Who would’ve thought a company based in Iowa would be on the forefront of real time payments?
Des Moines-based Dwolla has positioned itself at the forefront of emerging payments. Founded in 2008 by Ben Mine, Dwolla was born out of frustration with the costs to transfer funds online. The firm specializes in ACH, the cheapest way to transfer money short of driving a garbage bag full of cash to your friend’s house. Dwolla provides users with services inside the holy trinity of payments: sending funds, receiving funds, and facilitating fund transfers.
Although bank transfers are pretty cheap, they still has a pretty big issue: speed. Credit card transfers are instantaneous, but bank transfers can take at least two to three days to clear. Dwolla has been focused on trying to modernize the payment industry and speed up bank transfers, launching a real-time transfer service to its clients in 2011 called FiSync.
“We’ve been busy pushing the industry ahead trying to find what the modern payment system in the U.S. looks like,” remarked Jordan Lampe, director of communications for Dwolla. “The U.S. has the largest economy but the most antiquated bank transfer system. We’re working with the Federal Government moving the industry to an infrastructure that’s more modern and compatible with today’s needs.”
Dwolla started working with the U.S. government in 2015, when, along with Paypal, it became the first technology featured in the U.S. Treasury Department’s digital wallet. Users can use Dwolla’s platform on Pay.gov to pay non-income tax fees online.
Dwolla also submitted a proposal to the Faster Payments Task Force, an organization that worked with the National Automated Clearing House Association on accelerating the speed of ACH. FPTF and NACHA worked together in developing a same-day ACH rule to be rolled out in September 2016, allowing banks to eliminate the old 2-3 day transfer times and turning bank transfers into same-day transactions.
The task of trying to speed up an antiquated system brimming with regulations isn’t an easy task, and Dwolla had to incorporate over 500 pages of operating rules and guidelines into four endpoints into its platform, know as White Label API. In doing so, the tech firm believes that bank transfers will become more appealing to customers.
“Bank transfers are becoming sexy again, and we’ve been in the middle of it for six years, and are no longer the weird people in the cornfields of Iowa talking about real time payments,” said Lampe. “People are looking at us and saying ‘hey, they may be on to something’. We’re going through this bank transfer renaissance and we feel we’re at the center of it.”
Dwolla still has a long road ahead of them until bank transfers become the majority payment method. According to a 2012 Federal Reserve Payment Study, ACH accounted for 18% of payments, lower than both credit (21%) and debit (38%) cards. The good news for ACH lovers is the size of ACH transfers, as bank transfers accounted for 61% of total fund transfers.
Dwolla also has experience with emerging technologies, including blockchain. Through its work with the U.S. government, Dwolla has insight into the U.S. financial hub, and from this perspective, it’s unlikely that a fully integrated blockchain solution will emerge in the near future.
“The essence of the battle we’re fighting among payments is that we can’t even agree on one financial standard of monetary movement,” said Lampe. “If we can’t all jump on the same page of documentation that’s been around for 20 years, what makes us think we’re gonna get anywhere close to blockchain in the next 10?”
Dwolla isn’t ignoring blockchain. It’s looking for ways that the technology can be integrated into existing systems. One hypothetical example of an opportunity for the firm is applying blockchain to the clearing and settlement process to turn the two-step process into one. By learning how to speak blockchain, Dwolla can also help companies with digital assets communicate better with banks through APIs.
Instead of trying to entirely redesign the payments infrastructure, Dwolla is part of a group of new technology companies taking on the existing archaic system to modernize and extend it with emerging technologies. Customers who choose to use competitive platforms or payment providers may still end up benefiting from these types of innovators.
“Even if people are not interacting with us on a daily basis, we’ve created a conversation that nobody can ignore anymore,” he said. “Financial institutions sitting on Mt. Olympus that used to feel protected are realizing they need to get their hands dirty on what the customer needs.”