Dwolla set to challenge PayPal for online payments

Friday, February 22nd, 2013 By

The Dwolla logo.

Is Dwolla a PayPal killer? (Photo Credit: CC BY/Dwolla Dwolla/Flickr)

There are those who became disenchanted by PayPal as an online payments option ever since it was purchased by eBay. Many have felt the sting of lost funds, account freezes and other service nightmares that some might say rest just this side of outright fraud. Then there are the fees. For those who desire alternatives, there’s Dwolla, an online payments website that claims it does a better job than the competition, for less money.

Dwolla those fees away

Instead of charging the common 3 percent plus extras fee of PayPal and similar services, Dwolla charges a flat $0.25 – plus any transactions under $10 are free.

Sounds like a great deal, right? Well, it is. However, it should be noted that the service operates just a bit differently than PayPal and the competition. It is a cash only operation, so no credit cards of debit cards are allowed. You can link up your bank account for the purposes of funds transfer, however.

Why Dwolla don’t do debit or credit

Why the aversion to plastic? Dwolla sees the use of plastic credit and debit cards as cost-generating, anywhere from 2 percent to 7 percent in swipe fees. By not allowing these into the network, the online payment service keeps costs to users down and generates more profit for itself.

How to Dwolla

The only difficult step at this point is simply finding retailers and charities that are prepared to accept Dwolla for payments. The number is growing, but it certainly isn’t anywhere near PayPal’s market penetration yet.

Once that’s out of the way, you can make purchases and payments with Dwolla. You can even send money to friends via a social payment feature, via Facebook or Twitter. The friend must have a Dwolla account in order to receive the money, however.

Dwolla deals with delays

Unlike PayPal, where money transfers can take as long as 4 days coming and going, Dwolla works to shorten the time as best it can. If a user’s bank subscribes to the funds transfer system called FiSync, transfers can occur without any delay. If the bank doesn’t have FiSync, Dwolla will clearly break down the timeline for the customer.

Dwolla dim on fraud, large payments

Dwolla claims to be safer than a credit card when it comes to fraud, but as Money Smart Life accurately points out, information about how it will handle such common fraud transaction elements as chargebacks is lacking on the company’s website. As such, some people may be hesitant to move a lot of money through Dwolla until the company addresses fraud protection more clearly. However, lower transaction fees and reportedly faster transfer times will be enough to prompt many consumers to take a look.

Sources

Dwolla

Fast Company

Money Smart Life

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