DES MOINES, Iowa — Just as plastic rendered paper checks nearly obsolete, gadgets may soon do the same to credit and debit cards.
Smart phones and other mobile devices are staples for many holiday shoppers as retailers take advantage of the low cost of offering deals on websites like Facebook and Twitter (Think: no paper or mailing costs).
Technology also makes mobile payments easier. It's an important development because companies like PayPal and the major credit card issuers charge 2 percent or more per transaction.
But more informal money transfers, including purchases from smaller businesses or just sending money to friends and family without writing a check, are another key factor.
Already such direct electronic money transfers between individuals are estimated to total some $3 trillion a year. That's only expected to increase, making the business ripe for additional players.
A Des Moines-based company called Dwolla Corp. is one of the new players. On Wednesday, the company launched nationally its payment processing service for use by businesses and individuals. The company already operated in Iowa and California.
Dwolla offers a payment service that charges a flat fee of 25 cents per transaction.
Banks have relied too long on debit and credit cards and their high fees, said Matt Harris, managing general partner of New York-based Village Ventures, a venture capital firm.
"It has sparked a lot of entrepreneurship on the part of people thinking they can do it better than these sleepy giants," Harris said.
That certainly rung true for Dwolla creator Ben Milne. As the owner of an audio equipment business he disliked the high fees he paid credit card companies to process purchases. Two years ago he came up with an idea for a low-cost payment system and began shopping for investors.
Milne, 28, found investors willing to bankroll $250,000 to help him start in November 2009. He also obtained a $55,000 grant from the Iowa Department of Economic Development.
Earlier this year he received $1 million in venture capital from the Veridian Credit Union and The Members Group, which provides transaction processing and other financial services.
In addition to the cash infusion, the affiliation means deposits held in a Dwolla accounts are insured by the FDIC and the National Credit Union Administration. Its transactions are secured by the same technology that protects online banking systems.
Dwolla's technology is designed to easily integrate into the checkout page of an online business. The Dwolla logo appears as a payment option at checkout.
The flat fee is expected to be particularly attractive to small and medium-sized businesses because the savings can be significant, said Nick Kremer, president of Nine Dot Systems, a website design and hosting company. One of his customers orders computer servers regularly and can easily spend $5,000 for each transaction. In turn, Kremer paid credit card fees of about $150 per order. That dropped to 25 cents with Dwolla.
"People can see the hard number value in it," he said. "If I can push the cost savings on to customers it makes it worthwhile for both of us."
Milne said he can keep his costs low because he uses the latest transaction clearing technology and doesn't rely on middlemen that would require him to pay user fees.
Dwolla also can integrate with websites like Facebook and Twitter, allowing friends to send each other money quickly and for the 25-cent transaction fee.