Can Dwolla Become The New PayPal?
The odds are good that if you have done any sort of financial transaction on the Internet, you have a PayPal account. The spin-off of eBay has helped make eBay even more money than the auction site was making on its own. By charging anyone who received money through PayPal, the financial company has generated enough revenue for itself to make PayPal a multi-billion dollar company. PayPal has become the online financial powerhouse it has by taking money out of small businesses – like independent vendors who sell on eBay – and from the multi-billion dollar banking and credit card industries. Now, Dwolla is entering the market to take a bite out of the credit card companies and PayPal.
It is about time.
Dwolla is using new technologies to provide its users with direct access to their bank accounts while protecting their private information. The stated goal of Dwolla is to provide the flexibility of cash for the virtual world of the Internet. Your Dwolla account is intended to give you a common source of payment online and in the real world without ever having to touch cash again.
What makes Dwolla different is its security and transparency. Dwolla has unprecedented security controls that prevent identity theft by keeping your account numbers from ever getting to identity thieves. In this way, Dwolla is very much like PayPal. Unlike PayPal, Dwolla’s privacy controls allow users to restrict how much information is available to those they pay through the service. With PayPal, you have access to quite a bit of information – at the very least e-mail address, name and address – of the person with whom you are doing business. While that makes sense for virtual transactions that involve physical items shipped between two people, it makes less sense for charity donations and person-to-person transactions.
The real difference with Dwolla is in its fee structure. Users pay $3.00 a month for their Dwolla account, which gives them access to a $500 line of credit and instant access to their own bank account. If you use credit money and you do not pay it off by the end of the month, there are fees. However, Dwolla encourages the small sales. By eliminating transaction fees on all purchases less than $10, Dwolla fosters support for the small transactions that have been becoming more costly with each passing year. The CEO of Dwolla argues that transactions like paying for a cup of coffee with your credit card are forcing vendors to charge more for their products and services.
Dwolla wants to turn that tide and help users get the most out of the money that should, by rights, be theirs. The $.25 transaction fee on all charges above $10 is minimal when compared to PayPal’s oppressive fee scheme. That is probably why eBay will resist incorporating Dwolla for as long as it legally can.
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