UND grad helps develop mobile payment system

• Shane Neuerburg

Shane Neuerburg, founder of online payment system Dwolla, poses for a portrait in his home on June 3, 2011. (Christian Randolph/Grand Forks Herald)

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• ON THE WEB: Dwolla

Shane Neuerburg says he has an annoying habit of forgetting his wallet when he leaves home.

The UND graduate and software developer was searching for a way to help a friend’s online business avoid paying expensive credit card interchange fees. The solution led Neuerburg and Ben Milne to form technology startup company Dwolla two years ago.

Dwolla Corp. has developed a Web-based payment system allowing consumers to pay for purchases at participating stores using mobile devices. No Grand Forks or Fargo retailers are accepting Dwolla payments yet, but the company’s innovative approach holds the potential to help shape the way consumers shop, pay bills and share money in the future.

“It happens to me probably once a month that I forget my wallet,” Neuerburg said. “I never forget my phone, but I always forget my wallet. That was one of the leading drivers in making our mobile apps.”

Des Moines-based Dwolla — a combination of the words “web” and “dollar” — is the first payment network to combine online, mobile, location mapping and social media technologies to transfer funds or make payments.

Consumers and businesses can use Dwolla’s web-based platform to share money with social networking contacts and other individuals and businesses. Users can also use locator maps on their web-enabled mobile phones to find participating retailers who accept Dwolla payments and pay for purchases on their phones. The company also has free apps for Apple, Android and Windows 7 phones.

Stores and individuals accepting payments or funds through Dwolla pay a flat 25 cent fee per transaction (the sender can choose to pay the fee instead). In most cases the service’s fees end up being much less than the 1-3 percent surcharge traditionally charged for most money transfers and intercharge fees of 2-5 percent (with an additional 30 cent per transaction charge) paid by retailers for accepting credit or debit card purchases.

“The more we dug into it, the more we realized there was an unfilled market,” said Neuerburg, who graduated from UND in 2008 with a bachelor of science degree in computer science. “Online there is no cash option and if there is, you have to pay the same fees as with a credit card. You could theoretically move money on PayPal, but you will get charged the same rate as with a credit card. We are the only real online cash option.”

Neuerburg, 25, the chief architect behind Dwolla’s unique mobile cash platform, is another in a long line of entrepreneurs and new business startups with UND ties. The Center for Innovation at UND has helped foster more than 500 new business startups since its founding in 1984, although Dwolla did not take advantage of its resources. The university is also gaining a growing reputation for how it promotes innovation and entrepreneurship.

“We certainly are not at the level of an MIT or a Stanford, but we’re much better than most,” said Bruce Gjovig, the Center for Innovation’s director. “We are very likely in the top 50 colleges in the nation in terms of fostering entrepreneurship. That puts us in a very elite group amongst the top 2 percent of colleges in the U.S.”

Dwolla refining its services

It currently takes two to three business days for a funds transfer from a Dwolla user to clear. The user now has to create a Dwolla account and load that account with money transferred from a bank account.

The company’s new FiSync technology that allows Dwolla users and retailers to link directly to their accounts with participating financial institutions makes it possible for funds to be immediately transferred from one bank account to another. The technology is only available to members of one Iowa credit union now, but more than 10 financial institutions are in the future pipeline and company spokesperson Jordan Lampe said he expects it to be available at more than five banks or credit unions by the end of the year. It is expected to take a little longer to get the nation’s largest banks signed up, though.

“This is a game-changer,” Neuerburg said. “As far as we know no one else is doing this. It will be like moving cash remotely without having to go to the ATM and pull out $20 to make a purchase.”

The company announced Tuesday the release of its “Grid” authorization technology, which will allow for online fund transfers and payments to be made without the need for merchants to store vulnerable credit card or personal information about customers. The company says the new technology will better safeguard consumers’ personal information.

“If Visa could blow up their current payment model and start over today, would they build a network that requires users to exchange critical financial data in order to buy a bagel?” Dwolla co-founder and CEO Milne asked. “What technologies and methods could Dwolla implement today to scale against fraud tomorrow? Although Dwolla has always been a payment network, Grid’s release will legitimize Dwolla as the secure cash option in the emerging mobile payments industry, and in doing so we’ll no longer be comparable to just PayPal or Square, but Visa and MasterCard as well.”

While Dwolla has a relatively small number of users and retailers signed up (its biggest concentration is in its backyard of Des Moines), the service has registered users in all 50 states and is experiencing double digit growth each month.

“It just makes sense with the way we live our lives today,” said Dwolla user John Meyer, the chief creative officer of Sioux Falls, S.D.-based web consulting firm 9 Clouds. “We don’t carry cash or checkbooks anymore. Society is becoming more mobile. This is only going to continue as we start seeing how mobile technologies will shape our lives in the future.”

Neuerburg, a New York Mills, Minn. native who is in the process of moving from Grand Forks to the Park Rapids, Minn., area to be closer to family, has bigger aspirations for Dwolla beyond just taking its services nationwide.

He said long-term it would make sense to have an integrated point of sales system, like a Near Field Communication chip allowing a mobile phone to communicate with a device at the checkout counter.

While the company hasn’t announced any definite plans for its next steps, Neuerburg said he can eventually envision creating some type of alternative to online bill pay that avoids mailing payments and even potentially a new way of paying for gas at the pump using a mobile phone.

“I definitely see smart phones as the way to pay in the future,” Neuerburg said. “Even Visa and MasterCard, I think they are even going to go that route and eventually move away from plastic cards. I’m not sure how long it’s going to take, but I think the actual idea of a plastic card will eventually go away.”

Schuster reports on business. Reach him at (701) 780-1107; (800) 477-6572, ext. 107, or email rschuster@gfherald.com. Follow Schuster on Twitter at @RyanSchuster.

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