New Service Lets Small Businesses Bypass Big Bank Fees

NEW YORK (MainStreet) – Retailers aren’t too fond of debit and credit card transactions. After all, each time you use plastic to make a purchase, they must pay an interchange fee to banks and credit card companies. Some retailers use the electronic payment service PayPal, but that charges transaction fees based on a percentage of the total purchase, which can really add up on big-ticket items.

Fortunately there’s another alternative that could prove itself cheaper for some retailers, and also end up benefitting consumers.

Enter Dwolla, a new electronic payment network that charges retailers a flat fee of 25 cents per transaction. And starting in 2012, the Des Moines, Iowa-based startup is not going to charge any transaction fees for retail purchases $10 and under, which could be especially advantageous to small businesses like coffee shops that sell inexpensive goods.

Dwolla isn’t a bank or credit card processor; instead, it works with financial institutions to give merchants a way to accept cash electronically through its network.

Dwolla’s founder and president, 28-year-old Ben Milne, is a former retailer himself who previously owned a speaker manufacturing company. The idea for Dwolla was inspired by Milne’s own frustration with interchange fees. In an interview with Business Insider, Milne said that his company was paying $55,000 annually in such fees to credit card companies, and felt credit card companies were “stealing” from him.

Dwolla’s surcharge-free deal for inexpensive purchases may not only be a boon for smaller merchants – it could be advantageous to consumers, since small businesses may pass along some of those savings to customers in the form of lower prices.

For merchants who paid $48 billion in merchant fees in 2010, according to the Merchants Payment Coalition, Dwolla could be a no-brainer. The company is already moving between $30 and $50 million in payments per month, and 3,500 retail merchants have reportedly signed up for the service.

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