Dwolla is going to eliminate ACH

http://blog.dwolla.com/ach-goes-real-time-with-fisync-free-for-banks-and-credit-unions/

by ScotterC • 14 years ago

219 113 14 years ago

blog.dwolla.com

jellicle• 14 years ago

Who owns ACH? The banks do.

Who owns Dwolla's replacement? Dwolla.

Banks are smarter than that. Adoption of this will be zero.

Instant transfers mean that someone can bankrupt an entire bank - instantly. If someone hacks this brand-new untested system and issues 100% withdrawal orders for every customer account, B of A and Citibank and Wells Fargo and HSBC can all be bankrupted between 10:32:24 and 10:32:25. Ooops!

ACH is slow and revocable on purpose.

veyron• 14 years ago

You forgot to mention that the Federal Reserve is involved (as with domestic wires)

joezydeco2• 14 years ago

Dwolla has funding from a large credit union (Viridian, previously known as John Deere CU). So maybe they're looking for a way to give CUs an edge over the mainstream banks?

elemeno3• 14 years ago

Viridian might be large for a credit union, but with only $1.4 billion in assets (according to wiki) it's really not very big compared to many of the banks and companies that use ACH. In 2011 alone, $33.1 trillion was processed by ACH in 20.2 billion transactions (https://www.nacha.org/node/1130).

To my mind, as someone who works in the financial sector, Dwolla claiming they're going to take on ACH is a huge flashing red light saying that they're either dangerously naive or they really don't understand why banking works as it does - or a combination of the both. Either way, there's no way I'd let my money go near them.

michaelleland• 14 years ago

> Who owns ACH? The banks do.

But they don't own Visa or Mastercard. Visa and Mastercard do. And yet the banks play the Visa/Mastercard game.

mbreese3• 14 years ago

Actually, the banks used to own Mastercard. It's now publicly traded (since 2006), but it was originally a cooperative owned by the participating banks.

InclinedPlane4• 14 years ago

Indeed. I wish Dwolla the best of luck, but realistically it's going to take a lot more barbarians at the gate to bring down the existing system and replace it with something better.

Most importantly, anyone who talks about financial transactions at the level of shuffling bits around and doesn't address the issues of fraud, money laundering, regulations, and legal compliance is just not serious about it. If you want to invent a new currency or a new banking infrastructure, go right ahead. But unless you are prepared to get into bed with the existing processors as well as world governments and law enforcement agencies then you are probably relegating your system to obscurity or worse.

wmf4• 14 years ago

Dwolla always talks about how friendly they are with the banks, but it's not clear why banks wold be friendly with them.

debacle• 14 years ago

> fraud, money laundering, regulations, and legal compliance

A billion times over. I'm very passionate about changing banking, but the reality is that every single 'new' model breaks down when you take into consideration the overhead created by compliance and fraud prevention.

Q6T46nT668w6i3m5• 14 years ago

I agree.

However, why have you assumed Dwolla isn't cooperating and establishing relationships with existing market participants and regulators? They appear knowledgeable and are treated fairly within the present industry (e.g. they've consistently received favorable and auspicious attention from industry press).

lhnn2• 14 years ago

Well, there are some people cough who think that "fighting money laundering" is not a plus, and that the process of fighting fraud (NOT hacking, but "oops my credit card got stolen) shouldn't be at the API level.

Granted, the United States won't look fondly on a protocol they can't have total control and insight into, so a launder-friendly protocol ala bitcoin isn't going to get the endorsement of Wells Fargo.

driverdan• 14 years ago

Exactly. Why should we trust Dwolla to handle this?

I tried going to the FiSync site to see what'd happen if I claimed to be a financial institution. Apparently their security is so tight that it won't let me log in because it claims I don't have a phone number on my account, which I do.

thespin• 14 years ago

Isn't it "slow" because it dates back to the practice of flying cargos of checks across the country to be cleared by other banks? For each check, that process could take up to a few days to complete. Hence the applicable time periods for clearance.

Not sure about Dwolla, but if banks can acquire (or develop, though that seems unlikely) a payment method that is easier to use that the ones we currently have, and thereby it increases consumer spending, I would take that seriously.

Why would banks promote banking via smartphones and iPads as they do? Seems like that would be opening customers up to considerable insecurity and a host of potential technological glitches.

Maybe it's because those devices are so easy to use they stimulate customers to use bank services more liberally and frequently.

Not to mention reducing the costs of providing face to face customer service.

superuser2• 14 years ago

Europe seems to do just fine with instantaneous (or near-instantaneous) bank transfers.

Daniel_Newby• 14 years ago

If somebody transfers €100k to your account, can you withdraw it as cash 5 minutes later?

Q6T46nT668w6i3m5• 14 years ago

This is an existing fear.

