PayPal transactions, as well as credit-card payments, incur fees based on a percentage of the transaction amount in addition to a transaction fee. Dwolla transactions cost 25 cents each.
The whole idea is to move cash cheaply--for businesses and for consumers. Dwolla founder Ben Milne says his retail payment kiosk is cheap, too. It's virtual, relying on Web-connected point-of-sale systems on one side and consumers with smartphones on the other. A consumer selects the store he or she wants to pay and enters the amount on the smartphone app; the register clerk can see a payment come in and close the transaction. In the future, Dwolla's mobile app, which is currently very bare-bones, will get location awareness so it will know what store you're in when you go to use the system to send a payment.
But Dwolla is about more than saving consumers and retailers money on fees, Milne says. It's also closely tied in to social networks, today's de facto address books. From the Dwolla site, you can pay anyone in your Facebook or Twitter circle. All you have to do is start typing in their online name to find them.
With Paypal, you can pay people if you know their e-mail address. Back in 1999, the company that eventually became PayPal had a strong person-to-person angle, except instead of relying on smartphones and the Web, the original PayPal made it possible for Palm Pilot users to "beam" money to each other over their devices' infrared links.
Can Dwolla become the next PayPal--the scrappy payment company that's more convenient, more personal, and cheaper to use than the big guys (debit cards, credit cards, and PayPal itself)? And, more importantly, when you're dealing with a service that connects to your bank account, is scrappy what you want?