‘No More Transaction Fees’

Should transactions be free?

Dwolla Inc. thinks so. The processor last month eliminated its 25-cent transaction fee, effective on all transactions types. The fee, which had applied to transaction values exceeding $10, was typically paid by the receiver of the money.

Des Moines, Iowa-based Dwolla processes person-to-person payments as well as payments from consumers to businesses. The 7-year-old company, which will not disclose how many users and merchants are in its network, has been working toward this day for a while. It had the 25-cent fee in place on transactions above $10 since December 2011. Before that, the fee applied to all transactions.

The company says its intent now is to make money by charging for specialized services it provides that, it says, create value clients will be willing to pay for. “We’re providing value rather than taxing transactions,” says Jordan Lampe, who holds the title of builder at Dwolla.

Such services include next-day settlements, high-touch customer support, and the ability to set transaction limits and manage multiple payment streams within a single account, according to an article posted on the Dwolla blog by founder and chief executive Ben Milne and headed, “No more 25 [cents]. No more transaction fees.”

Monthly subscription fees for access to these services will fall into three tiers and will range from a low of $25 up to $1,500, Lampe says. The new fee structure, however, will not apply to the real-time payments system, known as FiSync, that Dwolla developed and has been marketing to financial institutions. Its first major bank client, Houston-based BBVA Compass Bank, went live on the system commercially in April.

(For more on how Dwolla and other players are leveraging real-time payments in the exploding P2P payments business, see this month’s cover story).

Nor will the new charges apply to such Dwolla services as mass payments and recurring payments or to usage of the company’s application programming interface to build custom payment programs, according to Lampe.

Dwolla, a long-time critic of transaction fees, never intended its levy to be permanent, according to Milne’s blog post. “I have said time and time again that I believe there will be a moment when transaction fees become less valuable than what can be built on top of the network,” he says in the post. “That time has come.”

Officials say the new revenue stream will also allow Dwolla to develop more new products and services. Says Lampe: “This gives us a platform to start rolling out cool features only we can do, or can do better.”

—John Stewart