Innovation in the online payments industry is happening fast. Great innovations are coming up from the players in the industry and among them, Dwolla is making major moves to disrupt the market. The company last week unveiled a new feature that enables customers to make “guest check-outs”. Moreover, with its low $0.25 transaction fee, Dwolla seems to be striking right at the heart of PayPal.

Previously, only registered users could make payments with the company. However, with the introduction of the new option, consumers can now pay for goods or services at participating merchants without having to register with Dwolla.

To pay for services as a guest, a user must have a U.S. bank account and should be purchasing an item a merchant that uses Dwolla for payments. The consumer will initiate a payment from his or her bank account, which will then be processed through Dwolla’s payments network.

For guest checkouts, consumers will have to enter their bank account and routing number instead of credit card numbers. Apart from these, the name, address and phone of the consumer will also have to be entered and verified. At no point will the consumer have to share his or her financial information directly with the merchant.

Dwolla Guest Checkout Option

Dwolla Guest Checkout Option

Dwolla Takes on PayPal

Dwolla is undercutting PayPal on transaction charges. With fees of $0.25 per transaction, many merchants are likely to integrate Dwolla as their default payment service. For merchants, especially those who process large volumes, this is a big win. (and Instant funding too)

Consumers also benefit from a more attractive experience that does not need them to sign-up for Dwolla to use the services nor do they have to expose their credit card information to merchants. However, consumers have to verify their phone numbers for a transaction to be processed.

The Dwolla consumer transaction process is simple:

  1. The customer chooses to check out as a guest a Dwolla’s offsite gateway
  2. The customer provides basic information and verifies his or her phone number
  3. Dwolla connects to the customer’s financial institution
  4. Customer reviews shopping cart and checks out

The guest checkout option has just been launched but has the potential to disrupt the payment industry. Competing payment gateways will definitely be looking to match up with other innovations.

Easier Online Payments With Dwolla

In an industry dominated by PayPal, merchants have been at the mercy of the payment gateway with regards to fees and credit card portability. However, Dwolla’s significantly low fees are attractive to merchants. Moreover, its support for mobile payments can go head to head with PayHere from PayPal.

Consumers also benefit from Dwolla. PayPal requires users to open an account with them to pay for services or goods online. This makes many customers reluctant to use it. Dwolla’s guest checkout is a welcome innovation for the reluctant buyers, who will find it more convenient since they do not have to sign up for an account nor provide their credit card data to merchants.

However, two major hurdles are standing on the way for Dwolla in its quest to gain market share:

  • Phone verification: Most customers will find phone verifications inconvenient
  • Brand awareness: Dwolla is making strides but it is still not well known by the mom and pop shops and the average shopper

The impact of Dwolla’s guest checkout remains to be seen and insiders are betting that the company has the innovation to challenge PayPal’s dominance. However, the payments company still has a long way to go. We can expect more from them in the coming years.