This 28-Year-Old's Startup Is Moving $350 Million And Wants To Completely Kill Credit Cards
There's a tiny 12-person startup churning out of Des Moines, Iowa.
Dwolla was founded by 28-year-old Ben Milne; it's an innovative online payment system that sidesteps credit cards completely.
Milne has no finance background, yet his little operation is moving between $30 and $50 million per month; it's on track to move more than $350 million in the next year.
Unlike PayPal, Dwolla doesn't take a percentage of the transaction. It only asks for $0.25 whether it's moving $1 or $1,000.
We interviewed Milne about how he is building a credit card killer and Square rival from the middle of the nation where VCs and press are scarce.
BI: We hear you're making credit card companies angry. How are you doing that?
Ben Milne: Ultimately we're trying to build the next Visa, not the next PayPal. We're building a human network based on how we think the future of payments will work. The current model needs to be blown up.
Dwolla started out of my old company. I owned a speaker manufacturing company and we sold everything directly through a website. I got really obsessed with interchange fees and how not to pay them. Every time a merchant gets paid with a credit card they have to give up a percentage. In my case, I was losing $55,000 a year to credit card companies. I felt like they were stealing from me -- I was getting paid and somebody was taking money out of my pocket.
So I thought, how do I get paid through a website without paying credit card fees? We pitched a bank, and amazingly enough they said, "We'll give it a shot."
That was three years ago, so we've been working on the project for a really long time. In December of last year we figured out how to legally do what we do.
How many transactions are you doing?
The average transaction volume for Dwolla is right around $500 dollars. We move between $30 and $50 million per month.
What's your story?
I'm 28. I started my first company, Elemental Design, when I was 18. I dropped out of University of Northern Iowa and built that.
I started college because I thought that's where I was supposed to go. I applied to one college, I got in, went, and realized it wasn't for me. I had customers so I stopped going to class.
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We grew that company from a $1,200 investment to over one million in revenue in four years with three or four people and without outside investment. The company was running itself and I wanted to work on another project.
You don't have a finance background and yet you built Dwolla?
It's been helpful in some strange ways. I think the first financial institution we went into only listened to me for entertainment. They let me get in to pitch the full executive team at the bank.
I don't look like a banker, they knew I didn't have a banking background. They actually agreed to work with Dwolla after two hours of arguing with me and me scribbling on a whiteboard about how the whole thing could work.
Had I been more typical, maybe they wouldn't have listened to me. In that respect, I think that not knowing how the mechanics worked was good ? we just knew the way we wanted them to work.
What did you do for the first two years when Dwolla wasn't technically legal?
Well it was legal, we just couldn't operate outside of Iowa. For the first two years we built out the platform. We did a sh*tload of testing on a small scale because legally we couldn't launch Dwolla nationwide. We spent two years inside of Iowa fine-tuning Dwolla with the financial institutions, building out some of the initial models, and trying to figure out how to legally do what we do.
How'd you find a legal loophole?
Moving money is an exceptionally regulated business. We're in Iowa, which is sort of conservative ? I don't know if that helped us or hurt us, but in the long term I think it helped us. We figured to do this legally, we had two options: we could take in a tremendous amount of money and go out and get licenses, which is how most people do it. But we didn't have access to that kind of capital here.
The other option was to bring in really strategic investors, which is what we did. One of our investors is a financial institution; one is a financial services company.
Our investors do credit and debit processing for banks. So when you get a credit card from your bank, it's being issued by companies like them. Our investors are also distributing our product to financial institutions. So we've been building a payment network, and we can do it legally because of who our investors are.
We launched in December of last year and started moving $50,000 a week. Now we're hovering around $1 million a day. We hit that milestone in June or July.
Now we've quieted things down. We had to tap the brakes because the way you handle money needs to be managed correctly. We have some new partners on board and we're going to hit it hard in December again. We've got some stuff coming out in December that we think should be really big.
Anything I can do to keep my money out of the hands of credit card companies is worth investigating. I don't personally have a problem with PayPal, but credit cards can become extinct and the sooner the better.
"Never forget that everything Hitler did in Germany was legal. Never forget that everything the Founding Fathers did was not." Martin Luther King, Jr.