How Dwolla Turned Away from Consumer-Facing Payments to White-Label APIs

It’s taken about a year, but Dwolla Inc. has now executed a strategic shift away from handling online and mobile transactions directly for consumers who want to pay merchants and each other. Instead, the 8-year-old, Des Moines, Iowa-based company now focuses on selling programming to clients that want to process those payments themselves but lack back-end connections to banks.

What’s more, Dwolla keeps its name out of these deals as part of its shift to white-labeling its application programming interfaces, a process that started late in 2015. As for consumer payments, “we’re not directly processing those transactions any more,” Jordan Lampe, head of communications and policy affairs for Dwolla, tells Digital Transactions News.

That process reached a climax of sorts on Friday with Dwolla’s announcement that its white-label payments APIs are now available in a freshly organized package known as Access API. With these APIs, merchants, marketplaces, and platforms can pick the code they need to build the bank-account links their services require. Included are capabilities to effect transfers, create a funding source, and create an account.

“What we have found is we’re not the same company we used to be,” Lampe says. “We’re not the app you use to [pay for] a coffee or pay a friend. Instead of innovating for Dwolla’s brand, we’re innovating for our customer’s brand.”

This shift seems to make sense to investors. Also on Friday, Dwolla announced a $6.85 million Series A funding round led by Foundry Group and Union Square Investors and including mostly Midwestern financiers. The company, whose last financing deal was a $9.7 million round in September 2014, will use the money mainly to expand its sales force.

Popular among the APIs is one that facilitates payouts, or en masse payments from marketplaces and platforms to independent providers, such as drivers enlisted in restaurant-delivery services. Another API, which Dwolla expects will also be popular, takes advantage of same-day automated clearing house processing for speedier settlements. This one is in pilot and could be ready next month, Lampe says.

NACHA, the governing body for the national ACH network, in September introduced same-day clearing for credits. Same-day debits will follow in September of this year. “Same-day offers a different risk profile, so we want to understand the special precautions before we carte blanche hand this over to clients,” Lampe says.

Dwolla has also developed a tool called FiSync for real-time payments, and this week published a blueprint for that product as part of the company’s proposal for the faster-payments initiative being supervised by the Federal Reserve.

The new Dwolla appears to have mastered the art of connecting payments providers to banks’ back-end systems, but may still face a challenge from banks with rapidly growing services like person-to-person payments, says Aaron McPherson, an independent payment analyst.

Providers of P2P payments will be looking to Dwolla for a directory service to accommodate users who are trying to pay others who hold accounts with banks that are in other networks, McPherson says. That may be difficult for Dwolla and other non-bank providers. Current networks include bank-dominated services like Fiserv Inc.’s Popmoney, Fidelity National Information Services Inc.’s People Pay, and Zelle, a newly branded service controlled by the nation’s biggest banks and expected to launch later this year.

“I think the competition is tougher now, banks seem to be investing in this pretty heavily now,” McPherson says.

For now, though, Dwolla is betting on its white-label API strategy. Clients, Lampe says, like the idea of using Dwolla’s technology with their own brand. “People were saying, ‘We love what you do, we just don’t want your name on it,’” he says.