Dwolla just got faster.
The Des Moines-based financial technology company announced Tuesday that it now offers a service known as Real-Time Payments, allowing clients to send money to customers and vendors within seconds. Experts say the company’s latest tool could help it lure new clients who don’t want to wait days for banks and regulators to move their money along.
Based on newer technology than the infrastructure that allows for other types of transactions, Real-Time Payments are an emerging feature in the finance sector. Lenders can send money back and forth within seconds through the Real Time Network operated by The Clearing House, an association owned by 24 of the world’s largest banks.
Lending institutions that are hooked into the Real Time Network can process transactions among one another as they happen.
The more common Automated Clearing House payment program is less efficient. Based on technology that is more than 50 years old, ACH can only send bank transactions into a network during limited periods. A buyer and seller may have to wait hours or days for the transaction to settle.
The new system holds another advantage over ACH transactions: The Real Time Network is open at all hours every day, including national holidays.
‘Paying that supplier in real time is a big deal’
Real-Time Payments may be particularly useful to businesses with thin operating margins and looming bills. Restaurant owners, for example, often rely heavily on Friday and Saturday business. If they need to pay vendors by the beginning of the following week, they won’t have to wait for the banks to move the funds.
“Paying that supplier in real time is a big deal,” said Talie Baker, a senior analyst with the Aite Group Retail Banking & Payments practice. “It really helps with cashflow.”
The Clearing House launched Real-Time Payments in November 2017. But the program was of limited use at the initial launch, as banks have to actually join the network to participate.
Sarah Grotta, the director of Debit and Alternative Products Advisory Service at Mercator Advisory Group, said banks need about nine months to complete all the steps needed to join. But over time, the number of participating lenders has increased, making the network more useful.
“Now that enough banks integrated into (Real-Time Payments), Dwolla’s customers will be able to reach about 60% of checking accounts in the U.S.,” Grotta said.
In addition to ACH, experts say that Real-Time Payments could eventually provide an alternative to wire transactions. While those transactions are fast, the fees are much higher than ACH because the money has to move through several institutions.
Grotta said Real-Time Payments is not a viable alternative for large companies at the moment because they are limited to $100,000 per transaction.
She said other elements of Real-Time Payments are actually more useful than its speed, such as the fact that companies can send and receive money at all times. She also said companies can include data with each transaction, embedding information about exactly what the money is for and the invoice number it is referencing, ensuring there is no confusion.
“There’s a big efficiency capability to come with that,” she said.
Dwolla was one of the country’s earliest adopters of faster financial transaction technology, launching its own product, FiSync, in 2012. The company aimed to replace ACH payments. It stopped selling the product in 2015, though.
“While the innovation was ahead of its time, the payments space hadn’t yet developed a secure and regulated infrastructure that could accommodate real-time payments,” spokesperson Zach Weismiller said in an email.
The company also participated in the Federal Reserve’s Faster Payment Task Force, a collection of experts who debated how U.S. financial institution could move money more quickly. Dwolla submitted a 164-page proposal.
Dwolla allows users to send funds in a variety of ways
Founded in 2008, Dwolla provides a payments platform for companies, allowing them to transfer funds to and from customers and vendors. Prior to Tuesday’s announcement, Dwolla could already send funds in a variety of ways. The company charges clients a flat fee per transfer.
Dwolla is hooked into an Automated Clearing House network, allowing it to process those payments on behalf of clients. Last year, the company began to offer “push to card” services, which allow companies to send money to debit or credit cards instead of bank accounts.
In a report earlier this year, Baker wrote that Dwolla has “found its stride” after changing focus multiple times over the last 13 years. She said the company’s services are particularly useful for small and mid-sized businesses that don’t have staff with the technical expertise to build out a secure payments system themselves.
The company has gone through a couple changes at the top over the past year, as founder Ben Milne announced in February 2020 that he was stepping down as CEO, though he remains on the board. Harris replaced Milne in March 2020.
Dwolla hired Dave Glaser from Mastercard to become its new president and chief operating officer last month.