Gone are the days when PayPal can rely on the scale of its business to keep it at the top of the online payment processing industry. Contenders like Square and Google Wallet forced PayPal into the $171.5 billion mobile payments business, while a growing company called Dwolla is starting to attack PayPal at its core. Although Dwolla offers both mobile and online payments, the company is going to beat PayPal at its bread and butter service: basic online payments.
Dwolla was founded in 2008 in Des Moines, Iowa, by college-dropout and CEO Ben Milne, and CTO Shane Neuerburg. Milne has publicly admitted that he doesn’t have a financial background. So how did a humble startup in the middle of the country attract brand name investors like Union Square Ventures and Ashton Kutcher? These investors have a hunch that Dwolla is going to beat PayPal at its own game, and here’s why:
PayPal users hate PayPal. There has not been a viable contender in the online payments space that can achieve the scale that PayPal has while improving upon user experience, ease of use, and payment fees. The company has a long history of withholding payments to merchants and refunds to unhappy buyers. It has been accused by users of not taking fraud seriously by merely freezing the accounts of fraudulent merchants instead of releasing the funds back to the buyer.
Along with the good fortune of positioning itself as the “anti-PayPal,” Dwolla already has many things going for it that would be hard for PayPal to get ahead on. The first and most glaring is the simplicity of Dwolla’s pricing structure. The startup charges merchants just $0.25 per transaction over $10, no matter how large the sum of money exchanged is. PayPal has a more complex structure, charging merchants a monthly subscription fee, plus a percentage of the total sale, plus a per transaction charge.
Milne has expressed that he does not want to compete with PayPal. Instead Dwolla is building a completely different payment infrastructure and creating a new network architecture that takes into account current web technologies. PayPal would never be able to catch up thanks to its massive infrastructure, because the nimble Dwolla is building something completely different.
Dwolla’s API is also easy to work with. Developers and customers of apps who use the Dwolla API are both impressed with the ease of configuration.
“Ambassador payouts are a piece of cake with Dwolla,” notes the team at Transswipe. “As you can imagine with well-known brands, the payouts can become large very quickly. Not having to live with the restrictions of percentage-based fee models opens up an opportunity to make a lot more money for ambassadors. They use Dwolla to make getting paid easier and cost a lot less for their users. This couldn’t make us any happier.”
While Dwolla has a long way to go before it becomes the de facto online payment system of the web like PayPal currently is, the company announced that it raised a $5 million round in early February to make a go at the payment processing giant. Currently, Dwolla has over 80,000 users and 7,500 merchants using the payment platform. The company is going to use the $5 million that it raised in its Series B round to scale the company and focus on strengthening its API.