Is Dwolla Instant Poised To Overtake Credit Cards?

Dwolla is an innovative mobile payment option that allows users to pay for goods and services directly from their bank accounts via their phone without involving a credit card.

Right on the heels of its one-year launch anniversary, the popular mobile payment platform Dwolla is announcing a brand new credit product called Instant.

Many consumers may not yet be aware of Dwolla, a Des Moines, IA-based start up that is slowly but surely constructing a replacement for the current payment systems in use worldwide. Dwolla began in 2010 by a 28-year-old innovator, Ben Milne, who started the company out of an obsession with how he could avoid paying interchange fees that developed when he owned a speaker manufacturing company. As Milne said in an interview with SF Gate, “I was losing $55,000 a year to credit card companies…So I thought, how do I get paid through a website without paying credit card fees.” He pitched an idea to a bank, they agreed to try it out and Dwolla was born. What makes his story even more compelling is the fact that he has no educational background in finance.

What is Dwolla, exactly? It’s a method of making payments that cuts out the need for credit cards altogether. Why use Dwolla? As explained on their website:

“Your phone can do a lot of cool things that a piece of plastic can’t. With Dwolla you can pay for a coffee with your phone, send money to a Facebook friend, and even buy some new shoes online, all without worrying about where an ATM is or if your card is ‘on you.’”

Now with Instant, Dwolla users have their own personal reserve to utilize for financial transactions when they find themselves short on cash. They have the option of pulling the funds directly from their bank account or else using credit extended by Dwolla for a small fee. People are allowed up to $500 of “credit,” which they are encouraged to repay at the end of the month. If not, they will be assessed a $5 fee. Users also pay a $3 fee each month for the privilege of using Instant.

Dwolla would like users to consider Instant as a short term means of acquiring credit, with a large emphasis placed upon repaying the debt by month’s end. Currently, the company is utilizing traditional credit scores to determine a member’s creditworthiness and risk, but Milne anticipates that, in the future, Dwolla will use their own user behavior data to do so instead.