Dwolla launches Dwolla Credit – Real-time payments without interchange(blog.dwolla.com)
blog.dwolla.com
Dwolla launches Dwolla Credit – Real-time payments without interchange
http://blog.dwolla.com/real-time-payments/
15 comments
This is why the interchange is not going away from the marketplace - any new CC-like product w/o interchange will be more expensive for 'cardholders' than the current creditcards, simply because credit card issuers can earn their money from the interchange fees that only the merchants care about.
The post is light on details, unfortunately.
As far as I can tell, it's more similar to BillMeLater than it is to a credit card. The only other information I could find on Dwolla Credit is a support FAQ[1]. Interestingly, the credit provider is Comenity Capital Bank, which is also behind BillMeLater[2].
I still don't completely understand the difference in models between something like Dwolla Credit (or BillMeLater) and a credit card. Why do credit cards cost the merchant 2+%, while Dwolla Credit only costs 25 cents? It seems like the same risks apply.
[1] http://help.dwolla.com/customer/portal/articles/1330333-cred...
[2] https://www.billmelater.com/help/index.xhtml
As far as I can tell, it's more similar to BillMeLater than it is to a credit card. The only other information I could find on Dwolla Credit is a support FAQ[1]. Interestingly, the credit provider is Comenity Capital Bank, which is also behind BillMeLater[2].
I still don't completely understand the difference in models between something like Dwolla Credit (or BillMeLater) and a credit card. Why do credit cards cost the merchant 2+%, while Dwolla Credit only costs 25 cents? It seems like the same risks apply.
[1] http://help.dwolla.com/customer/portal/articles/1330333-cred...
[2] https://www.billmelater.com/help/index.xhtml
If I had to guess, one thing that makes services like Dwolla less risky than traditional credit cards is that credit card security is built around end users keeping secret a string of numbers written on a plastic card that they hand out to random strangers on a regular basis. As a secondary fraud-prevention measure, merchants may ask you to sign a receipt that may or may not match the one on the back of your card.
To be fair, there are a number of fraud detection algorithms at play as well, but those algorithms often have wholes in them or come into play only after the fraud has occurred.
As an online service, Dwolla requires users to authenticate directly with them, where they can take steps to mitigate fraud by requiring two-factor authentication, etc. Authentication with merchants is handled via a token-based method. In addition, fraud detection may also be substantially easier because Dwolla is privacy to additional information about its users (IP address, purchase details, cookie tracking, etc.) that may not be available to traditional credit card providers. Dwolla may also be privy to additional information that allows them to assess the credit-worthiness of their customers and minimize the danger of default.
This probably doesn't totally explain how Dwolla dropped the cost of fraud detection down to a flat 25 cents (e.g. it doesn't explain why PayPal charges a percentage-based fee), but I bet it's part of the story.
To be fair, there are a number of fraud detection algorithms at play as well, but those algorithms often have wholes in them or come into play only after the fraud has occurred.
As an online service, Dwolla requires users to authenticate directly with them, where they can take steps to mitigate fraud by requiring two-factor authentication, etc. Authentication with merchants is handled via a token-based method. In addition, fraud detection may also be substantially easier because Dwolla is privacy to additional information about its users (IP address, purchase details, cookie tracking, etc.) that may not be available to traditional credit card providers. Dwolla may also be privy to additional information that allows them to assess the credit-worthiness of their customers and minimize the danger of default.
This probably doesn't totally explain how Dwolla dropped the cost of fraud detection down to a flat 25 cents (e.g. it doesn't explain why PayPal charges a percentage-based fee), but I bet it's part of the story.
The bulk of the 2% goes to the bank that issued the card and they are very reluctant to give up that revenue. One big problem is cardholder affinity for rewards (airlines, cashback and such) which apply on 30-50% of processing volume and is pretty expensive.
