Des Moines, Iowa might seem like an unlikely place to build the next big thing in payments, but start-up Dwolla shrugs off any suggestion that it can’t be done. The company has been grabbing attention for its next-generation payment system that bypasses credit card networks and connects directly into bank accounts. It’s been on a roll, most recently with a new instant payment feature for users, and now investors have lined up behind the start-up, to the tune of $5 million in a Series B round.
Union Square Ventures led the round with participation from Village Ventures, Thrive Capital, Paige Craig and Marc Ecko on behalf of Artists and Instigators. A report last month by Betabeat nailed the lead investor but was off on the total raise, which Betabeat suggested would be in the neighborhood of $10 million. The new funding brings Dwolla’s total to $6.3 million.
The funding round provides more momentum for Dwolla, which has managed to emerge as a payment competitor in a rather short period of time. The company, which got founded in 2008 and launched publicly in late 2010, hit $1 million in daily transactions in July, putting it on a faster initial pace than Square. The company now has more than 80,000 account holders and is on its way to doing $3 million a day in transactions.
Ben Milne, Dwolla’s CEO and co-founder, said the money will go toward expanding Dwolla’s national presence and building out the technology side so the service can be better used by financial institutions and developers. The company is also looking to add to its head count, which stands at about 20 people. Milne told me the company first started out trying to bypass interchange fees but it’s seeing an even bigger opportunity as it also looks at money transfers, something that could take it global as well.
“We are working on building the next evolution of what a payment network should be open: ubiquitous, easy to work with and fast. It should be a lot of things that it’s not right now. We’re on the cusp of rolling that out,” he said.
So far, Dwolla’s business has been split up between peer-to-peer payments, payments between merchants and consumers and transactions between merchants. The company charges a flat fee of 25 cents per transaction over $10 and makes smaller transactions free. The company moves a lot of the security and payment functions to the cloud to make transactions safer, faster and cheaper.
Milne believes that as it builds out its API, Dwolla will power more applications and services, helping enable a lot more transactions. It picked Union Square Ventures in part because of its experience with APIs, something it has helped portfolio company Twilio with.
“As we build partnerships with larger companies, we’ll get more opportunities to grow by larger chunks,” said Milne. “At the end of the day we want to be in the middle of as many transactions as possible. We’re not looking at charging any more, we just want that quarter.”
One thing it won’t be doing is moving to San Francisco or New York. Milne has told me in the past that he likes being located in Des Moines. He’s not opposed to building out an office in another city but believes the team needs to stick together and keep building out the product first, which is best done in Iowa. It helps to have a team of investors who believe in Dwolla’s ambitious goals and appear OK with keeping the company in Iowa.
Dwolla reportedly had some 700 individual investors interested in chipping in. Now, the test will be to continue growing Dwolla in an increasingly crowded payment market. But with more money in the bank and some respected backers, Milne says he’s even more eager to swing for the fences.