PayPal is one of the largest financial transaction tools available online. Boasting over 128 million accounts and exchanging payments in 25 currencies, PayPal is a dominate leader in online commerce.
Of course everyone loves to hate PayPal, too.
The company has had its fair share of negative press: from high costs for users to incompetent customer service to accounts being locked with thousands of dollars inside, they have developed a reputation of “can’t live with them, can’t live without them” among users.
The transaction marketplace is changing. New competitors are cropping up: Amazon has launched Amazon Payments which is similar in cost structure to users. But the most interesting new competitor to PayPal is Dwolla.
What is Dwolla?
Dwolla is payment network like PayPal and Amazon Payments. The company’s goal is to allow anyone with an Internet connected device to transfer money to another party at the lowest cost possible.
Transactions under $10 are free. Above that the transaction cost is a flat 25 cents. Yes, 25 cents total for the transaction.
Unlike PayPal and Amazon Payments, Dwolla disallows credit and debit cards. The company connects directly to your bank account to transfer funds. Avoiding the credit and debit card networks drastically reduces costs for users.
Comparing Dwolla and PayPal
Here are three areas of consideration to compare the two payment networks.
1. Transaction Costs
The biggest complaint about PayPal is the huge chunk of money it takes out of each transaction. Dwolla aims to disrupt that model by offering either free transactions or those that cost just $0.25 for the receiving party.
- PayPal Buying & Selling:
- Buyer: Free
- Seller: 2.9% plus $0.30 (can be discounted down to 2.2% with heavy volume)
- PayPal Sending Money to Friends and Family:
- Funded From PayPal Balance or Bank Account: Free
- Funded From Debit or Credit Card: 2.9% plus $0.30 (sender determines who pays fee)
- Dwolla Buying & Selling:
- Buyer: Free
- Seller: Free if $10 or under, $0.25 if over $10
- Dwolla Sending Money to Friends and Family:
- Free if sending/receiving under $10, $0.25 if receiving over $10
As you can see if you are sending money from your PayPal/Dwolla account (tied directly to your bank account) to a friend, and you are sending $10 or under, the transaction costs the same: free.
Over $10 and Dwolla charges you 25 cents while PayPal is still free.
The big difference is for sellers looking to accept payments online. Dropping your total transaction cost down to 25 cents from 2.9% plus 30 cents is a huge difference. A seller with ten $100 transactions would go from paying $32 in PayPal fees to paying $2.50 in Dwolla fees. That really adds to the bottom line.
PayPal touts it is the most secure payment network in the world thanks to being in business since 1999. They’ve got quite the headstart over Dwolla. Of course being the biggest also means you are the biggest target for hackers and scammers, and PayPal has had its issues with those.
Dwolla touts that its biggest security draw is that your personal financial information is never shared with the other party. All they get is either your email address, Dwolla ID, or phone number as part of the transaction. In theory they have no access to your bank account information or your personal identifying information which limits the threat of identity theft.
One key security difference is with PayPal if you pay with a credit card you have your credit card’s backing if a transaction goes awry. With Dwolla you are sacrificing this benefit to get the lower transaction costs.
3. Customer Service
PayPal has long had a reputation of just horrific customer service. Accounts locked for no reason, accounts banned for no reason, never being able to reach a human being on the phone . . . you name it, PayPal’s had it written about them. That comes with the territory when you are transacting $41 billion in the first quarter of 2013 alone. There just isn’t a way to put enough people in customer service to handle all of the issues (or so PayPal would have you believe; eBay as a whole did earn a net income of $677 million in Q1 of 2013 which would help pay for a lot of customer service reps).
While Dwolla does not list a customer service phone number on their homepage, there is a phone number available once you sign up for an account. Time will tell if Dwolla can live up to customer service expectations.
Should I Use PayPal or Dwolla?
If you are a business that currently accepts PayPal payments then Dwolla is a great alternative. Dropping PayPal’s 2.9% fee alone adds that much margin to your bottom line. If you are a coffee shop or other retailer with a majority of your transactions below $10 then you could accept payments for no charge.
If you normally use PayPal to send money to friends and family from a bank account, then the company has a slight edge because of the lack of fees it charges for any transaction amount. Dwolla charges you the nominal 25 cent fee on transactions over $10.
When it comes to security and getting in contact with either company, it seems that it’s possible to run into some frustration with either company. Dwolla is certainly the cheaper alternative, but PayPal has the most experience.
Which payment method is right for you as a business or consumer? Leave a comment and tell us which and why!