With Direct Service, Dwolla Streamlines Payments to Persons Without Dwolla Accounts

Dwolla Inc. has entered the race to simplify—and ultimately speed up—payments between individuals and between organizations and individuals.

Starting Thursday, the 6-year-old Des Moines, Iowa-based payments provider is allowing people who don’t have Dwolla accounts to receive payments from Dwolla users and flow them directly into their bank account. The new service, called Direct, relies on linking the recipient’s email address to his bank-account details.

With the first payment, the recipient receives an email notification, to which he responds by setting up a Direct account. This set-up involves creating a password and entering a bank routing number and account number. The process should take about 30 seconds, Dwolla says.

All subsequent payments to that email address will then flow automatically into the designated account via the automated clearing house network “in as little as one to three days,” the company says, without the recipient having to take any action. For banks connected to Dwolla’s real-time payments system, FiSync, the funds can be routed immediately. FiSync is currently enabled by Veridian, an Iowa credit union, and BBVA Compass, a Texas financial institution.

Ordinary Dwolla transaction fees apply to Direct transactions. Dwolla charges the recipient 25 cents for each transaction exceeding $10. Those under $10 are free.

With this pricing, the new service could appeal particularly to companies and organizations that need to make so-called mass payments to groups of people such as vendors in an online marketplace or free-lance developers, says Jordan Lampe, director of communications and policy affairs at Dwolla. “It’s super simple and we’re trying not to make it super sexy,” he tells Digital Transactions News. In some cases, organizations making mass payments will pay the fees on behalf of recipients, Lampe adds.

While recipients set up a Direct account, this is not a full-scale Dwolla account, Lampe says. That leaves open a door to recruit these recipients to become Dwolla users, though Lampe says that’s not an immediate goal. “That’s not something we’re going to push early on,” he notes. Dwolla, which handles both person-to-person payments and consumer payments to merchants, does not disclose its user count. The last count it revealed, 500,000, is now a 2-year-old number. That count has “increased significantly” since then, Lampe says.

The Direct transactions, though, will potentially push more volume across the Dwolla network. “This is one simple thing we can do to make it easier for people to use Dwolla,” says Lampe.

Services like PayPal have allowed people to send money via email for years, but these services require recipients to set up accounts, where the money resides until transferred to a bank account.

Still, while Direct streamlines payments for payees who aren’t Dwolla account holders, similar capabilities have emerged in recent years, albeit at a higher price, notes Beth Robertson, principal at consultancy Robertson Payments Services LLC. Fiserv Inc.’s Popmoney service, for example, allows persons to receive funds directly into their bank accounts with a simple initial set-up. As with Direct, subsequent payments then flow directly into the designated account. But Popmoney levies a 95-cent fee, payable by the sender.

For such services to succeed, much depends on brand name and the trust payors and payees place in those names, Robertson says. That, she says, could give PayPal an edge. “Making people comfortable with the brand name” is critical, she says. “PayPal is well-known. Popmoney is less known, and Dwolla has even less brand recognition.”