Payments Network Dwolla Raises $16.5 Million Series C From Andreessen Horowitz & Others, Expands To San Francisco

Building new infrastructure for digital payments may not sound sexy, but it’s an area that’s ripe for innovation. The legacy payments networks in existence today are bogged down with outdated technology, slowing progress. Des Moines-based Dwolla decided that the way to innovate in payments was to essentially blow up the outdated?infrastructure?entirely and start over by building out a new network from scratch. Today, that work has scored the company $16.5 million in?new funding, in a Series C led by Andreessen Horowitz. The company’s?previous?investors, Village Ventures, Thrive Capital, and Union Square Ventures also participated in the round. Dwolla is sometimes confused as an alternative to PayPal – and though it may compete with PayPal more directly on some initiatives, like MassPay which undercuts PayPal’s fees on a service business’ use in lieu of writing checks – that’s only a result of the new payments infrastructure the company has built, not the entire vision in and of itself. Last year, for instance, Dwolla launched a number of new products that are helping propel the business to the next level, including not only its own mass payments service, but also FiSync, a real-time alternative to ACH payments, plus a partnership with the state of Iowa to process an initial $130 million in taxes, and a partnership with?mobile banking and payments service provider?mFoundry, which put the service in front of that company’s more than 800 bank and credit union partners interested in offering real-time, peer-to-peer payments to their own customers. Today, Dwolla’s annual transaction processing run rate has topped a billion dollars; the company has grown at 15 percent month-over-month to reach a quarter-million account holders up from 80,000 in early 2012,?and it has brought on more than 100 large customers, including both enterprise and government. But getting to this point was not easy. Explains CEO Ben Milne, the company found that some things it tried worked better than others. For example, trying to disrupt payments with a consumer-facing product has been tough. “We found that retail is a really hard place to convert users in terms of getting them to pay with another payment form,” Milne admits. Along these lines, the company had launched various efforts both online and offline to encourage consumers to pay using Dwolla instead of traditional means like cash, checks or credit cards. While Dwolla’s efforts here continue today, they haven’t been the areas of growth which led to

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