Five years ago, Dwolla took its ambitious approach to speeding up payments to
But more recently, the company had to make a sharp course correction in its strategy, due in large part to banks' lack of ambition to move beyond sluggish, traditional ACH-based payments.
Despite a noteworthy consumer-payments partnership with
"As a small company, we found we're much better suited to grow by selling directly to business customers," Milne said. "We're still talking to banks, because we have a strong belief that ultimately banks are key to the ecosystem we envision, and we want to keep that conversation open, but we're moving on for now."
Dwolla now concentrates on selling its speedy funds-transfer services to enterprises for specialized use cases, via a
"We're providing the back-end funds-transfer and e-wallet infrastructure allowing businesses to move money into and out of banks … so businesses don't have to do all the integration and compliance and negotiations with banks that take so much time," Milne said.
Milne learned over the first several years of Dwolla's journey that banks are so slow to make changes because of the weight of their existing systems and banking regulations. It takes years to make small changes, even if old systems are costing banks money and opportunities.
"So many people are employed at these banks, analyzing and considering how changes would affect systems, that no amount of time we spent on the road with banks could speed up [technology adoption] decisions," Milne said.
Dwolla is finding greener pastures working with enterprises, and as that channel grows Milne hopes its work may eventually spark more direct deals with banks.
A recent example of its work with enterprises is Goat, an e-commerce marketplace that launched last year to sell collectible sneakers. Goat accepts credit cards and PayPal, and the site—augmented by an iPhone and Android mobile app—uses PayPal's Braintree for payment processing. But Goat uses Dwolla's system as a competitive advantage, streamlining cash payouts to shoe sellers with an ACH-based API that's fast and secure, Milne said.
"What we've developed took years and millions of dollars to build, but we've compressed what used to take months into minutes," Milne said.
Goat also is an example of fast-growing niche of e-commerce merchants whose primary function is to act as a trusted broker between third parties in the booming online merchandise-consignment niche, Milne said. Goat's commission fee to shoe-sellers with a reliable track record on the site is 9.5% of the shoes' price. That compares with a 13% average commission via eBay and 20% on rival Flight Club, according to Goat.
Previously, Venice, Calif.-based Goat used an approach requiring sellers to sign up for and transfer funds between third-party e-wallets, which could take up to a week. By adding Dwolla — a 10-day integration — Goat replaced multiple systems and steps and cut monthly transaction-fee costs, Milne said.
Dwolla offers its services to businesses in three cost tiers, based on the scope of needs and transaction volume. Its core custom white-label API payments package for enterprises costs about $1,500 a month and provides next-day settlements for payments to organizations and businesses.
Milne hopes Dwolla eventually will work equally with banks and businesses to enable customized payments services, but he's not optimistic that will happen soon.
"Developing technology to help businesses get what they need from banks is the more immediate approach at the moment," he said.
Though this strategy could make Dwolla look like it's in the position of competing with banks, the vendor has more likely opened a door that banks were reluctant to open on their own.
"Given the amount of payments innovation that's come from Dwolla and others, banks now have an opportunity to get in there through partnerships and curate some of these experiences for corporate customers," said Andy Schmidt, a principal executive adviser with CEB TowerGroup. "But the pressure to play it safe has bred innovation out of many of these banks, and for the foreseeable future, many banks are just not likely to make changes in core payments processes unless they have to."
Schmidt suggested the next-best path to bringing faster payments to banks is demonstrating their value to businesses in individual integrations, though it's a slower path to growth.
"The upside for corporations willing to work directly with payments technology firms delivering faster payments is that they're more likely to do that experimentation and get access to some capabilities their banks haven't even thought of yet," he said.
Milne recognizes the irony in that just as his company gave up on its focus on banks, that audience became active in efforts to develop a nationwide faster payments system. "I have a great deal of respect for what the Fed is doing to move faster payments along," Milne said.
