Video Of The Week: Ben Milne on TWIST

I found this video in my YouTube suggested video feed. It's a Jason Calacanis interview of Ben Milne, the founder of our portfolio company Dwolla. It's a good discussion of why the credit card system is very expensive and why we need something better. Dwolla is trying to create something better.

#hacking finance

Comments (Archived):

  1. Dave Pinsen

    I’ve been using Dwolla to pay contractors since I read about it in that Business Insider article a few months before you guys announced your investment in it. Was really impressed by the scope of Milne’s ambition in creating it. Who else would have even thought of trying to replace ACH? Most of the businesses you read about in this space just piggyback on top of the legacy system. Still not sure how they can make a profit with such low fees, but maybe the video will explain. Looking forward to watching it later.

    1. Matt A. Myers

      Profit is the cost of digital movement of information minus the number of employees to operate the system; It’s far fewer than the current entrenched banking system. There’s a lot more value that can come of it as well.

      1. Dave Pinsen

        Profit is cost – number of employees? As with many of your comments, that makes no sense.

        1. Matt A. Myers

          I’m simplifying. Does knowing that help you understand it now or should I explain you business?

        2. PhilipSugar

          I understand his point, but it is poorly worded.He means profit = revenue -cost of goods sold – operating expensesIf you reduce the operating expenses you can reduce the revenue an equal amount and make the same profit.In this case the operating expenses are indeed very high. Living in DE land of the Credit Card Issuer I see the parking lots.For our economy not sure if I want to see that happen, but that is a different story.

          1. Dave Pinsen

            Poorly worded is a generous interpretation. I get your point, but there doesn’t seem like a lot of revenue to work with when you charge a flat 25 cents per transaction. Maybe the strategy is to just get scale and then raise their fees, or get bought out by another company that will raise the fees.

          2. PhilipSugar

            I get it drives me nuts when somebody says airlines make too much money! Telecom companies make too much money! And you think: huh???

          3. LE

            Same. Wish I had a more eloquent way to put it but people are morons. Especially people who have never started and run a business and had expenses, employees and accounts receivable.

          4. PhilipSugar

            I dislike when people that cry: Everyone needs to make a living wage! Then turn around and say: Your stuff should be free!I know I’m unpopular but that’s why I don’t believe in open books for many companies: You put up your house work 80 hrs a week for half what you paid a person for years. That same person after you are successful thinks maybe you deserve to make 5% more.

          5. LE

            Similar situation, with respect to exec pay in Switzerland:…Switzerland will vote next week on a proposal limiting executive pay to 12 times that of a company’s lowest paid worker, the second time this year the country will use the ballot box in an attempt to rein in corporate compensation. On Nov. 24, voters will be asked to approve or reject the 1:1 Initiative for Fair Pay, which organizers say would address a growing wealth gap in Switzerland. The initiative is premised on the idea that no one in a company should earn more in a month than others earn in a year.Switzerland is where all those over priced watches that are advertised in the WSJ get sold to Americans awash with enough money to spend it on watch “jewelry”.

          6. Matt A. Myers

            Multiply by a billion. See enough revenues yet?

          7. Dave Pinsen

            Enough to turn a profit? Insufficient data. Don’t know what the costs would be.

          8. PhilipSugar

            No Matt you are confused again. He says a billion of money moved. Nothing about transaction fees.

          9. Matt A. Myers

            Uh?”[…] doesn’t seem like a lot of revenue to work with when you charge a flat 25 cents per transaction.”He’s talking specifically about the revenues generated from 25 cent transactions … and I said multiply 25 cent transactions by a billion …

          10. PhilipSugar

            How many credit card uses in the U.S. over $10 per year?

          11. Matt A. Myers

            What’s your point?

          12. Dave Pinsen

            That’s a good point. Not only don’t we know the costs but we don’t even know the revenue. It’s 25 cents per transaction: a billion dollars could have been moved in 100,000 transactions, 1,000,000 transactions, etc.

          13. LE

            Not to mention the fact that in my mind such a low charge raises all sorts of questions of legitimacy of the service. As in “it’s to cheap – so what’s the catch”?In my business (where we all pay the same cost for the product doesn’t vary by volume) the competitors who sell close to or below that cost are not making it up on volume they are making it by selling you other products and services that they are making money on (of which many are of dubious value or not needed at all). And that’s where the market already existed when they started.I’m usually on the side of keeping a price low so you don’t attract the attention of every pain in the ass bystander that thinks they can do the same thing cheaper “everyone and their uncle and a race to the bottom”.But this is way to cheap in my opinion.If they want to get scale then they have to spend money on, gasp, marketing to educate the public and get people on board. (They could be doing this of course ..)

