As the mainstream adoption and subsequent uproar around Apple Pay has shown, people are beginning to expect that the financial industry catch up with the supercomputer in their pocket. Credit cards and cash are still on the front lines, but the bigger changes will come when startups bring their innovations inside the banking industry itself. "We’re at a very interesting time where technology has evolved to the point the customers are demanding better experiences," says Chad Ballard, Director of Innovation and Mobility at Banco Bilbao Vizcaya Argentaria (BBVA), one of the largest banks in the world. "Banks traditionally have not been able to facilitate a good customer experience when it comes to payments."
"Startups whose very existence is designed to redefine the financial services industry."
Today Dwolla, a payment startup backed by some of tech’s top investors, announced a partnership with BBVA Compass, the financial giant’s American arm. Compass is adopting FiSync, a Dwolla service that dramatically speeds up the time it takes transfer money while reducing the fees involved. "We've set our minds on being the best bank in this digital century, and we believe strongly that the best way to get there is to combine our in-house capabilities — our real-time core banking platform, for one — with startups whose very existence is designed to redefine the financial services industry," said BBVA Compass Chairman and CEO Manolo Sánchez.
Dwolla’s platform bypasses the constraints of the Automated Clearing House, or ACH, a system that has remained virtually unchanged since the 1970s and which is still largely required by law. ACH is the reason it can take days to transfer money between two accounts at different banks, even when the actual transaction is a digital exchange that can move as quickly as the bits will travel. ACH also imposes fees of 15 to 95 cents per transaction. Dwolla, by contrast, charges a 25 cent flat fee for any transaction over $10, with everything under that being free.
What if you could pay your utility bill in real-time?
When Dwolla rolls out on BBVA Compass in the first quarter of 2015, it will allow the bank’s customers to do a few interesting things. A startup with employees that use the bank, for example, could pay its workers in real time, and the cost of payroll for the company would be lowered. Likewise, a merchant in a marketplace could be paid right away for each sale, not in bulk once a week or every month. Dwolla envisions a world where you could up your utility bill to operate in real time, so you can see the money you’re spending and adjust it with the flick of a switch.
Of course, the big benefit of a system like this won’t really kick in until lots of banks are using it, making it cheaper and easier to transfer money between different institutions, not just within a single company’s network. We’re beginning to see digital innovation roil traditional finance, but the incumbent networks are difficult to displace. Apple Pay is more secure than a credit card, but credit card companies still collect the same fees every time you’re at the register.
Dwolla began with big ambitions of tearing down the finance industry as a whole, replacing it with something native to web. It was one of the biggest safe havens for people experimenting with Bitcoin in the early days, a network of users that envisioned money moving as fast and fluid as information in the internet age. Today’s announcement represents a much more modest victory, an incremental advance of disruptive technology into one of the world biggest and most conservative industries.