Assorted links

1. Dwolla, credit card killer (?), twenty-five cents per transaction.

2. The Invisible Wink.

3. Liquidity premium exceeds carrying costs, photo, or is it the other way around?

4. What is peacekeeping good for? (pdf)

5. There is no great stagnation.

6. EFSF buying up its own bonds, not a good sign.


Why is #6 a surprise? Every shell game requires a second actor to play the "winner" to entice further players.

Why would I pay a transaction fee? My credit card gives me 1% cashback.

That's a good point, however, in a lot of transactions the merchant charges the user a fee to cover the credit card usage fee. Paying rent or tuition come to mind.

If the merchant is going to cover the cost their is no incentive for the customer to use Dwolla, but if the merchant is going to pass the cost along, then there is a significant incentive.

You wouldn't pay a transaction fee. The merchant would -- and 25 cents is much less than the percentage-based fees the major processors charge. You still have no reason to use it ahead of other, cashback granting cards, but merchants may find ways to incentivize its use.

As a rule, you want to have the card that has the _highest_ merchant discount rate that you can qualify for, and you want to preferentially patronize places that do not charge a surcharge. You also want to be aware that V/MC share the MDR with acquiring banks, and therefore don't have as much to pass along to cardholders.

Totally don't get what you're saying in #3. How does this relate to either liquidity our catering costs? I do see how demanding quarters--which are inconvenient to keep around--causes some deadweight loss.

dearime, you're right--the true cost of credit cards is hidden from consumers by laws the card companies have lobbied for that forbid vendors to pass on the credit card fees only to the customers who use credit cards. Perhaps this startup will need to fight those protections in court or through lobbying. If he succeeds, we all win and it should be good for economic growth.

This is the opposite of what's in your best interest. It's basically a big shout-out to Walmart at the expense of the consumer. Consumers want the highest MDR they can get their hands on.

At an average value of $500 per transaction and a fee of 25 cents, $350,000,000 means Dwolla are on track to make $175,000 for the year. And that's without taking expenses into consideration. Good luck to them and all that, but at fewer than 2000 transactions per day, I suspect it's going to be an uphill struggle.

I would be delighted if somebody was able to come up with something to challenge the card industry's hegemony, but I'm really not sure this is it -- and the amount of attention they're getting is leaving me scratching my head a little, especially when you start considering the figures involved.

What leads you to believe $500 is a typical transaction?

Milne is quoted in the article as saying that currently, (~) $500 is the average transaction size. I'm assuming that this is the mean average.

It also helps that the other numbers presented in the article are also consistent with a $500 average transaction size.

These articles are going to generate a lot of interest for them. It'll be interesting to see how they do -- but they're still going to need to scale an awful lot more before the numbers start to make sense (or at least, my reading of them).

The large transactions are the low-hanging fruit for their fee model. It is no surprise that the early adopters are people making large transactions. However, if their system catches on in e-commerce, the average transaction size will drop a lot.

Entry into this business is difficult, but it seems to me that if any business model can do it, theirs can. The much lower prices on large transactions give a certain group of people a large incentive to use them. Later on, they can build on this base of acceptance to move into the more general market. They have a slight price advantage over PayPal even for the smallest transaction.

The article says the company consists of 12 employees. So they don't need to go to far to be profitable. $175K/12 = $14.5K a year is going to cover costs, even in Des Moines. However, if they can grow their business by a factor of 10-12 and only add in another 3 to 4 employees, they'll be profitable. There is a lot of money in credit card transactions to chase around.

1. They call themselves a credit-card killer, but the examples (rent, business to business) are competing with checks and other ways of doing ACH.

Contrary to Dwolla's claims, PayPal did try to do exactly the same thing. It failed probably because of failure to differentiate the two products. Or because ebay is was not really interested in expanding.

BTW - Dwolla is/was the primary way to get money to the bitcoin market from the US.

Not so certain of the 'is' part. Who is on board besides mtgox? mtgox has volume of transactions, but also ingress and egress? not so sure

2. Are people who see "invisible winks" potential Straussians? I chuckled at the commentator who asked how Sullivan's invisible wink is different from plagiarism.

Thanks for the comment on the invisible wink. I had never heard of it before. It seems to me that the invisible wink is an interesting generalisation of the dog whistle.

The whole dog whistle thing is nonsense. I've heard leftists bring it up in accusations of racism (constantly), far more often than I have heard any actual dog whistles or invisible winks.

I think a major part of the problem is the median which leans left runs the debates so they ask lots and lots of questions that republicans don't really care about. They think they are asking gotchas, but they aren't smart enough to do that, they are just asking the same questions that left wingers have asked right wingers in debates for the past hundred years, ad nauseum.

I agree--nonsense. Accusing your opponent of having a secret hidden message is an ad hominem attack. It is nothing more than an underhanded way to tar one's opponent and take legitimate issues off the table.

It is no defense to say that sometimes it is true. Yes, some people are secretly racist--but this does not justify accusing someone of racism without evidence.

1. Are they following all federal regs? There have to be OFAC issues here, right off the bat. And this isn't the same as credit card at all. It's just a clearing house. Credit cards, as the name implies, offer credit.

A large fraction of CC users just need a clearinghouse and no real credit.

Yes, but those people usually get points for those transactions, as Dearieme states.


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