Velocity controls (bank-wide and per customer) should mitigate the prospect of someone issuing "100% withdrawal orders for every customer account."

lvh• 14 years ago

All of this awesome US payment stuff makes me sad to not be in the US :-(

Please make Dwolla available for HK customers. Pwetty please. Heck, we've seriously considered incorporating in the US just to be able to use Stripe/Dwolla...

guimarin• 14 years ago

I really like dwolla, but I think this particular innovation should have been implemented differently. Instead of giving this product away for free to banks, et al. It should have been release open source for everyone to use for free, with support costing banks, et al. No requirement to use Dwolla as the vendor between banks and consumers. This would really have been disruptive. As it stands, Dwolla has just figured out how to be a better Mastercard. Still some progress is better than no progress, so I extend a heartfelt thank you to Dwolla.

wmf4• 14 years ago

Dwolla is a service, not a piece of software. I suspect the barrier to peer-to-peer payements between banks is not the software anyway.

antidaily• 14 years ago

One of the few instances where you can use the word "disruption" seriously. Holy cow if this takes hold.

untog• 14 years ago

Well, you can only use the word "disruption" if it actually disrupts. Given the vested interests at stake, I'm not convinced that it will.

drumdance• 14 years ago

Yeah, to me a disruption is something that incumbent players have no choice but to either adapt to or die, like Borders vs. Amazon. If the incumbents still control the value chain, then it's not disruptive. (I have no idea which is the case in this particular market.)

pgeorgi• 14 years ago

Then the US finally has as good a banking system as Europe. (About time)

draz• 14 years ago

i dont know much about this industry, but I am guessing the delay works to some organizations' advantage. Don't they get to keep the money longer in their accounts and thus have better cash-flow (on paper, at least)?

leoedin• 14 years ago

This is the kind of thing that legislation does help with. Here in the UK the faster payments[1] system was introduced about 5 years ago, providing near real time payment services between banks. It's fairly common for British people to pay each other with an instant bank transfer rather than paypal o similar when buying stuff online.

[1] http://en.wikipedia.org/wiki/Faster_Payments_Service

mbreese3• 14 years ago

Entrenched interests aside, the fact that is costs nothing worries me.

They are asking financial institutions to abandon (or at least partially switch) from the 40-year old ACH to a brand new system that has no means to support itself outside from the host financial institution, namely Dwolla. So, you're asking the banks to make the stability of Dwolla their concern. Is that really a good way to gain confidence?

If they wanted to make this a serious effort, they would have to charge some kind of membership fee, or transaction fee, just to make it an independently viable business. The fees could be as low as possible, but without them, you're left with banks relying on a "free" system. No one is going to take that risk.

wmf4• 14 years ago

It may cost the banks nothing, but Dwolla does charge fees.

hinathan• 14 years ago

From the site — "same price as an ACH transaction" — so a few to tens of cents per transaction.

mbreese3• 14 years ago

That isn't mentioned in the linked article at all - they just say "free".

However, if you go to the actual API site: https://fisync.dwolla.com it does say the same cost as an ACH transaction.

nohup• 14 years ago

There is the Check 21 Act[1] which does not need ACH and is not subject to any of NACHA rules, regulations or fees. Banks already use it and if it is integrated well, it brings down the payment time to 24hr.

Check 21 describes a file format that is used by banks and service providers to upload payment information to FRB.

[1] https://en.wikipedia.org/wiki/Check_21_Act

c4urself2• 14 years ago

Just moved to the Bay Area from the Netherlands and I feel like I took a few steps back in time when I received _checks_!? from the bank I signed up to here.

People pay each other through bank transfer in the Netherlands and can expect to receive the money on the same day (if sent before noon). On top of that it doesn't cost money to do a transfer.

I've already gone to a bank more often here than I would in the Netherlands in a whole year. Setting up recurring transfers for example, or transferring to someone in another state is just difficult via online.

In other words: there is definitely room for improvement here, America has been held back in banking

fiatpandas• 14 years ago

As an American who has lived and banked in the Netherlands in the past, I couldn't agree more.

I loved the free transfers and how easy it was to send someone money. The efficiency of Dutch banking left me in awe. I remember specifically a banker telling me while I was opening an account: "Oh, and we don't use checks here. We like it that way"

"Random readers" are pretty awesome as well. I kept mine after I moved away.

America needs to catch up.

groby_b• 14 years ago

This is the standard way of operation in Germany, too. Like many other things in the U.S., we're about 30 years behind Europe. (That would explain why I'm wearing leg warmers today, too. ;)

arethuza4• 14 years ago

I'm in the UK, currently I have one cheque based transaction a year (paying for the maintenance of our shared gardens) and one cash transaction a month (getting my hair cut).

