Union Square Ventures Leading Series B in Iowa-Based Dwolla for About $10 M.

"It's a deal every VC was flying to Iowa or something to try to invest in." <i>—one New York investor</i>

Des Moines-based payments provider Dwolla, which enables seamless online payments for a quarter per transaction, has been a simmering hot new thing for a while. But recently the startup has had a flush of attention and VCs have been falling all over themselves to book flights to Iowa and get in on the company’s next round. Speaking of which, multiple sources have confirmed to Betabeat that Dwolla’s getting close to announcing a series B led by New York’s Union Square Ventures in the neighborhood of $10 million.

With its Shapeways investment, the startup’s Dutch founders move to New York and USV took out life insurance policies in case they got squished by taxis. But Dwolla leaving Des Moines—it’s only a three-hour flight, and VCs seem to be more than happy to make the schlep.

Dwolla, founded in 2008, hit $1 million a day back in July, the company announced at the time. Now it’s moving between $30 and $50 million per month, the startup told Business Insider last month, taking just $0.25 for transactions over $10 (less than $10, and it’s free). The startup’s million (billion?) dollar innovation is eliminating credit card interchange fees by cutting costs in a few key ways, including a massive reduction in credit card fraud risk by eliminating card information from the transaction. CEO Ben Milne got the idea for Dwolla when he “got really obsessed with interchange fees and how not to pay them” at his previous business, a speaker manufacturing company that sold products exclusively online. “I was losing $55,000 a year to credit card companies, he told Business Insider. “I felt like they were stealing from me—I was getting paid and somebody was taking money out of my pocket.”

Dwolla is also moving every function possible out of the meatspace and onto the web—so no plastic cards, no statements in the mail, no card readers. It links to consumers’ bank accounts and lets them send money to friends on social networks, currently available in the U.S. using Facebook, Twitter, LinkedIn and Foursquare. The fee scheme is exactly the same for merchants, who can sign up for free.

We first heard about Dwolla back in May because the company was putting free credit in new users’ accounts, which some users then exchanged for Bitcoins. (Dwolla has lost popularity within the Bitcoin community since then, however.)

“Essentially, we’ve created our own payment network. Think VISA, but built in the 21st century, not the 1960s,” communications point-man Jordan Lampe told Betabeat by email. “As a consequence, we’ve earned numerous merchants looking to avoid interchange fees. That included a few Bitcoin traders earlier this year, but they now make up an extremely small amount of our daily transaction volume.”

We’ll believe most users are mainstreamers; Dwolla has more than 16,000 fans on Facebook and 3,000 monthly users, according to the social network.

Earlier this month, Dwolla launched instant transactions, cleaned up the user experience, and is now heavily staffing up. Fred Wilson of USV did not respond to an email request for comment and Mr. Lampe declined to comment, but Dwolla has hinted that it will have some “some announcements” in “a couple of weeks.” Word of USV’s role as lead has been circulating for at least a month, one VC estimated, so it’s possible USV and other investors are getting ready to close the deal. We’re told the startup was asking for about $10 million, but we wouldn’t be surprised if it’s oversubscribed and the number comes in higher.

Dwolla has raised about $1.3 million to date in grants, angel funding and a series A with undisclosed investors, according to Crunchbase. The company had grown from two to 15 employees as of June; they’re now at about 18, with more by extension through partners at The Members Group and Veridian Group.

Dwolla has scads of competitors, including Bitcoin, Google Wallet, BankSimple, Visa, Venmo, and as The Next Web pointed out earlier this week, PayPal, Square and Clover Pay. Union Square Ventures Leading Series B in Iowa-Based Dwolla for About $10 M.