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The online and mobile payment startup says it has been building a payment network called Grid that will be more secure than the Visa and MasterCard card networks.
June 30
Alternative payments provider Dwolla Corp. is adding to its software a feature that locates fellow Dwolla users who are nearby.
Proxi locates nearby merchants and consumers who use Dwolla, allowing customers to conduct transactions with those around them. The service, which will be released mid-September, uses the GPS built into most smartphones. It runs in the background, updating information as the user changes location.
Dwolla's founders see this as an alternative to near-field communication, the short-range wireless communication technology that most observers expect will be the technology platform for mobile payments in the U.S. in the future. "Most people don't have near-field communication on their smartphones, but they all have a GPS," says Ben Milne, founder and CEO of Dwolla, which is based in Des Moines.
Dwolla lets users exchange cash via email, social networks like Facebook and Twitter, and by telephone number. It has a flat fee of 25 cents per transaction, which the company says is cheaper than the typical automated clearinghouse transaction fee. Dwolla has about 40,000 users, a combination of consumers and merchants, primarily in Des Moines.
Proxi furthers a geolocation service Dwolla launched in March, called Spots, which lets consumers locate merchants nearby that accept Dwolla transactions. In addition to locating local merchants, Proxi lets consumers find any user that participates in Dwolla. It also lets users set privacy and distance controls, allowing them to reveal or conceal themselves.
Many banks and payments networks are testing the use of near-field communication chips to allow payments based on a phone's proximity to a reader or another phone. Some have worked around this using software. PayPal Inc., a unit of eBay Inc., has a feature in its mobile application called "bump" that lets users transfer money based on how close two phones are when the software detects the phones have been "bumped."
Industry experts have had a mixed reaction to Dwolla's new service, saying that the company ought to be focusing its efforts on merchant acceptance.
"The problem Dwolla is facing is not that people are unhappy with NFC, it's that they don't have a payment network with a critical mass of payers and merchants who accept it," says Bart Narter, senior vice president of banking research for Celent.
Narter contrasts Dwolla's efforts with those of PayPal. As a start-up, PayPal leveraged eBay's network, satisfying the demand of small sellers there who did not accept credit cards.
"PayPal went after a specified target of merchants and buyers, and in an area where MasterCard and Visa were not very strong," Narter says, adding that eBay has continued its focused strategy, with its July purchase of Zong, of Menlo Park, Calif., for $240 million. Zong allows consumers to purchase things by charging them to their cell phone bills.
Other companies have focused primarily on the core function of enabling payments, giving them a stronger foundation to build out the sort of services Dwolla is adding today.
"From a merchant perspective, companies like Square or Intuit," which both offer mobile readers that accept payments from plastic cards, "are far more likely to have a better offering here since they already have the merchants accepting payments this way, which is the key," says Brad Strothkamp, a vice president and principal analyst for Forrester Research.
Milne says he hopes for a beta pilot of between 50 and 100 users. Proxi has been tested only on the iPhone, but it will be available as an application on Google Inc.'s Android and Microsoft Corp.'s Windows 7 phones as well.
