Dwolla is expanding its next-day payments network to all business customers after launching it initially for government agencies and large corporations.
According to a Dwolla survey combined with industry data, 67% of small and medium-sized businesses still use paper checks and spend $13.1 billion on this payment method annually. Dwolla is targeting small business owners for its product so they can eliminate the need to write and send paper checks.
The service helps "online businesses making payment out for example like a game company paying out winners," says Ben Milne, CEO of Dwolla, who has urged banks to follow its model to cut card costs and fraud.
Businesses must go through an application process, and Dwolla grants customers access based on their payments history.
Dwolla allows users to send transactions under $10 for free via automated clearinghouse (ACH) to other users of the network. The alternative payments provider charges 25 cents per transactions $10 and over.
The expanded next-day payments network also eliminates the need for a merchant to set up an ACH third-party solution with a bank, a process that can complicate reporting and compliance, Milne says.
In May 2013, Des Moines, Iowa-based Dwolla received $16.5 million in funding led by Andreessen Horowitz to expand its headcount in New York and open an office in San Francisco. In October, the company launched fisync, a credit-based instant payments capability for financial institutions.
Dwolla has handled more than $1 billion in payments since it launched in 2008.
The provider has partnered with state and federal government agencies to cut their reliance on checks, saving money and time, says Milne.
"We do a pretty substantial amount of business there," he says. "The government is operating at such a gigantic scale were not just talking about saving money on 50 checks but 50,000 checks."
People and merchants can pay taxes and purchase license plates in states that partner with Dwolla, Milne says. The company is actively working on expanding different implementations within governments, he says.
Dwolla has also found a market with the low-margin farming industry, where companies are particularly sensitive to credit card transaction fees.