The alternative payment provider Dwolla has launched a credit-based instant payments capability, built on partnerships with banks and credit unions.

These financial institutions vet merchants and consumers for real-time payments, allotting each party specific credit limits. Banks have granted credit from $1,000 to $16,000 so far, says CEO Ben Milne.

"We get to take advantage of Dwolla's low-cost rails but inject real-time access to funds into the network for the first time," he says. Because Dwolla built its own network from the ground up, it can integrate and communicate with any financial institution through a set of application programming interfaces (APIs), he says. This process brings Dwolla closer to Milne's vision of being a Visa-like card network, he says.

Dwolla charges 25 cents for any transaction of more than $10. All transfers under $10 cost nothing. Before the real-time payments launch, users of Dwolla had to wait two to three days for a bank transfer to use money sent to them, Milne says.  

Even with Dwolla's faster rails, "for us [our adoption of Dwolla] is largely driven by the cost more so than the speed" says Fan Bi, CEO of Blank Label, one of the merchants testing the service. "It's nice to be able to use money faster…but the cost-savings is the main driver."

Blank Label began as an online-only retailer, but since 2009 has opened showrooms in Boston and Chicago with another four locations planned for 2014.

The new credit-based real-time payments product will bring more money into the Dwolla ecosystem and might also bring new customers to Blank Label, Bi says. The clothing store will promote Dwolla through email and social media, and will still continue to support credit card payments.

Dwolla will undergo a three- to four-week test period with several e-commerce merchants, including Lukie Games and Fiverr. Eventually Dwolla will roll out the instant payments feature to all of its tens of thousands of merchant clients, Milne says.

"This was the product I needed as a business owner," Milne says. Before starting Dwolla, Milne owned and operated Elemental Designs, a small manufacturing company that sold products on the Web.

Dwolla is working with Comenity Capital Bank, a unit of Alliance Data Retail Services, to offer the new credit-based instant payment option. 

In April, Dwolla received $16.5 million to expand its headcount in New York and San Francisco.

Recently there has been a surge of activity in P2P payments with big banks competing with large technology companies for dominance. On Oct. 15, clearXchange, a bank-founded P2P initiative announced its first non-founding member, FirstBank in Colorado. A day later, Square Inc. announced Square Cash, an email-based P2P network, similar to that of Google.

"We don't see ourselves as competitors in that P2P network," Milne says. Dwolla instead wants to be the network the front end wallets ride on, he says.

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