The payment network company, Dwolla, recently went from pretty cool to wickedly awesome.
If you don’t know, Dwolla let’s you move money to anyone else (I believe just in the US so far) for much cheaper than a credit card transaction. For payments under $10 it’s free and for over $10 it’s a flat 25 cents – even if you transfer like a million USD. A typical credit card network charges its merchants about 30 cents plus 3% of the transaction amount per transaction – plus you need to pay for a gateway and all kinds of stuff. Basically credit cards suck for merchants, but they’ve been the defacto standard.
In order to pay someone with a check, you need to have the funds in your checking account. If you want to pay with a credit card, you need to have the funds (credit) available in that account. Likewise to pay with Dwolla you have to have the funds in your Dwolla account.
In order to pay a merchant, you must agree on a form of payment. If you want to use Dwolla to pay a merchant, they have to accept Dwolla (just like if you wanted to pay with a check, Discover, American Express, Visa, or even cash – all of which have merchants that don’t accept them).
One time, I wanted to buy a bunch of custom T-shirts from 8|7 Central. They accept Dwolla. I wanted to use Dwolla to save them the transaction fees (on roughly a $1000 purchase). Plus they had a promotion going on at the time for those using Dwolla.
I had the funds in my bank account. So I needed to move money from my bank account into my dwolla account (kind of like moving money from a savings account into a checking account so it’s available to spend via a check). However, moving those funds from my bank account into my Dwolla account took a while – because that transfer ran over the outdated ACH network (what banks and credit card companies use to transfer money).
Because of that transfer process, I haven’t used Dwolla as much as I would like. I want to be able to make a payment decision in an instant and don’t know if I’ll want to use Dwolla in a couple days and don’t know how much that payment might be. One option might be to just keep a couple thousand USD in my Dwolla account just in case – like you might with a checking account. However, money in my Dwolla account doesn’t feel as liquid to me as money in my checking account – since way more merchants accept checks and debit cards than currently accept Dwolla.
What Dwolla Did
Two days ago, I got an email inviting me to the beta of Dwolla Credit. Yesterday I finally thought I’d have a bit of time to go through it all, so I clicked the link in the email. I logged into my Dwolla account and looked through the terms. My big take-away is that if you carry a balance past the due date, it’s like 25% APR. Also you can pay the credit account, which is setup through Comenity Bank, with Dwolla. So I clicked the “Apply” button (expecting to be taken to the next series of steps) and BAM! “You’ve been approved for $10,000.” That was it.
Now whenever I feel the impulse to buy something, and the merchant accepts Dwolla, I can use Dwolla – without worrying whether I have the funds in my Dwolla account (assuming the purchase price is less than $10K). Then with a couple taps on my phone, I can move money from my bank to dwolla and then pay off the credit account – which definitely won’t take 30 days – so I won’t have to pay the interest fees on the credit account. Now if Dwolla had a setting where I could automatically pay the credit line from my Dwolla-linked bank account that would be even wickeder awesomeness. :)