For decades, the payment processing industry has circled around credit cards while charging merchants of all sizes large transaction fees. Many small businesses held off accepting credit cards for years, or only accepted them on purchases over a certain threshold. However, with the shift in consumer spending habits moving toward plastic, merchants have been forced to accept credit cards along with the high transaction fees.

Web-based businesses have had no choice but to take credit card payments since accepting cash or checks is almost impossible. Combined with the fact that transactions run manually with no card physically present carry higher costs, online merchants have watched credit card transaction fees eat up their profits for years.

There is a company out to change all that, and its name is Dwolla (visit them at Dwolla has built a new payment system from the ground up and designed it with a vision of how a payment processor would be put together given today’s technological advancements over the legacy system that credit cards use. Founded by a former ecommerce business owner, Dwolla sets out to drastically reduce the payment acceptance overhead most organizations experience, while making payments easier and more social.

Benefits of Dwolla

One of the unique features of Dwolla is you can pay a merchant or individual from their email address, Facebook account or Twitter handle. The information is not shared with the social networks in any way, but makes it easy to add your friends and associates to you address book.

Perhaps the most exciting part of Dwolla’s system is the fee structure. Business owners are used to lengthy payment contracts with annual commitments, monthly fees and high transaction costs. Dwolla does things completely different. There are only two fee categories:

  1. If a transaction is over $10, the cost is $0.25 regardless of amount.
  2. For transactions under $10, there is no charge.

There are no monthly minimums or PCI Compliance fees. No annual contracts or equipment leases. Nothing.

Merchants everywhere have been getting pretty excited at the prospect of paying almost nothing for their payment processing costs. (Except those who sell everything just above $10. That puts their transaction costs at around 2.5%, which is pretty typical for a credit card contract.) But it is not that cut and dry. It has taken decades for consumer spending habits to put credit cards at the forefront of most everyday purchases, and while Dwolla may begin to take market share away, it could be a long time before it takes over as King of the payment world.

The Hurdles Ahead

The two hurdles that Dwolla faces right now are getting merchants to accept it and consumers to use it. As with most new payment technologies, it becomes a question as to which party is going to adopt first. If merchants everywhere were accepting Dwolla and promoted that fact, people would start to become curious and eventually look into it. On the flip side, if consumers were adopting Dwolla quickly, you could bet that businesses would be keeping their employees late to train them on the new payment acceptance procedures.

The good news for Dwolla is mobile payment methods have been on the rise and there are a lot of big names bringing attention to it. Dwolla has found themselves on the front of the new payment technology wave, and if things continue as they have the last 12 months, the entire payment industry could take a turn for the better where merchants are concerned.


Eric Stauffer is part of a watchdog group that rates and reviews payment processing companies on behalf of small businesses. Their list of ratings includes companies like Dwolla, as well as more traditional merchant service companies such as Crescent Processing Company. They also provide contract review services for business owners that wish to get a second opinion before agreeing to payment terms.

SimplifyThis is dedicated to creating simple, intuitive, and easy to use solutions for prevalent age-old business problems. Our online invoicing and appointment scheduling software helps small business owners to simplify administrative tasks.

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