It feels very odd going to the US where you have to sign with a pen when paying by card (rather than chip-n-pin).

StavrosK2• 14 years ago

What are random readers?

manuelflara• 14 years ago

I don't know how it works in the US, but in other countries I've seen also something that's pretty inconvenient: you have to manually pay your utilities every month (water, electricity, etc) instead of the charge being done into your account automatically every month. If there is a problem and you don't agree with the bill (99.99% of the times you don't), just complain to the company and if necessary, they'll reimburse you.

dusing• 14 years ago

"just complain to the company and if necessary, they'll reimburse you."

This is exactly why I don't do auto payments. Would you rather fight to get your money back from a utility bill mess up, or refuse to pay it before it is fixed?

IsaacL• 14 years ago

I've heard that these guys (YC S11) are doing something very similar in the UK. https://gocardless.com/

18pfsmt• 14 years ago

I think this note from June, 2010 about same-day ACH payments is relevant (note: this project has been stalled as far as I can tell):

http://www.americanbanker.com/issues/175_123/same-day-ach-10...

mritun• 14 years ago

FYI, in India NEFT (http://en.wikipedia.org/wiki/NEFT#National_electronic_fund_t...) and RTGS (real-time gross settlement) offers instant free* fund transfers and all large and most small banks are members.

I wish them luck, but Dwolla probably doesn't realize that banking systems change only by Government & regulatory mandates. The amount of money that flows through the system and regulations are not trivial.

ChuckMcM2• 14 years ago

Most of the comments on the first page here are about how Dwolla can't possibly succeed because either the banks won't let them, they don't understand what they are trying to do, or there will be some sort of financial event which will ruin everyone's day and destroy the company.

I don't know if that is true or not, but I do know that these are their problems to attack and I'm glad they are attacking them. Having known people who were victims of ACH Fraud it makes you wonder where all those billions of fraud dollars/euros/etc go.

So unlike PayPal, these guys have investors/partners that are in fact financial institutions. Further, those institutions can no doubt provide things such as an account that is 'plugged in' to the financial infrastructure that is the world.

I can see no barrier at all to someone opening up an account with Viridian, depositing some money in it. And then using the Dwolla payments system to make payments too it and get money from it. That is all you need for one seller on Ebay, or Etsy, or whatever to set up their store.

Now if that person has any success at all, and I see no reason that the payment system would be any more of a barrier than the original use of PayPal with Ebay before Ebay sanctioned them was, then the payment stream will grow.

If Viridian goes from having 1.4B$ in assets to have 10 - 20 - 30B$ in assets because folks are creating accounts there to hold money for their endeavors, the other banks will notice, and the world will respond. I could be a negative response like they did against Discover Card but again that is a challenge that Dwolla apparently has signed up for.

So I'm interested in the ways instant payments can be used usefully. In game purchases? Kickstarter like funding? Etc.

arethuza4• 14 years ago

I thought depositing money in a bank creates a liability for the bank, not an asset.

ChuckMcM2• 14 years ago

No, cash deposits are the basis for a banks liquidity, they need a certain percentage of deposits (set by the Fed in the US) to cover the risk associated with their liabilities (loans).

surrealize• 14 years ago

Isn't it both? An asset (the cash) and a liability (the responsibility to give you cash when you want to withdraw)? The cash is often turned into other kinds of assets (loans, say), but it still starts out as an asset.

jusben1369• 14 years ago

I agree with your general thrust. I believe their founder, when asked why he wasn't moving the company to SV, replied "We could never have launched Dwolla in the Valley"

Dwolla is "old school" start up. Taking on big, entrenched, B2B problems. That just doesn't happen in the Valley anymore like it used to. Look at all the comments here "It's too hard, it'll never work, we're doomed" Not surprising but still sad nonetheless. Back to developing mobile apps.

kfcm3• 14 years ago

Um...Veridian is a credit union. As such, it's not open to the general public, one has to meet membership requirements and become a member.

In Veridian's case, one has to live and/or work in certain counties of Iowa to qualify for membership.

http://www.veridiancu.org/about_us/who_can_join.asp

jarin• 14 years ago

I really like what Dwolla is trying to do, but it's completely useless to me until I can:

a) Use a credit card to make instant payments on Dwolla

b) Get a Dwolla debit card to make payments online or at stores

I know they are trying to get rid of those ideas, but until they can make the transition easier I have to stick with PayPal (even though I hate them).

alister• 14 years ago

Wow, so many Cassandras and hostile comments here on HN about what seems like a courageous idea to me.

Does anyone here believe that the current system of ACH, checks, Visa, and Mastercard is good?

Anything involving banks and credit cards (in the US at least) is choked with government regulation (steadily worse every year), entrenched players, and big built-in fees. We pay probably 3% more for every single consumer item thanks to credit cards.

