Ben Milne, who founded Dwolla in 2008 after growing frustrated with high credit card fees, talks to Finextra about America's slow move towards faster payments, his firm's foray into the exchange world, the blockchain, and the idea of being bought by Apple.
Q: You recently joined the Fed Fast Task Force steering committee. How is that going, are you hopeful that momentum towards faster payments in the US is finally building?
A: What we're seeing from the initiative is a market clearly looking to apply and rollout real-time technology.
There’s an interesting shift happening in the payments world right now. That shift is being led by the Fed. Ultimately, what the Fed is doing here is bringing together businesses and user groups that are, and will be, important players in a future payment system. This is giving private companies the opportunity to become part of a payment utility, which is unprecedented. It is going to create some huge companies.
Q: The Clearing House has just brought on board VocaLink - which is behind the UK’s Faster Payments Service - for a real-time system. What will this mean for Dwolla?
A: More smart people working on real-time payment systems really just increases the likelihood that more systems will be built.
It also underscores the need for the Fed to continue to shepherd the market around interoperability and standards. If these systems come along and don’t talk to one another than we will end up with a bunch of silos with heavy taxes. That’s an expensive problem for everyone and it stops end-customers from getting the benefits that faster payment systems provide.
Q: Dwolla recently rolled out a white label service. What was the thinking behind that and how much interest have you received?
A: White label has been a great product for Dwolla and, in a pretty short period of time, has become the best selling product we’ve ever built.
The thinking behind it is pretty simple: big business customers want access to our architecture, but do not want to want Dwolla’s branding all over the transaction. This gives our customers the ability to customize the user experience and access the entire bank transfer system in just a handful of API endpoints.
Q: You have also recently moved into the exchange space through a deal with CME Group. What have you learned from working in this new arena?
A: First and foremost, we’re continuing to learn where our technology can be applied. Speeding up the exchange of assets between bank accounts isn’t just valuable for consumer applications.
Outside of that, things like multilateral netting and derivatives are new things that are becoming part of our day to day vocabulary. These markets and the associated processes have all gotten as automated as possible with the tools available which is a pretty humbling thing to see. In this sort of scaled environment, it's exciting to see how Dwolla's improvements in speed, reconciliation, and transparency can create significant gains for market participants by simply being a new tool in their toolbelt.
Q: How does Dwolla view and approach regulation on innovation?
A: Our approach has been to think of regulation and innovation as the same thing. There may be industries where private companies can wield enough momentum to change regulation to their own benefit, but financial services requires a balance between commercial and consumer interests. Regulation is there to guide us, our partnerships, and ensure that end-users of the technology we build are well served.
Innovation can happen inside of regulated environments, but it takes a commitment from a fintech company to understand and bake compliance into the innovative products and services that are sold. At the same time, lawmakers and regulators need to understand the way and the speed with which industries can change these days, and avoid slowing down innovation that can benefit everyone. At Dwolla, we try to be proactive and seek out opportunities to have these kind of open dialogues with regulators.
Q: What do you think about the blockchain, which in many ways promises the same things as Dwolla - fast, cheap, safe movement of funds?
A: I’ve written in-depth about various applications for ledgers and I actually see these systems as two different things.
I do feel that there are a multitude of applications for bitcoin’s blockchain and others to exist, but there are considerations that must be discussed when applying it to any given use case. One is to acknowledge that blockchain is database with built-in permissions, some of which all participants have access to. These permissions, like the visibility rights of participants, may not be acceptable for certain business applications. For example, many banks do not want their net position shared publicly amongst other financial institutions in a clearing counterparty, like derivatives. Here, obscuring their net position to others in the marketplace is a competitive advantage.
Where Dwolla lives today is selling technology that facilitates the real-time movement of existing regulated assets, the U.S. dollar, at existing financial institutions. Nothing new, in terms of a digital asset, is created and our technology fits directly into the existing business processes of a bank, platform, or clearing counterparty. Which database, or ledger design, is used to achieve the optimum speed and relevant privacy controls is really designed for the buyer of the technology and the application it’s being used for.
Further, if you consider that tracking different assets in separate ledgers will occur, than we also must ask ourselves what system will be used to track the exchange and facilitate the exchange of existing assets used to pay for those assets. That system would and does look a lot like Dwolla.
I don’t think we’re very far off from blockchains being used as long term memory for certain asset classes and as a backup to other ledgers designed for specific applications. However, in that world there still needs to be something to talk to the existing establishments and financial institutions that drive the economy.
Q: Consult Hyperion's Dave Birch recently suggested on Twitter that Apple buy Dwolla for its rumoured upcoming P2P payments service. Any interest?
A: I saw that, it’s an interesting idea.