Are Square and Dwolla Teaming Up to Disrupt Visa and Mastercard?

If they aren't already, they should.

Ben Milne, CEO of Dwolla. (Photo: Lanyrd)

Visa and Mastercard have long dominated the retail payment business (after all, when was the last time you saw someone flaunting a Discover card?). But now, Dwolla*–which recently launched an NYC office–and the San Francisco-based Square may be collaborating to knock the two legacy institutions off their pedestal.

Quartz reports that there may be a deal in the works between the two–one that would benefit both merchants and customers. Square provides a way for businesses to process credit card payments without clunky POS systems; Dwolla allows users to instantaneously transfer money with a flat fee of $.25. By teaming up, the two could really give the dominant credit card processing companies a run for their money.

Writes Quartz:

Square hasn’t replaced credit cards; it’s merely provided a new way to swipe them. That means that merchants are still paying Square 2.75% per transaction, a fee that can’t be tamped down without replacing credit cards altogether….Dwolla charges nothing for transfers less than $10, and a flat fee of $0.25 for everything over that amount. On a $100 purchase, a merchant would save $2.50. For merchants like grocers, who are making only between 1 and 3 percent profit on every sale, that would on average double their margins on a sale.

So: pair an easier way to pay (good for customers) with a cheaper way to transfer money (good for merchants) and you have a winning combination.

Dwolla has hinted at this kind of collab before, saying that they are “agnostic” when it comes to how users pay for goods. Square, meanwhile, recently nabbed a massively lucrative partnership with Starbucks. If Square could convince the coffee king to use Dwolla for its money transfers–touting that miraculously low transfer fee–that could mean big business for Dwolla.

“Dwolla’s a lot like another mastercard, another visa, another amex, in that it’s a payment option,” Jordan Lampe, a communications rep for Dwolla, told Betabeat by email. “Square has built an amazingly simple, beautiful way to accept payment options on the behalf of their merchants. Any proposition that provides a customer with real value is a worthy conversation for any company to engage in.”

But, as Quartz notes, “Persuading shoppers will be the harder part.” Visa and Mastercard are well-known brands that people have come to trust their money with. It will take a tremendous marketing push to convince customers to trust a little-known company with their cash, but it might just be worth it for everyone involved.


Are Square and Dwolla Teaming Up to Disrupt Visa and Mastercard?