Koala Pay offers Dwolla tweak

By Sarah Binder

NORTH LIBERTY–Des Moines-based Dwolla is known for offering low transaction fees on mobile-based payments, giving merchants an alternative to paying high credit card transaction fees. However, Troy Miller noticed that customers at his North Liberty shops, Naomi’s Kitchen and Isaac’s Creamery, weren’t benefiting as much as he thought they should be from using the system.

“In the process, what I found out was, if somebody had been using their credit card to pay at Naomi’s Kitchen, and they were getting a 3 percent reward from their credit card, they didn’t have much incentive to use Dwolla,” he said.

Mr. Miller said he typically pays around $750 per month in credit card fees, so he wanted to get more of his customers using Dwolla. He teamed up with Josh Cramer, of Cramer Development, to build a solution: Koala Pay. Their app is currently in development and will enter a beta test period soon.

Koala Pay will allow users to access deals, virtual gift cards, customer loyalty programs and other rewards from participating merchants when they pay with Dwolla. The system hopes to forge a direct connection between merchant and consumer.

“That’s how loyalty should be. A lot of people have wedged themselves in and tried to make the customer loyal to their company,” Mr. Cramer said, referencing credit card companies and daily deals sites like Groupon.

“When payment networks first started, they gave the network to middlemen, which then packaged it with other services and sold it for profit to the merchants that wanted to accept cards,” wrote Jordan Lampe, a spokesperson for Dwolla, in an e-mail interview.

“Today, we can cut out a lot of these middlemen and services with new technologies, better systems and, like our accessible API (application programming interface), new distribution channels. It’s amazing how much money we cut out, simply by reimagining what a 40- or 50-year-old payment architecture would look like today.”

The Koala Pay team was able to build these benefits on top of the existing Dwolla platform using Dwolla’s publicly-available API. Mr. Lampe said Koala Pay is just one of “too many to count” currently building with the API.

“That’s the beauty of our network. When you create a new style of transaction, one that removes the scary stuff, you’re able to make it accessible and open to innovation,” Mr. Lampe said. “Koala Pay is a great example of that.”

Koala Pay hopes to provide additional benefits to participating merchants, beyond increased user adoption and Dwolla’s lower fees. Merchants will be able to gather data about their customers—who just came into the store, what their history of shopping there is, what they just bought and more. The co-founders said these types of analytics have become common in e-commerce, but not in face to face transactions.

“I think with tools like Dwolla we’re able to bring some of that intelligence to the brick-and-mortar system,” Mr. Miller said.

For example, a coffee shop might offer a punch card, but have no idea how that actually impacts customer behavior. Koala Pay hopes to change that.

The co-founders drew comparisons to Starbucks’ popular mobile payment app, the recently-released Dunkin’ Donuts app and an app McDonalds is currently testing in France. While some of the world’s largest consumer businesses are building their own apps, the co-founders hope Koala Pay will be accessible to businesses of any size.

“How do the non-Starbucks of the world get that power in their hands? That’s where we come in,” Mr. Miller said.

They are still working on the exact business model, but the co-founders estimated that participating merchants would pay 2 percent per transaction to use the Koala Pay system.
Neither Mr. Miller nor Mr. Cramer are strangers to entrepreneurship. The pair actually first met at the Johnson County Fair about eight years ago, when Mr. Miller was first launching Naomi’s Kitchen and Mr. Cramer was launching Cramer IT. After reconnecting around two years ago, they became good friends.

“Josh and I both had a passion to see the entrepreneurial community in Iowa City and Cedar Rapids grow,” Mr. Miller said. “We continually found ourselves saying, we should just build something.”

“You need the hustler, and you need the hacker,” Mr. Cramer added.

Mr. Miller, the hustler, said he has talked to around 50 local companies about Koala Pay. They are working to find a pool of businesses to beta-test the app.