          14. Salt Shaker

            Dwolla and their founder, Ben Milne, seem pretty smart. There’s clearly no precedent here by successfully introducing a low cost, low margin, high volume biz. Just for kicks, I took a quick peak at the avg. cost of office space in Des Moines, where Dwolla is based. It’s anywhere from $9-18 a SF. Try finding that in NY or SF. Dwolla biz is disruptive in the true sense of the word, I only wish someone could crack the TM/Live Nation model, where transaction fees are as unsavory as loansharking.

          15. PhilipSugar

            But they are loansharking. Don’t you understand the model? You need to build a venue. I give you $20mm upfront for the downpayment in return for exclusive ticketing rights.

          16. Salt Shaker

            I understand TM/Live Nation’s model, and it’s not a very good one. It’s ridiculously capital intensive. They’re fundamentally in the RE biz and own or lease a shitload of venues. They also operate at a loss and we (the consumer) end up paying for their inept biz model and management.

          17. PhilipSugar

            I don’t think its inept. You think those big venues you go to get pulled out of somebody’s ass? Would you rather see your tax dollars go to finance them?? So people like me who hate crowds but travel a ton have to finance people that like to go to concerts?

          18. Salt Shaker

            Most concert venues aren’t publicly financed, and large sports stadiums, many that have been publicly financed, are no longer getting the requisite approvals through public referendum. The economic impact of publicly financed stadiums has always been suspect anyway. Based on TM/Live Nation’s historic stock performance, I think there likely are thousands of shareholders who would agree with my assessment that the company and its flawed mgt is “inept.” They need to boot their CEO, Michael Rapino.

          19. PhilipSugar

            Really? Tell me how they get their down payment. I know for a fact. Do you?

          20. Salt Shaker

            Ha…why so argumentative, brother? Reasonable people can disagree, although perhaps salt and sugar are insoluble. I can list in NYC alone virtually every concert and theater venue, a large source of TM’s revenue, and none are publicly financed. I’ve also worked in sports for 20+ years and teach sports marketing at a major university so I do know just a tad about sports stadium finance.

          21. AgeOfSophizm

            only one answer to that – stop being a consumer

  2. Matt A. Myers

    Is Dwolla ever going to be outside of the U.S.?I imagine it’s the banking systems and rules of different countries that make it impossible without perhaps some big changes – and we know how much big business like to keep the status quo of their profits to maintain their expensive infrastructure.Apparently within the last decade, at least in Canada, banks have greatly expanded their physical presence – meaning buying or renting out expensive real estate – and of course, competing banks will want to do the same to try to have equal exposure and accessibility for clients. This basically just means they’re using money from enormous profits they’ve been able to maintain due to legal structures.. preventing easy disruption.It’s great what Dwolla’s trying to do, likewise with Bitcoin services – though until we have people feeling safe and living a good quality of life without fear of survival, we’re going to have a whole lot of people trying to hold onto jobs (e.g. the distribution of wealth) to compete against the automated systems that would make life much easier and require less people’s time to operate/facilitate.

  3. jason wright

    i’ve seen this. he talks very fast. fraud and security are the germane issues. bitcoiners take note.

  4. mikenolan99

    Would love to see a game changer in the brick and mortar world. Credit card fees are brutal for in-person transaction small businesses… Most business plans I see estimate 30-50% in credit card sales, but the true number is much higher – especially food franchises. 2.5%+ off the top line plus transaction fees, and the break even point can change in a hurry.

    1. Matt A. Myers

      I believe Dwolla can facilitate this, at least the transaction part.

      1. mikenolan99

        I’m an investor in some fast-fresh concepts… Would love to see Dwolla align themselves with a nationwide chain… Maybe a gift card linked to my Dwolla account. Wow…

        1. Matt A. Myers

          There are lots of possibilities. 🙂

    2. mikenolan99

      And, I love to see VC funds come to the Midwest!

  5. Matt A. Myers

    Anger -> ActionI certainly live this.

  6. Richard

    My guess is that it didn’t take too many meetings for USV to commit to Ben.Picked a huge MarketKnows TechnologyCreativeSelf StarterCan read a ACH white paperPut skin in the game (50k)ArticulateMidwest ConfidenceMidwest Humbleness

    1. Matt A. Myers

      Large network

    2. LE

      I remember a post where USV almost backed away from this deal because there was some philosophical difference with the founders. [1][1] Amazing what you remember and what you don’t. I can’t remember the movie that I watched 2 night ago.

