As advancements such as open banking and real-time settlement wash over the financial services industry, Dwolla is anticipating a rush by banks and merchants to update processing systems without spending the time or money on a more invasive overhaul.
The payments fintech has launched a new application programming interface product called Dwolla Connect, which enables businesses to use existing commercial accounts at U.S. banks to initiate payments that can be made directly to other banks.
Dwolla's release comes as dozens of payment technology firms attempt to make it easier for banks and merchants to access a growing number of payment options and processing networks, often with internal technology systems that were designed years before the recent wave of digital payments.
"Large enterprises have been running on payment systems for thirty or forty years. There are outages and downtime … and they're looking to keep up with competition from fintechs," said David Glaser, president and COO of Dwolla.
The payments fintech over the past year has been building capabilities to support
The open banking work is part of Dwolla's effort to serve as a venue to route transactions that involve different products, financial service providers and payment options, Glaser said.
"This enables consumers to use their bank to set up insurance payments inside an insurance app, for example," Glaser said.
Mid- to enterprise-size organizations that struggle with outdated payment processing or fragmented banking integrations can consolidate their organization's payments in a single location, Glaser contends.
"Businesses can access accounts without waiting for banks to catch up on innovation," Glaser said. "Some firms may have relationships with multiple banks. Having a single connection can make it easier."
Dwolla Connect is designed for financial services firms, lending institutions, banking-as-a-service providers, digital marketplaces and insurance carriers, among other industries. The API is designed for businesses to integrate A2A payments into their existing applications and connect to existing enterprise resource management systems and other back office functions.
Dwolla charges a fee for access to its platform and the users incur costs for account-to-account payments. A2A transaction fees, which are often used as an alternative to card payments, can be up to 80% less than card interchange fees and other card-related costs, according to
Connect follows the release of Dwolla Balance, a digital wallet that enables users to receive and send funds from and to bank accounts. The wallet can also execute instant payments between Dwolla Balance accounts, or users that have completed a "know your customer" vetting process.
The race to enable banks and merchants to manage multiple payment options has become a major draw for payment fintechs.
That includes firms like
These firms are addressing the growth of new payment processing methods, such as
"Certainly with the largest banks we still have legacy core systems in place and these systems are strained," said Albert Bodine, who leads the commercial and enterprise payments practice at Javelin Strategy & Research. "There are a lot of cases where these systems are at capacity, which is why we see offloads to fintechs like Dwolla."
By using APIs or the cloud, banks can upgrade systems that rely on batch processing without going through the expensive process of replacing their core systems entirely. Batch processing refers to computers accumulating transactions, such as payments, into a large quantity as opposed to processing each transaction individually. This can create gaps in processing, or down time, that works against faster settlement windows for real-time payments or other forms of e-commerce.
In the era before real-time settlement and international e-commerce, batch processing was standard for payments and banking. And it likely isn't going to change, Bodine said, since older payment methods such as ACH and check aren't going away. So upgrading means managing both newer processing needs while supporting older methods. "Checks and ACH are by nature batch processes," Bodine said.
