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The E-Sylum: Volume 14, Number 48, November 20, 2011, Article 20

ONLINE TRANSACTION FIRM DWOLLA SIDESTEPS CREDIT CARD NETWORKS

We often discuss new schemes for online payments, for one day these systems could supplant the coins and banknotes we study and collect. Here's an article about a new startup that's doing an end run around the credit card networks. Can David defeat Goliath? Anything that sidesteps the hefty fees charged by the credit card companies is a welcome development for consumers, but is also one that takes us closer to the ultimate replacement of banknotes, if not coins. -Editor

There's a tiny 12-person startup churning out of Des Moines, Iowa. Dwolla was founded by 28-year-old Ben Milne; it's an innovative online payment system that sidesteps credit cards completely.

Milne has no finance background, yet his little operation is moving between $30 and $50 million per month; it's on track to move more than $350 million in the next year. Unlike PayPal, Dwolla doesn't take a percentage of the transaction. It only asks for $0.25 whether it's moving $1 or $1,000.

We interviewed Milne about how he is building a credit card killer and Square rival from the middle of the nation where VCs and press are scarce.

BI: We hear you're making credit card companies angry. How are you doing that? Ben Milne: Ultimately we're trying to build the next Visa, not the next PayPal. We're building a human network based on how we think the future of payments will work. The current model needs to be blown up.

Dwolla started out of my old company. I owned a speaker manufacturing company and we sold everything directly through a website. I got really obsessed with interchange fees and how not to pay them. Every time a merchant gets paid with a credit card they have to give up a percentage. In my case, I was losing $55,000 a year to credit card companies. I felt like they were stealing from me -- I was getting paid and somebody was taking money out of my pocket. So I thought, how do I get paid through a website without paying credit card fees? We pitched a bank, and amazingly enough they said, "We'll give it a shot."

That was three years ago, so we've been working on the project for a really long time. In December of last year we figured out how to legally do what we do.

How does Dwolla work and how is it different from PayPal?

With Dwolla, payments are made directly from your bank account. No credit or debit cards are allowed. And because they don't exist in the system, we don't have to bring the fees into the system.

You can spend any amount of money and when you do that, the person on the other end doesn't have to pay 1, 2, 3 or 4%. They only pay $0.25 a transaction, which is especially helpful when it's $1,000, $2,000 or $5,000 transactions. Obviously PayPal becomes very cost prohibitive with those larger transactions. The biggest difference between ideas like this and a PayPal and PayPal is a phenomenal idea, Square is too is that those are built on top of networks like Visa and MasterCard. We're building our own.

To read the complete article, see: This 28-Year-Old's Startup Is Moving $350 Million And Wants To Completely Kill Credit Cards (www.businessinsider.com/this-28-year-old-is-making-
sure-credit-cards-wont-exist-in-the-next-few-years-2011-11)

Wayne Homren, Editor

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The Numismatic Bibliomania Society is a non-profit organization promoting numismatic literature. See our web site at coinbooks.org.

To submit items for publication in The E-Sylum, write to the Editor at this address: whomren@gmail.com

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