The issuing bank gets ~2%, which it can take in profit (if there's little competition) or spend it to make sure that the customers use the branded creditcards instead of, say, Dwolla - cashbacks, marketing, lower APR's, airmiles, or whatever else. It's quite a large budget - and if you charge 25 cents from the merchant, then it's hard to compete with a creditcard that could give the customer a dollar cashback for the same purchase.
about your question: admittedly, part of it might be rent-seeking (which would be systemic; I make no attempts at pretending to know everything about the banking system but I wouldnt be surprised). I recall Ben goes into the "why" a bit more in detail somewhere in the early part of his interview with TWiST: http://thisweekinstartups.com/thisweekin-startups/dwolla-ben...
Related: BillMeLater Draws Federal Scrutiny
http://www.bloomberg.com/news/2013-10-22/ebay-probed-by-regu...
EBay Inc. (EBAY) is facing a probe by the Consumer Financial Protection Bureau over a loan program that mimics a structure used by high-interest lenders to evade state rules before the practice was stamped out by regulators. The program, called Bill Me Later, is a service of the online marketplace’s PayPal unit that relies on Salt Lake City, Utah-based Comenity Capital Bank to make loans that are then purchased and managed by EBay, according to regulatory filings. Under federal law, banks can lend in any state without being licensed there, or complying with local interest rate caps.
<and> In 2008 EBay acquired Bill Me Later, which also lets users finance purchases in online markets run by Wal-Mart Stores Inc. (WMT), The Walt Disney Co. (DIS) and Apple Inc. (AAPL) Customers can avoid the annual 19.99 percent rate by paying off the loan before the end of a six-month promotional period. If they pay later, they incur accumulated interest and fees that effectively raise the annual rate.
http://www.bloomberg.com/news/2013-10-22/ebay-probed-by-regu...
EBay Inc. (EBAY) is facing a probe by the Consumer Financial Protection Bureau over a loan program that mimics a structure used by high-interest lenders to evade state rules before the practice was stamped out by regulators. The program, called Bill Me Later, is a service of the online marketplace’s PayPal unit that relies on Salt Lake City, Utah-based Comenity Capital Bank to make loans that are then purchased and managed by EBay, according to regulatory filings. Under federal law, banks can lend in any state without being licensed there, or complying with local interest rate caps.
<and> In 2008 EBay acquired Bill Me Later, which also lets users finance purchases in online markets run by Wal-Mart Stores Inc. (WMT), The Walt Disney Co. (DIS) and Apple Inc. (AAPL) Customers can avoid the annual 19.99 percent rate by paying off the loan before the end of a six-month promotional period. If they pay later, they incur accumulated interest and fees that effectively raise the annual rate.
When Dwolla goes international this will get interesting. Until then a lot of us just shrug. That's not intended as an insult -- I just wish they'd go global already.
Signed, A New Zealander.
Signed, A New Zealander.
The deliberate balkanization of all finance in fiat money will backfire big time. The dinosaurs are simply herding everybody in the direction of bitcoin, and there will be no turning back ;-)
Sure, bitcoin is free to transfer for now, but soon exchanges will have to start charging a fee.
Currently the "proof of work" kills two birds with one stone: it allows transfer of the currency and also mines new coins for the exchanges doing the transfer. But that only lasts until the 21 million cap is reached; after that, no mining, no free money for exchanges, but since someone still has to do the work ... it'll be for a fee.
Currently the "proof of work" kills two birds with one stone: it allows transfer of the currency and also mines new coins for the exchanges doing the transfer. But that only lasts until the 21 million cap is reached; after that, no mining, no free money for exchanges, but since someone still has to do the work ... it'll be for a fee.
Bitcoin does not require exchanges!
It's also not a cap, it's a target. "Reaching" the target means either:
1) all of our speculative bitcoin money becomes worthless as miners stop mining because it ceases to be profitable, so new blocks are not produced, so transactions don't flow.
2) miners stop processing transactions below a certain size or without a certain fee included, so only poor peoples' money becomes worthless as they can't afford the fees, don't meet the size limit, etc. or
3) the algorithm works, all of the money is fungible, and fees that are a fraction of what you and I would consider money today are enough for miners to make a living, as long as they are contributing a fraction of a percent of the hashes that sustain the whole network globally.
