The Feed #4 — I Rip Dwolla A New One

[This article originally appeared in the email blog The Fintech Feed.]

Feedsters!

This week is a special #nofees issue where we’ll dig into the coming era of “No Fee Finance”, how one company is creating and losing that future, and a powerful tool for the well-traveled. I’m looking at you, EMEA readers =)


The Clouds

Dwolla is a digital payment network that securely connects with U.S. banks and credit unions to enable safe, fast, account-to-account transfers.

I’ve written before about the changing zeitgeist around financial services fees and how unsustainable this model is. The fact is, financial service fees are where “Free Shipping” was in 1998–2002.

And Dwolla is one of the companies leading that charge…sort of. A competitor to last week’s Stripe (with a less impressive list of partnerships), Dwolla is fascinating to me on a number of levels. Under the traditional, MBA model of business they should be as big as Stripe. But despite a stellar product they’ve steadily declined for the past year. Why?

I said it last week and I’ll say it again-

If you want to grow fast, build for the developer.

Near as I can tell there are three factors making Dwolla no threat to Stripe and a joke to traditional finance (aside from the obvious need for a kickass Biz Dev leader with a Rolodex the size of the London Eye).

Finance Is Global

If I’m accepting payments for my online business, I’m accepting them over the Internet. Riveting revelations, I know — but stick with me. Who accesses the Internet? Over 2 billion people. Last time I checked that was more than the population of the United States. Yet the driving message of Dwolla is geared towards its ease of integration with US banks, not the ease of accepting payments from anywhere. Goodbye, interest.

F — — — ! Keep it simple!

"Goldilocks Pricing doesn't work with variable rates.

"Goldilocks Pricing doesn't work with variable rates.

Finance is complicated! So for Euro’s sake keep it simple! Stripe and Dwolla both charge for their services at varying levels. Let’s compare their pricing pages. First, Dwolla.

First off, if I hadn’t told you that this was from Dwolla’s site would you have known?

“But Daniel, why would they need to tell me who they are if I’m on their site?”

Well, smart ass, what about all the other questions I inherently have when I see this? Why are there limits? What are “higher” limits? If I just get the “Plus” (which I know you call plus because you want me to feel better about being cheap) will all my support questions get pushed to the bottom since the Premium option gets “Priority Support”? What do you mean by settlements vs transfers? And I’m sorry but why in the world are one of your buttons highlighted and one of them has a completely different text?

And “Contact us”!?! What is this, the Alumni Association of Bad Conversion?

I realize there is a wealth of interesting psychological triggers involved when we are presented with three options. However, a payment infrastructure should be a simple solution on which you can build complex products quickly.

By contrast, let’s look at Stripe’s Pricing page (which by the way was available with a direct link in the header bar.

Straight-forward pricing because there are rates involved.

Straight-forward pricing because there are rates involved.

Stripe — the Amazon Web Services (Google it) of payments. This is exactly what I want to see — everything in one view with scalability built in and a promise that when I prioritize customer service (see “refund a transaction”) it will only cost me that sale.

Built for the developer

If you’re a developer who’s been tasked with getting payments up and running which would you choose:

  • the service that makes you commit to your projected growth with upfront fees and likely needs several rounds of feedback between you and your superior?

-or-

  • the service that only has fees when you start winning and charges less the more you grow, communicating that it will be there every step of the way?

By the way, this is exactly what the Adman Rory Sutherland highlights in his TED Talk on perspective as the link between markets and psychology.

But there is one area where Dwolla is doing something write. On June 2, Dwolla issued the following press release:

Zero Interchange has arrived
I have said time and time again that I believe there will be a moment when transaction fees become less valuable than…blog.dwolla.com

This is huge. The traditional model of finance is the “% of wallet” model. CDOs, White Knights, and Black-Scholes aside the entire engine runs because we use their services for a marginal fee that becomes larger as the service becomes more complex.

This model of finance cannot last and it will boil every traditional bank trying to hang on to it like a fattened lobster.

Just think about the media and communications industry. Before the Internet, telecom was a monstrous, lumbering organizations with armies of people and assets guarding the gate to published content. Now? Facebook, Twitter, Medium, and the like have given people a free and ubiquitous platform on which to publish their own content without the approval of a budget or editor.

Does this invariably lead to tweeting on the toilet or Instagram-ing a Digiorno’s pizza? You beat your cheesy-crust it does.

But it also means that talent in execution and empathy towards a consumer is the new gate-key. And all of that is made possible by the anonymous mining of your data on those platforms.

Whether through advertising, product development, or good ‘ole market research the data of our online lives, even when anonymous, is incredibly valuable. This is because the cycle is finally fast enough where the data is relevant. After all, 90% of the World’s data was created in the last 10 years.

So what happens to the financial industry when everyone begins to realize, like Ben Milne (Dwolla’s CEO) did, that “transaction fees [are] less valuable than what can be built on top of the network”.

We’re at the dawn of a new age in finance and economics, one in which the anonymous mining of our data will better price commodity futures, enable Central Banks to proactively (not reactively) manage interest rates, and calculate your credit score based on how often you buy coffee to make at home versus get it at the local café. Better times are coming.

The Dirt

TransferWise is the Internationalist’s best friend.

Full disclosure, I tried to go work for these guys. Started by two Estonians (who by the way come from a country that is petabytes ahead of everyone else as a digitally adept government) and backed by the one and only Richard Branson, TransferWise allows the seamless transfer of money across currencies, at the market rate (or damn well close to it), with no transaction fees required.

How? By using what I’m going to call the Sharing Economy 2.0. If you keep up with the tech space you’ve doubtlessly heard the term sharing economy, probably in reference to some car, organic grocery, or cat sitting service. But TransferWise operates differently, as a platform utilizing the activities of its users behind the scenes to serve the user in front of it. Confused? Here’s how it works.

I’ve never used them personally but there are several Feedsters who swear by it. If you’re venturing abroad anytime soon, or need to send some cash across the pond, they’re worth a look. Android link above. iOS here.

QOTW: What are you all reading this week that you’re enjoying? Let me know.

Until next time,

Stay curious. Stay brave.