September 19, 2013
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I remember in the Weblogs, Inc days, I used to write checks by hand to pay writers. At first it was 10 checks, later 20 checks, and then 50 checks. I attended a conference right before we sold the company, and I sat and signed a fat stack of 150 checks while listening to the speaker.
When I mentioned that to Ben Milne, he laughed and shook his head. His company Dwolla is a payment network built from the ground up. The concept is incredibly simple: no percentages, no credit cards. Hook up your bank account with Dwolla to send any amount under $10 for free, and anything over $10 for $0.25 per transaction.
“Our theory is it doesn’t cost that much more to move $11 as $11 million. The risk is different. But a minimal amount of data,” Milne says. “We believe money is data, it’s (just) really important data.”
From his late teens to early 20s, Milne ran an ecommerce business out of his home state of Iowa. As it took off, Milne grew frustrated at the revenue eaten up by 2% or more service charges on credit cards.
"Credit cards were costing us about $55,000 a year and that kinda pissed me off just a little bit,” he says. “I started working on how we could get paid through our website without paying the credit cards."
He didn’t realize at the time how insane it was to build a payment system from scratch. But that anger was a good motivator. And venture capitalists have taken to the idea. Dwolla has raised nearly $23 million from Union Square Ventures to Andreesseen Horowitz, to the angel investors in Iowa who might call on Sunday, just to check in.
"There’s a cost to processing a credit card. And there’s no way around that without building a new system and that’s what Dwolla is."
That gives Milne and Dwolla a lot of flexibility. But it also requires massive evangelism.
“The difficult part is that everyone has to opt in one at a time," Milne says. However, "it means we don’t have the fees or the problems the other networks have."
Rather than seeking an early exit, Milne appears to be in it for the long haul. And so far, those mom and pop investors in Iowa are happy to be along for the ride, he says.
“We look at ourselves as a piece of PayPal’s wallet eventually.”
Highlights:
Were you intimidated as an entrepreneur taking on payments? If you think about how complicated this is, no sane person would take this on.
How did you gain all that knowledge about banking technology and moving money around?
How big is the network now?
You’ve publicly stated you’ve had a billion dollars this year, in 2013, go through the system. But the key is the low fees. You came into the market with what some people were absurdly or unsustainably low fees.
How does that compare to PayPal?
When you shared this with VCs and investors, did they try to convince you to change this, be greedier?
Featured on:Entrepreneurship & Small Business
Posted by:Jason Calacanis
via Why Dwolla Charges 25 Cents to Send $11 or $11 million | LinkedIn.
