Dwolla is expanding its direct bank transfer services to allow its account holders to send payments to a recipient's e-mail address for automatic routing to a bank account.
The Des Moines, Iowa-based alternative payments provider is "retrofitting" automated clearing house payments to simulate a direct deposit while simplifying the use of bank account and routing numbers, said Jordan Lampe, Dwolla's director of communications and policy affairs.
"Part of the problem right now is that people don't remember their bank account or routing numbers because it is an abstract number that basically operates as a physical mailing address for where payments arrive in the U.S.," Lampe said.
Dwolla's new network enables an individual or business to use a Dwolla account to send one-time, periodic or regularly scheduled payments to other people or businesses. The recipient does not need a Dwolla account, but would have to provide a password and the bank routing numbers when using the system the first time. After that, all future payments would come to the e-mail through a notification of being "paid by Dwolla" and sent to the linked account, Lampe said.
"We have found e-mails to be one of the most ubiquitous things out there," Lampe added. "The rich communication channel it provides allows us to better serve the digital economy we are all getting used to today."
Dwolla also provides a Mass Pay tool for service providers who may send thousands of payments to various accounts. "With Mass Pay, the provider would use a spreadsheet to replace the checks they write and simply enter the e-mail address and amount owed for up to 5,000 different individuals or transactions," Lampe said.
The process fits Dwolla's strategy of upgrading old banking systems to enable faster payments processing. Dwolla established a partnership in October with BBVA to provide real-time payment capabilities and eliminate paper checks from the bank's system. BBVA intends to start using Dwolla's technology in the first quarter of 2015.
"The partnership with BBVA is about delivering payments in real-time and identifying a way to establish a real-time platform," Lampe said. "This new money transfer system is an example of how a bank can match a person's intentions and needs with how to use our service."
Nacha, the Washington-based trade group that sets rules for the automated clearing house network, wants to speed payments and is seeking industry input on its plan to make funds available to a consumer by the end of a business day, rather than a day later. To do so, Nacha says, new fees from the originating bank to the receiving bank would need to be established.
Under Dwolla's new system, any money transfers of $10 or less carry no fees, while others cost 25 cents per transaction.
While the U.S. is moving toward faster payments, Dwolla may still face challenges, said Brian Riley, senior research director and analyst with Boston-based CEB TowerGroup.
"Whether or not a company like Chase would need Dwolla to stand in and provide this type of payment is a real question," Riley said.
However, Dwolla is providing a "really positive service" because it is trying to mask the check routing number while simplifying the money transfer process, Riley said.
"If you thought bank card security was lax with mag-stripes, think of all of the routing information at the bottom of your paper check," Riley added.
Dwolla executives have attended recent Federal Reserve Bank meetings addressing the faster payments initiatives and presented the Dwolla technology to those studying the issue, Lampe said.
"Along with other companies doing the same, we have been advocating strongly about how we see our system working in all of this," Lampe said. "We have real-time working on the ground already, and we can't see the banking industry waiting too long to see this happen. It is going to happen fast."