Dwolla Finally Releases Solution to the ACH Payment Problem, Makes API Available to All Banks

By Erin Griffith , written on May 8, 2012

From The News Desk

Dwolla is all about bringing simplicity to the world of payment processing, which currently consists of a bunch of "stuff on top of stuff," CEO Ben Milne says. Today, with the opening of its FiSync service, Dwolla allows banks to integrate simple peer-to-peer payments into their own systems. It's designed to cut the wait time on payment processing from three to five days down to zero days. It's real time payments. At your bank. Very cool.

Of course, the success of this project hinges entirely on adoption from the banks, something Milne says shouldn't be a problem. "Probably a dozen banks have been talking to us for the last month about this," he said.

I spoke to Iowa-based Milne about competition, identity theft, and killing improving "ACH." Q+A below.

So what does this news mean exactly?

Dwolla's purpose is to make transactions fast and easy and secure for anyone with an Internet connection. The current system works well, because it is reliable. There's nothing wrong with it, there are just things about it that aren't ideal when you think about building next generation networks.

And with a routing number and account number, you can take money out. You should have to validate more information than that. When we think about our consumer product,, and our app, for that to survive in a meaningful way, we need access to a real time network that gives us more security than the current standard.

FiServe is something we could sell as an extension of a consumer product to banks. And it would have taken 10 years to sell them on that. It's a tough sell to Bank of America. So we created the engine and mechanism for real time transfers and put into a subdomain and separate product that gives banks the ability to do free, realtime transactions at a low cost.

The low cost of free, right?

It's free to get access to the API. There will be a transactional fee if you sell on someone else's routing number. It's a predictable revenue stream for us. If you use the service, we get revenue. Everyone has free access to the same technology, what they do with it we don't really know. We don't feel like coloring that with political or corporate agendas. People can use it however they want and have the option for real time.

Even if it's free, do you think you'll have a hard time getting banks on board?

The response so far has been very positive.

From who?


Bank of America?

I can't name names and these relationships are things we don't know how to predict. We're currently doing business directly or through our engines with a dozen-plus financial institutions. This is a way for us to work with the rest of the market.

This is a missing piece of the transaction system inside of the United States. The only way it'll be openly adopted is if everyone has access to it and can built on top of it.

We already have our first banks on board. We serve more than 12 financial institutions. banks are signing up for it now, and we'll pick in the order they signed up which ones we let in to do the testing, so we don't create a scaling problem where we can't service anyone. It would be irresponsible to take on everyone at once, because we can't do that. This gives us a chance to communicate the benefits and downfalls of the platform.

Are any of your competitors working on the ACH (automated clearing house) problem?

Dwolla has a very different view of the world than a lot of people working in payments. If you look at the companies that are stereotypically included as our competitors, they are actually aggregating payments inside a platform. End of the day, they're saying, "Pay however you want, and the merchant will pay that fee."

So no matter how you pay, a settlement needs to occur between the banks. We think, "Stop building stuff on top of stuff. The money should go from one bank account to another bank account."

So we created a new efficiency at the bottom of the stack. The downfall is there is a limited number of people who can use it. If you're a bank you can. Bank-to-bank is a 30 trillion dollar market. It's bigger than the debit and credit market. It's different from building a mobile wallet where I get 20 basis points on every transaction.

Aside from drastic day-to-day changes in currency that hurt banks when transactions take three days to close, what other issues does realtime payments solve?

You have a credit card in your wallet, inside of that card are a bunch of problems. Every time you use it you're leaving behind all this data that's used for identity theft. If you haven't had your identify stolen yet, it's because someone has chosen not to target you. That's an architecture problem. Our goal is to solve those problems and the end result is to drive the cost of those transactions down.

So preventing identity theft will ultimately lead to cheaper transaction costs?

The only way to drive transaction costs down is to prevent identity theft. that's what leads to the markup on transactions. If you build something that doesn't expose itself with each transaction, it is a better solution. We're able to leverage mobile phones to do a lot of new things because people are willing to try new behaviors. It's fortunate that we're a new platform working in early adopter markets where we can build something drastically different and people will be willing to try it.

Dwolla has raised $6.3 million in venture funding from Union Square Ventures, Village Ventures, Thrive Capital, Paige Craig, Marc Ecko's Artists & Instigators, BetterWorks, and fellow Iowa native Ashton Kutcher.