Dwolla is a Midwestern tech startup. Does USV have any other Midwestern portfolio companies, or is Dwolla the first? What kinds of problems do forsee their location causing them, and how is the team suited to overcome those issues?

  52. Paul Edelman

    I’ve been appalled at how much we have to pay PayPal and the credit card cos each month (works out to be around 4.2% of sales), so we will be integrating Dwolla payments as soon as we can into the shopping cart. It’ll be an extra payment option, one I imagine we will heavily promote.To those in the comments who asked what the benefit to the consumer is, and why they would use Dwolla over credit cards,¬† I think they will need to be convinced to do so by companies they love. For example, I see us telling our loyal customers that paying with Dwolla will help us save money that we can then pump back into the business via more hires, better services, etc.Consumers may not care about helping big corps in this way, but they may be very happy to help smaller businesses to which they feel closely connected.

  53. mattellsworth

    Congrats on the round with Dwolla, I was at their last “Instant” release party and they have a great team.

  54. Statspotting

    Dwolla‚Äôs Neat UI Trick (Step-By-Step, with Screenshots)…

  55. Tom Labus

    Skype should have done this 5 years ago.

  56. paramendra

    Why Etsy not use Dwolla? 

  57. laurie kalmanson

    i love that the name echoes dabbawala…

  58. David Evans

    I would question Etsy’s move, bifocating payment options, considering the sort of behavior we see in social games. While it may seem logical that a choice of payment options makes it easier for a consumer to buy, their behavior tells us otherwise. See this recent post detailing Bionic Panda’s increased revenue through reducing payment options:¬†…. While in this case Paypal was the option that was removed, in Etsy’s case, I would argue that Paypal is the option that provides the least friction for the purchaser (because most of the time it doesn’t involve entering credit card details) and therefore it should be the only option presented to users.

  59. Vagsmith

    I simply couldn’t understand that a company with SUCH an awesome value proposition only raises $5MM. To me something simply didn’t add right. So I had to¬†some research and I can’t find any innovation beyond using a simple (and discredited, rightly or wrongly, I don’t know) ACH system. I am not saying that it’s not useful, quite the contrary. Not many people know that ACH is a good system to transfer money between bank accounts if speed is NOT of¬†essence (that’s how we may our bills online). Dwolla is doing great service by taking he veil off of it. However ACH is also given to error and fraud and it will effect the business model at scale (besides there being no barrier to entry in setting up a competing ACH service). Of-course ACH can be temporary filler till Dwolla acquires the market heft to force a new standard. But to me, that’s the bet you are making – i.e. can they execute on that and that’s why a limited bet for now. The value added services you are talking about bring in their own credit risk, which do diminish at scale – so competing forces here.¬†Am I thinking it in a totally wrong way?

  60. John Fricker

    After listening to David Wolman talk about money here¬†… I’m convinced that Dwolla will do to money what Twitter did to communication.

    1. fredwilson

      i sure hope so!!