What Dwolla is proposing is not impossible -- it's not like a perpetual motion machine. At least they are heading in the right direction: trying to bypass some of the regulation, oligopoly, and fees.

Assuming the status quo in direct payment sucks--we can agree it sucks?--then, why beat down someone who's trying to do something about it? Especially if no one is offering a good alternative.

wmf4• 14 years ago

OTOH, overhyping stuff that is unlikely to succeed starves more reasonable approaches.

PeterisP6• 14 years ago

It's not choked with government regulation - it's not being forced by government to improve. Do you know how EU got from the exact same mess to where it's payment services are now?

What the EU did a number of years ago was to issue a directive (approx. a federal law in US terms) about consumer payment services which essentially said "consumers have the right to have their payments be credited to the beneficiary within 1 business day. If it doesn't happen, consumers have the right to demand compensation from their bank for each such transaction. Banks have a transition period of 5 years to make it happen."

The US ACH systems are slow and expensive because the banking industry benefits them from being that way, and there are currently no powerful incentives to improve.

abalone• 14 years ago

> IT’S FREAKING REAL-TIME!!!

Nothing inspires confidence in a brand new replacement for the fundamental backbone of our global financial system like the use of the word "FREAKING".

larrys2• 14 years ago

"Nothing inspires confidence in a brand new replacement"

Agree. You have to understand who you are selling to. Banks and the people that work for them are conservative. A total Kool Aid moment.

wheelerwj• 14 years ago

I am excited for this. Very very excited. This is exactly the kind of disruption we need.

It is a bitcoin economy without the awkwardness of the bitcoin.

shtylman• 14 years ago

I recently wrote a bit about why I think Dwolla doesn't understand their problem and what the core of their business really is. I have a strong doubt that a central entity is the best way to approach the problem of money transfers and after talking to Dwolla representatives don't feel comfortable ever giving them access to my bank accounts.

Popmoney is already partnered with many banks and I believe they are in a better position than Dwolla at this time to provide such services if they put an API on top of their system.

http://www.shtylman.com/archives/319

toomuchtodo• 14 years ago

Popmoney is pathetic; three days to move money between accounts at the same bank (PNC Bank). I might as well go into a branch, withdrawal cash, and deposit it into the destination account, in which case the transfer is instant.

tsunamifury2• 14 years ago

I actually worked on mobile and online ACH payments system for one of the largest Banks in the United States. The entire mentality of startups of "get it going and refine it later" does NOT work with banking. Before you even launch you have to get your risk of fraud and security breaches down to 0.001% or less. The bank I worked with had risk on the order of 0.00001% (1 dollar was at risk or suspicious for every 10 billion dollars transfered).

On top of that take into account integrating into existing payment and collection systems and you've got a whole lot to overcome at a relatively high price.

This is not a place I would even WANT to disrupt. The banks have established, high quality, insured, and regulated ways of handling ACH (you can even do it on your mobile).

The whole instant transfer thing seems downright crazy to me, as the banks still would have to do eMoney/Fed verification on the transfers which has mandatory delay times. I don't know what Dwolla is thinking...

Karunamon• 14 years ago

>The banks have established, high quality, insured, and regulated ways of handling ACH (you can even do it on your mobile).

The main problem is speed. The fact that it takes two days, sometimes more, for a few bits in a few computers to flip, in 2012, is absurd, regardless of how many fraud checking algorithms you have to run it through.

tsunamifury2• 14 years ago

The fact that you'd call the mass transfer of funds from 10,000 plus parties to a single source 'a few bits flipping' shows you have no idea how ACH payments work. There are multiple checkpoints, several systems, including the eMoney/FED that these payments need to pass through.

You also need to deal with the actual transition of funds (which are NOT BITS). You forget, you are moving real currency here which needs to be accounted for and balanced between the parties.

btipling• 14 years ago

I am fine with banking being boring.

Codhisattva2• 14 years ago

Epic disruption going on.

kfcm3• 14 years ago

Here's a question for those in the banking world:

How would near-real-time payments impact a bank's reserve requirements?

PeterisP6• 14 years ago

From the mandated reserve requirements point, not at all. From the practical liquidity point, the bank's treasury dept might need to keep a bit more cash in hand, and would earn less on 'float', so they won't be happy, but that's as intended.

wamatt• 14 years ago

Naive hype.

PeterisP6• 14 years ago

Trying to replace ACH has quite a few interesting elements that you must solve. A decent ACH must offer guarantees that payments are final and will be settled - even if the sending customer was banking with Lehman Bros, and the payment was received the day Lehman went down. Otherwise your system would go bankrupt with the first financial crisis; and since it's obvious, then no bank would use your ACH.

Dwolla is going to eliminate ACH

Related Stories