There's nothing "Free" about the miner fees. The subsidy of block rewards are meant to compensate early adopters for their hardware and electricity costs. If miners don't horde bitcoins to themselves, they don't "need" the money to be viable, once their investment is paid off they can just as well unplug the machines and let them sit on a shelf, assuming it's not worth their time and electricity to go on mining.
Bitcoin is "free to transfer" at exchanges because exchanges collect their fees through other vectors than transfer... eg, trade fees, merchant fees, venture capitalist infusion, ... there's no free money, and if you think there is, ask anyone who's already become rich on bitcoin how many they're keeping "in case the value goes sky high" eg. so others can make money off of us all.
It's also not a cap, it's a target. "Reaching" the target means either:
1) all of our speculative bitcoin money becomes worthless as miners stop mining because it ceases to be profitable, so new blocks are not produced, so transactions don't flow.
2) miners stop processing transactions below a certain size or without a certain fee included, so only poor peoples' money becomes worthless as they can't afford the fees, don't meet the size limit, etc. or
3) the algorithm works, all of the money is fungible, and fees that are a fraction of what you and I would consider money today are enough for miners to make a living, as long as they are contributing a fraction of a percent of the hashes that sustain the whole network globally.
There's nothing "Free" about the miner fees. The subsidy of block rewards are meant to compensate early adopters for their hardware and electricity costs. If miners don't horde bitcoins to themselves, they don't "need" the money to be viable, once their investment is paid off they can just as well unplug the machines and let them sit on a shelf, assuming it's not worth their time and electricity to go on mining.
Bitcoin is "free to transfer" at exchanges because exchanges collect their fees through other vectors than transfer... eg, trade fees, merchant fees, venture capitalist infusion, ... there's no free money, and if you think there is, ask anyone who's already become rich on bitcoin how many they're keeping "in case the value goes sky high" eg. so others can make money off of us all.
Well... I still look upon it with interest (although of course with not as much interest if it were here!).
Signed, A Singaporean!
Signed, A Singaporean!
If nobody seems to be "excited" about this new "opportunity", there is only one explanation possible: bitcoin does all of that and more and better ;-)
Except that there are merchants who prefer to be paid in USD and customers who want to pay in USD.
>We’re starting with eCommerce and then rolling out to other retailers.
Isn't it illegal to charge the customer before the goods are shipped. Do they handle pre-auth and settlement?
Isn't it illegal to charge the customer before the goods are shipped. Do they handle pre-auth and settlement?
No it's not illegal to charge before shipping, why would you ship something out that costs $$$ when you run the risk that the card will not be good?
That's what an auth step is, like nahname mentioned. Many (most?) credit card charges come in two parts: the auth, which appears on your statement and kind of verifies that your payment won't be rejected, and the settlement, which actually finalizes the charge. When you buy something from a large online retailer like amazon, they immediately do an auth, and then only settle when the item is shipped. At least I think that's how it works.
It's against card brand rules, most definitely not illegal.
After Dwolla banned Bitcoin transactions I lost most of my interest. Bitpay and Coinbase have much better merchant programs and their fees are much lower.
Anyone getting phsihing warning from Chrome?
http://i.imgur.com/MSESJYS.jpg
I scrolled down and had a look at the comments on Dwolla's blog post. I was shocked to see that they're all about bitcoin!
I think they were ambushed a little by Reddit
http://www.reddit.com/r/Bitcoin/comments/1p69z7/so_this_is_w...
How are chargebacks handled in this system?
Chargebacks don't exist in the Dwolla universe. Its not a credit card.
We have disputes though.
You can read about them here: http://help.dwolla.com/customer/portal/articles/1203299-how-...
and here: http://help.dwolla.com/customer/portal/articles/87923-file-a...
You can read about them here: http://help.dwolla.com/customer/portal/articles/1203299-how-...
and here: http://help.dwolla.com/customer/portal/articles/87923-file-a...
nice
nooice!
Go Dwolla, go!
Slowly takin over ...
> Prior to applying for a Dwolla Credit Account, Comenity Capital Bank requests your consent to provide you important information electronically.
The APR stated in my "prescreened" offer was 24.99%, which is staggering compared to my existing revolving credit accounts. There must be some subtle feature that makes this product novel, but I don't know what it is.