  7. David Semeria

    The Dwolla web site should make it clear on the home page that the service is currently only for US users. It’s annoying to find out at step 3 of the sign-up process.

    1. LE

      The web site is much improved over what I had seen when Fred had discussed it before.But my first question was why don’t they talk about the safety of the money? Shouldn’t that be front and center?So I scrolled down and saw this at the bottom:Financial institutions play an important role in the Dwolla network.Dwolla, Inc. is an agent of Veridian Credit Union and all funds associated with your account in the Dwolla network are held in a pooled account at Veridian Credit Union. These funds are not eligible for individual insurance, and may not be eligible for share insurance by the National Credit Union Share Insurance Fund. Dwolla, Inc. is the operator of a software platform that communicates user instructions for funds transfers to Veridian Credit Union.So I think that that will makes this a non starter for many users I mean after all I can’t tell you the number of people who are afraid of their credit card getting stolen even though they have literally no liability for unauthorized charges. (And as any merchant will tell you can also get out of authorized charges by sneezing).One way for Dwolla to take care of this would to contract with a highly rated insurance company to offer some type of insurance for any financial problems up to a set dollar amount. And then make a comparison between that method of insurance and others (who are respected) doing the same type of thing in other businesses.

      1. Emily Merkle

        Agreed. There will be no scale without user comfort, no matter how appealing it is to vendors.

        1. bpmilne

          There is some good news here guys. Things like disputes and account level protection are part of consumer protection law and something everyone gets because they’re in the US.On the insurance front. I agree. There are many things we can do to create a better experience on a new network. Would love to hear your thoughts as in depth as you’re willing to go –

    2. bpmilne

      This is great feedback. I’m happy to report we’re revamping the sign on/in flow to make it easier. I hate to say we’ve heard this from a lot of folks internationally.

  8. William Mougayar

    It was interesting to learn that the P2P segment wasn’t a dedicated focus for Dwolla.Does that leave the door open to other potential players to enter the low-end of the market with a consumer product?

    1. pointsnfigures is really excellent at P2P. Part of Braintree, which is now part of Paypal.

      1. William Mougayar

        Interesting. Transfers are free. I’ll need to see if it works in Canada. thanks.

  9. PhilipSugar

    I love the “I didn’t know how difficult it would be” that is why it is great to be young. I also love the I asked people who really know about the payment space question.

  10. Sebastien Latapie

    Dwolla is an amazing company and I really hope it succeeds. When I was setting up a new POS system using an iPad we considered looking into different payment methods (Square) and that’s when I uncovered how ridiculous the credit card systems are. I was angry.I’m glad Dwolla is taking this problem head on.

  11. pointsnfigures

    I am surprised that USV doesn’t “encourage” more of their portfolio companies to work with each other. Dwolla on Etsy, Hailo etc and integrating with Foursquare. I see Hailo and Foursquare are working together now, but wonder if there are network effects inside the portfolio.

    1. Matt A. Myers

      Who’s worth what? At what cost does the potential partnership have? If it’s more positive than negative, then the partnerships will happen – if not, they won’t. Defining the negative and positive values isn’t necessarily easy once you get into the qualitative aspect of it. Fairly sure USV does “encourage” companies to work together, though they don’t force anything.

      1. bpmilne

        I’d like to take a moment to compliment USV’s approach. They do a really nice job of ensuring founders meet one another in a comfortable environment and have moments to self discover how they can help one another. While I haven’t done a lot of deals with other USV companies they take my calls and give me constant feedback. I really like working with them.

        1. Matt A. Myers

          I imagine with USV curating the people in their portfolio, they’re probably pretty top notch folks. 🙂

    2. fredwilson

      We do encourageWe can’t and won’t do more than that

  12. Bruce Warila

    Thanks for posting. As a background task (I own, I have been wondering how to move money to charities without paying %fees. I wonder if you could get sites to offer Dwolla, if the fees they would have paid go directly to a charity/cause?

    1. bpmilne

      Bruce – This is pretty straight forward for Dwolla. We work with non-profits all the time. It’d be pretty easy to split the payment on a site using facilitator ( https://developers.dwolla.c… ) during the checkout and send whatever portion you’d like to a third party. Let us know how we can help.