Pay master: Ben Milne, founder of the digital-money company Dwolla, pays for coffee the old-fashioned way during a visit to San Francisco.
Ben Milne, a 29-year-old college dropout with a furry goatee and no background in finance, is on his second and third meetings with some of the world’s biggest banks.
He thinks he has convinced them he’s “not full of it.”
This is no small thing. The startup company he founded, Dwolla, has introduced an Internet-based payment system that aims to bypass credit card companies. Not only that, but to work properly, it will require rewiring a crucial hub of the U.S. financial system known as the Automated Clearing House, a network banks use to transfer payments electronically, although usually with a delay of several days.
Dwolla, which is based in Des Moines, Iowa, and employs just 20 people, may seem insignificant against the backdrop of $4 trillion in credit and annual debit payments and $30 trillion that banks move through ACH each year. But Milne sees no reason why he can’t be the one to invent an “extremely fast, secure, real-time exchange” that solves some “totally screwed-up inefficiencies” in the banking system.
“The people that control the communication of value are at the banks. But where’s all the gold? It’s just numbers,” says Milne, who previously ran a successful online audio business.
The plan is brazen, but Milne’s solution could be as good as any. In the United States, nobody has yet come up with a widely accepted way to pay the rent, or buy a coffee, from a mobile phone. Mobile payments are expected to grow explosively, but it’s still unclear how they’ll be carried out. Large retailers, banks, credit card companies, mobile-phone carriers, and Internet giants such as Google all have competing proposals but haven’t been able to agree on any standard approach.
Dwolla (think “dollar” plus “Web”) functions a bit like a prepaid debit card. You load money into a Dwolla account from your bank. Then you can instantly send money to any other Dwolla user by entering the person’s phone number, e-mail address, or Twitter handle into a phone app (or just a desktop computer).
A major advantage is the cost of that transaction: Dwolla charges 25 cents to receive a payment, and nothing for amounts under $10. That’s less than Paypal or credit card “swipe fees,” which can run 2 to 3 percent of a product’s price tag.
One merchant using Dwolla is Larry James Jr., the owner of the Mars Café in Des Moines, a coffee shop that’s a hub of the “Silicon Prairie” technology scene. James says he currently accepts a handful of Dwolla purchases every day on an iPod Touch, bypassing his “antiquated” cash register. He encourages people to use Dwolla. Even though the card fee on a latte may be just a few cents, those fees can add up to more than a thousand dollars a month.
Credit card companies are aware of Dwolla and similar efforts to undercut their business. “You can’t wake up in the morning without there being five or 10 more startups,” says Dan Schulman, a group president at American Express. He says there is a “tremendous amount of innovation going on in the payments industry,” some of it from small companies who are “thinking about it from the ground up.”