Dwolla gives immediate access to cash with Instant feature

Dwolla, an alternative payment system built off cash networks, has quietly been on a roll in its first year, hittingĀ $1 million in daily transactions in July. Two weeks ago, the Des Moines, IA start-up eliminated fees on transactions for less than $10, another big step in its bid to replace credit cards.

Now the company is celebrating its first year on the market by introducing a new feature called Instant that addresses one of the lingering pain points in the system: the three to five day delay users face when accessing cash. With Instant, users canĀ deposit money and send cash without the existing wait time built into Dwolla. It will cost users $3 a month to access Instant, a charge that can be opted out of at any time if users aren’t actively using the feature. Users can also have Dwolla pay for an item immediately, up to $500, as long as they pay back the cost within a month. There’s a $5 late fee if people don’t bring their remaining instant balance to $0 by the statement date. But the Instant features gives users flexibility to pay for items immediately, like they do with a credit card and yet not incur big charges.

The idea is that Dwolla is trying to eliminate any barriers to people accessing its network. It’s still going with its main selling point: a 25 cents fee for each transaction over $10. Users can load up a Dwolla balance or connect their account to a bank account. Dwolla still ensures the same type of security by not transferring personal data with each transaction. Dwolla users can pay friends using the system over social networks or pay for goods online or in store.

The Dwolla system is especially attractive to merchants because it caps the amount of fees they pay for transactions. It’s much cheaper than credit card companies, which can take 2-3 percent and 30 cents for each card transaction. This is especially important for businesses that receive larger payments. The feature works online, and will be coming to iOS (s aapl) and Android (s goog)devices soon.

Dwolla CEO Ben Milne

Dwolla still has a ways to go to gain traction and compete with companies like Square, PayPal (s ebay) and the traditional credit card companies. It has about 70,000 users right now, and several thousand merchants using the system. But it’s catching on with business and consumers who approach this next generation approach to payments.

Dwolla CEO Ben Milne told me that the moves are part of an effort to improve the Dwolla architecture, making it faster, easier to use and safe. He said the big opportunity is in being an alternative to ACH payments, which is a $20 trillion market. So far, 89 percent of the transactions are between businesses and consumers with the average transaction more than $400 to $500.

Milne admits the company has a lot to do to get the word out. But he insists being in the midwest has not hurt Dwolla. In fact, being outside of the finance capital of New York or the tech center of San Francisco has allowed it to understand what the average user wants in a new payment system. Now with Instant, Milne hopes Dwolla is at a turning point as it sharpens its message and value proposition for consumers and merchants.