Dwolla starts extending credit (the financial kind) to its members

Soon Dwolla customers will have a new option for paying for stuff online and within their mobile phones: credit. The Des Moines-based startup is launching a credit beta program that will advance customers’ funds for purchases rather than withdraw it from their bank accounts.

Dwolla is partnering with financial provider Alliance Data Retail services to supply the credit lines to its consumer and business customers, and while financing fees will apply, the payments themselves will fall under Dwolla’s simple fee structure: any payment under $10 is free of all charges, while transactions over $10 – no matter how large – cost 25 cents.

Dwolla’s whole mission is to bypass credit card networks and their complex fee structures. This move might seem a bit odd since it’s committed to replacing the credit card with its all-cash network. But Dwolla Credit seems to be more of an extension of the Instant feature it launched in 2011, which allows customers to get instant access to a cash payment rather than wait the traditional three-to-five days for a bank transaction to process. The idea is to create a mechanism for merchants and their customers to settle a transaction immediately but at much cheaper cost than a traditional credit card network, Dwolla said.

Credit is an open beta so Dwolla members and merchants can register for it, but the company stressed it would use the beta trials to fine-tune the product in preparation for a full-scale commercial launch in 2014.