Dwolla – e-commerce start-up that could kill credit cards.

You probably heard about Square, a mobile device you could plug into your iphone, and make a credit card purchase like a small company. This could expedite e-commerce and allow transactions to take place anytime, anywhere. Mobile payment have been touted the next big thing in the digital space, as both Mastercard and Visa race to partner handset operators in developing their own mobile payment systems or wallets, via mobile POS machines (credit card swiping devices which you can plug into your iphone/androids) or via NFC  technology (mobile wallet that works like the Ez-link with debit or credit allowances, something which is highly speculated to come out in iphone 5 or later models)

I came across Dwolla, a start-up based in the US which takes a different approach to the swiping / tapping thing. It is something like Paypal, and works with banks to allow you to transfer money, once you login to your Dwolla account using the balance in your bank, to a friend, regardless whether they have a Dwolla account, but instead of paying a discount rate like credit cards do, it only accepts $0.25 per transaction, whether it is $10 transfer or a $1000 transfer. This saves small businesses more money, especially because credit card transaction fees are about 3%, which could mean $30 for a $1000 transaction. It’s a pretty simple idea, but it has already raked up $50 million transactions per month since the end of last year (it is about 2 years old) and have only received a $1.31 M seed funding. some math: if it handled a transaction of $1000 last year, it could have raked in a revenue of $150,000. Founder Ben Milne claims Dwolla has a revenue of over a million last year, so that approximately equates to about $100 per transaction, and about half a million transactions per month. Quite a good user rate for a start-up…

An encouragement for us: The founder Ben Milne doesn’t have a banking / finance background and yet the start-up is pretty successful.

Nonetheless, i think with the increasing ease of use, e-commerce companies have to step up security efforts to prevent fraud.

Check out Dwolla here or Square’s reviews here.