Dwolla’s New Instant Service Offers Immediate Cash For Impulse Purchases

Dwolla Corp. on Thursday unveiled a credit option it hopes will appeal to users who want faster funds availability for spot or impulse purchases. The option, known as “Instant,” is available now and allows users to borrow up to $500 that they can use right away rather than waiting two or three days for funds to clear into their Dwolla account from a linked bank account via the automated clearing house network.

“One of the biggest pain points for Dwolla has been access to funds,” Jeff Russell, president and chief executive of TMG Financial Services, tells Digital Transactions News. User feedback, he says, often complains “that the ACH network takes a while to move money.” TMG Financial Services is a unit of The Members Group, a credit union service organization and one of two investors that backed Dwolla when the Des Moines, Iowa-based service launched a year ago. The other investor is Veridian Credit Union.

Together, TMG and Veridian poured $1 million into the payments startup, which now processes mobile and online payments for 70,000 users and more than 3,000 merchants, including storefronts and Internet merchants as well as individuals selling services. Dwolla users pay each other with PIN-protected transfers. Once funds clear into a user’s account, transfers occur almost instantaneously.

A Dwolla user who opts in to use Instant will pay $5 a month for the service, whether he uses it or not, and will be expected to pay back any funds advanced within 30 days. Any outstanding balances will incur a monthly charge of $3, a levy Russell likens to a late fee. Currently, the only other fee for the payments service is a 25-cent transaction charge. Recipients of mobile payments pay the fee. On transactions initiated from a PC, the sender chooses who pays. Payments below $10 are free.

Instant will make funds available immediately in users’ Dwolla accounts, but to help control risk not all Instant users will get the $500 maximum. “We’ll be doing an underwriting process,” says Russell, who adds TMG Financial Services’ experience with credit helped lay the groundwork for the new service. “We’ll vary the amount of credit everyone who applies will get.” Nor will everyone who applies be approved, though Russell expects that most will be. All in all, though he hasn’t made projections, he says the service will do well to reach one-quarter of all Dwolla accounts.

Instant is chiefly aimed at mobile users making small, mostly impulse purchases. In these cases, users could not have been expected to transfer money from their linked bank accounts ahead of time, Russell notes. “If I’m at a restaurant or coffee shop, if I didn’t think about [transferring funds] two days ago, I don’t have the ability to use the platform,” he says. “Instant helps to solve that pain point for the platform. It’s not a revolving-credit product. That’s not the purpose of this.”

The long-term solution to the funding issue is to speed up settlement time on the ACH, something Dwolla founder and chief executive Ben Milne told Digital Transactions News last week the startup is working on with a concept that would replace batch-file processing with Web services. Milne said the new process, if fully realized, could result in near real-time settlement.

Until that time, though, Instant fills what the fledgling service sees as one of its greatest needs. “We’ll use [Instant] as a bridge to that” near real-time future, Russell says.