Dwolla Review: A PayPal Alternative?

February 21, 2013

Dwolla Review LogoHave you ever been ripped off by eBay or PayPal? Or simply tried to resolve an issue after using one of their services? For many the experience is a nightmare that results in account freezes, lost funds, or outright fraud that results in you shipping an item and never being paid for it. Even if you have had a successful transaction on eBay or PayPal, you’ve lost a lot of money in fees. PayPal charges 2.9% plus 30 cents on every single transaction.

Isn’t there a better way?

Before now, not really. The major payment processors all charge about 2.75% to 3% for every transaction.

Enter Dwolla.

What is Dwolla?

Dwolla is a new website that aims to eliminate the problem of expensive transactions online. The firm is targeting the likes of PayPal and other money brokers with high fees. Instead of charging you 3% on every transaction you pay a flat fee of $0.25. (And any transactions under $10 are free.) This is an incredible deal that definitely should encourage you to learn more about the company.

The company likes to say it is a cash-based financial network. This means you can’t load your account or pay for items using your credit or debit card. (More on this in a minute.) However, you can link your bank account to load your account and transfer funds through the network that way.

Why Can’t I Use My Credit or Debit Card on Dwolla?

Dwolla does not allow the use of any “antiquated” (in their terms) plastic.


It increases the cost for everyone. The company claims that credit or debit card acceptance increases cost anywhere from 2% to 7%. I think the upper number is a bit inflated, but they do have a point. The credit card companies do charge swipe fees and the like, and that increases costs for everyone. Dwolla wants to eliminate that fee, charge an insignificantly small fee, and make money in the process.

How Does Dwolla Work?

Dwolla works like most other payment processors, just without the ability to accept plastic.

You can:

  • Spend money at a retailer that accepts Dwolla
  • Give donations to a charity that accepts Dwolla
  • Send money to friends that have Dwolla accounts
  • Purchase items at online retailers that accept Dwolla

It sounds a lot like PayPal, right? There are some significant differences.

First, like PayPal, you can only use Dwolla at retailers that accept it. The company provides a list of companies so you know where you can use your Dwolla account.

Another key differentiator is you can send money to friends via social payment. That means you can send money over Facebook and Twitter. (If they don’t have a Dwolla account they will get a notification to open up an account.) Otherwise the money will be immediately transferred to them.

Lastly, many payment companies have delays built into their business when transferring money. When you transfer from your bank account to the payment company you experience a 2-4 day delay. When you transfer funds from the payment company back to your bank, you experience another delay.

Dwolla does not immediately wipe out the delays, but does a great job of explaining how long transfers will take. They have the normal delays that other payment processors have – unless your bank uses something called FiSync. Without getting into the technical details, FiSync is something your bank signs up for that immediately transfers funds between financial institutions. Dwolla participates in FiSync so if your bank has it as well you get immediate transfers between your bank and your Dwolla account. (They have a graphical explanation on their great transaction timing page.)

How Does Dwolla Handle Fraud?

Most of the articles on the web about Dwolla from both professional journalists and small-time bloggers rave about the concept of the company. All of the fees involved with processing a simple payment do add up to 2-3% for merchants, plus they have to wait up to a week to get paid. Cutting out those costs seems like a great deal for merchants, and assuming they pass some of those cost savings on, for consumers as well.

But part of those costs are used for fraud protection for consumers. And Dwolla talks a lot about how they are safer than using credit cards. But there are not a lot of specifics as to how they handle fraud, chargebacks, and the like. What happens if someone gets access to my Dwolla account and drains it of funds? Or worse, I have a FiSync bank account and they drain not only my Dwolla account but also my checking account, too? I’d like to see a dedicated page that explains how they handle fraud rather than some vague talk about security.

Can Dwolla Replace PayPal?

For small, trusted transactions then I would absolutely use Dwolla over PayPal. PayPal has a terrible reputation in part because they are so big, you can’t handle fraud calls on a massive scale very easily. If you aren’t worried about fraud then it comes down to a 25 cent fee (or $0 if the amount transferred is less than $10) compared to about 3% with PayPal. That’s a no brainer.

For large payments, I’m not 100% convinced Dwolla is ready. I’d like to see better data about fraud situations before I jump in full force. One way to protect yourself would be to have a separate bank account that you only keep small amounts of money in to transfer to and from your Dwolla account. That way if your account is somehow compromised you don’t stand to have your entire checking account wiped out.

So what do you think? Are you going to give Dwolla a whirl? Leave a comment and let us know!


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Kevin Mulligan is a debt reduction champion with a passion for teaching people how to budget and stay out of debt. He's building a personal finance freelance writing career and has written for RothIRA.com, Discover Bank, ING Direct, and many others.

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One Response to Dwolla Review: A PayPal Alternative?

  • payam golriz


    Here’s my nightmare story and their refusal to help:

    I made a purchase online and the seller asked to use Dwolla. At first it looked like a reputable website but I’ve come to find out there’s no support behind it. Long story short, the seller has run away with $2000 of my money, and he’s used Dwolla to scam thousands from others as well. After their “investigation”, they concluded that they can’t get in contact with the seller so they can’t do anything about the claim. Meanwhile I have email correspondence from multiple people scammed by this crook. HOW CAN YOU CALL YOURSELF A REPUTABLE SERVICE? YOU ARE HELPING SCAM ARTISTS…..