Where Did Dwolla Go?

I first heard about the small Iowa-based payments company Dwolla in 2010, after Ben Milne and Shane Neuerburg launched a service that was meant to circumvent credit cards and allow instantaneous peer-to-peer payment transactions in real time.

Unlike Paypal, Dwolla offers a low-cost freemium model, with a flat fee of $0.25 for every transaction over $10. This is a substantial discount to the 3.5% transaction fee that most credit card services charge merchants.

Like its competitor Square, Dwolla launched in 2009 and quickly expanded its services into mobile payments and an online storefront. Unlike Square, however, Dwolla is still pretty hard to find in the real world. Your local farmer’s market or flea market probably has a Square payment app, but it’s pretty unlikely that you’ll see a Dwolla option.

Unlike Dwolla, Square embraced the credit card companies and simply offered a way for merchants to use their mobile phone as a point-of-sale device. Like Visa and MasterCard themselves, Square charges a per-transaction fee that is exponentially more expensive than Dwolla.

In other words: the cheaper, more efficient option is out there, but no one is using it. Near the end of 2013, Dwolla had around 250,000 users, which is substantially less than the millions of people using the product offerings of their competitors.

The success of Square and the continued obscurity of Dwolla demonstrate how difficult it is to establish a scaleable alternative to Visa and Mastercard. With the growth of mobile payments and cashless transactions, consumers have gotten more dependent on these card issuers, not less.