While regulatory changes in Washington have helped lower the fees merchants pay for debit card transactions, advances in mobile payments might be able to outpace swipe fee reform in its ability to deliver savings to merchants without compromising safety and privacy. A payments network called Dwolla recently introduced surcharge-free transactions for everything under $10. The benefits to small business owners, especially ones with high volume and low average transactions, could be massive.

Dwolla connects directly to your bank account, like PayPal, bypassing credit and debit cards entirely. But unlike PayPal, Dwolla only charges a flat fee of 25 cents per transaction, no matter how large the amount. In theory, you could buy a Maserati using Dwolla, assuming you have the cash, and the dealer would pay just a quarter for the safe transfer of $135,000 — a transaction fee of .00000185 percent.

Now if you’re the type of person who could or would pay for a Maserati upfront with a credit card (presumably one of those hefty black ones), maybe transaction fees aren’t something you give much thought to, not only because you don’t pay for them, but also because you are the type of person to whom money is no object. But the fact of the matter is that merchants do pay these fees, and these costs are passed down to consumers in the form of higher costs. According to the Merchant Payments Coalition, an anti-interchange fee lobbying group, American merchants paid $48 billion in interchange fees in 2010 alone. Granted that’s a pre-Durbin number, but it’s a lot of missing money just for making it easier to move money around.

Free Transactions Under $10

And on Thursday, Dwolla announced that every transaction on their network under $10 is now free. According to their blog post announcing the change, they hope that this will help merchants who deal in small purchases — coffee shops for example — and other web-based micropayment platforms.

As of September Dwolla had about 3,500 vendors using their service and that number has been growing, Jordan Lampe, Dwolla’s director of communications, told MyBankTracker. According to a story on Business Insider, Dwolla enables the transfer of $30-50 million a month!

Dwolla is especially popular with online merchants, who get hit with higher card not present interchange fees for transactions involving plastic. By making transactions under $10 free for merchants, Dwolla hopes to make their service more popular among brick-and-mortar operations.

Small businesses can net profits on big-ticket items and lose all that through the exorbitant interchange fees on smaller sales, Lampe said. Why should a business lose its profits just because of shifts in consumer payment preferences? Dwolla seeks to provide a simple and transparent way for merchants to collect payments, much in the same way Mint and Simple are making online banking more straightforward.

A Highly Guarded Announcement

Their Thursday announcement was a teaser for a bigger announcement the company will make on December 15, about which they’re being highly secretive. “What we’ve always wanted to be,” Lampe said, “is going to become a lot more clear.”

Quite cryptic! There’s little we can glean from that, except for what we know from when we first covered them when they launched about a year ago: they wanted Dwolla to be primarily social. That is, they wanted to help people move money using already existing social networks like Facebook and Twitter. Whether the December 15 announcement will involve a return to this or not, we can’t say, but we’ll be following up.


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  • Sun W. Kim

    I so hope this is the PayPal killer.

  • Shawn

    It would be great if more banks and credit unions supported them also.

    • As I understand it, one of their biggest funders is a credit union. 

      • Which one? I thought they were backed by a big big bank.

        • Let me clarify: they’ve partnered with Veridian Credit Union and The Members Group (not a credit union, but a payments processor). Not sure about their funding, though…