Article

Mobile payment company unveils feature that offers users instant 'cash'

Is Dwolla's 'Instant' a threat to ATMs?

December 15, 2011 by James Wester — Editor 1, Mobile Payments Today

A couple of weeks ago, when it announced it was dropping fees on purchases less than $10, Des Moines, Iowa-based Dwolla promised another big announcement on Dec. 15. True to its word, the mobile payment company rolled out a new product today: Instant.

An article in Business Insider yesterday said that Dwolla's latest offering is "launching a direct attack against ATMs." The article states that using Instant eliminates ATMs fees and the "hassle" associated with searching for an ATM location.

The new Instant feature shortens the time required for Dwolla users to access money to fund their Dwolla accounts and makes it possible to send cash immediately. In the past it could take a couple of days before money to fund an account was available to use. Account holders simply log into their accounts and turn the feature on.

Once Instant is activated on an account, customers are asked how they would like to fund the purchase. They can either pull the money directly from a bank account, or Dwolla will even float the user a free loan to complete the transaction. Users can receive up to $500 to complete the transaction and there's no cost so long as the amount is paid back before the end of the user's billing cycle. A $5.00 penalty fee is assessed for balances not paid off by the end of a cycle.

There is also a small fee for instant access to cash as well. To participate in Instant, Dwolla users pay a flat $3.00 monthly fee. For merchants, the cost to accept payments remains at 25 cents for any transaction over $10.

Even with the small monthly fee, Dwolla is betting the transparency and simplicity of its payment method will represent an advantage over established electronic payment methods.

"Rather than replace existing payment options, we prefer to give consumers as wide a variety of options as possible, and we are investing in similar electronic payment technologies to integrate within our ATM experience," said Bob Tramontano, vice president of marketing for NCR Corporation.

According to a post on the company's blog, Dwolla CEO Ben Milne called the current system "fundamentally broken." Milne said the fees levied by credit card companies are in place "to subsidize the costs of an expensive legacy architecture that is over 50-years old. Consumers are losing their identities as merchants are eating the costs of compliance, and we are all paying the price," Milne said.

Tramontano offered a contrary perspective in defense of the traditional cash payment model and the ATM's role, "Cash is the most universally accepted form of payment with any merchant and plays a critical role in enabling consumers to make purchases wherever they want. Ultimately, the ability for an ATM to take anything of value – including cash – and convert it into anything else of value will make it an increasingly important part of a consumer's lifestyle and the financial ecosystem."

Milne said Dwolla set out to create a system that eliminates fees and creates what he calls the nation's "lowest-cost sustainable payment network."

"In the end," Milne said in his blog post, "(t)his is a new style of transaction, a new shift in what we believe to be a fair, transparent and innovative type of payment product."

For more information on this topic, visit our mobile banking research center.