Look at it this way: Paypal isn't really a bank, and it isn't really a money interchange system. From a modeling perspective, Paypal is one of those kiosks at the airport that profits from turning dollars into dinars or centavos into sheckels. They are a lubricant between two types of currency (virtual and real) and they make their money by being slippery. They'll hit you with a basic service fee for walking in the door, and they'll hit you for a percentage of whatever coin you change. If you're a consumer, it doesn't affect you - same as the credit cards. The pound of flesh that feeds Paypal comes entirely from the seller. And it's fucking odious.

Compare and contrast with, say, Square. My wife has a Square account - it actually allows her to plug directly into the ACH network mentioned in the article. Square is evolutionary, not revolutionary, because it's just a credit card terminal. It's a credit card terminal that costs substantially less than the jurassic monsters you see at paypoints and it's a credit card terminal that you can plug into your iPhone while you sell hemp clothing at the Venice Farmer's Market, but it's still just a credit card terminal. Using Square over a typical credit card service probably saves my wife $500 a month - no small sum, but it's still just more of the same. Square isn't making waves by doing something revolutionary; they're making waves by undercutting the fuck out of the competition while still playing on their ball court.

Dwolla, on the other hand, says "fuck your ACH. Fuck your transaction fees. This shit is way the hell simpler than you make it out to be, therefore we're going to build a completely different infrastructure wholly separate from the ACH and we're going to charge a per-transaction fee. That's it. Give us a quarter and we'll cash your check."

Because that's what this is really about. As with everything on the Internet, innovation is always some form of eliminating the middle man. No different here.

So in 2003, a number of banks said "you know what? It's fucking stupid that in this day and age we have to physically transport checks from one bank to another before we can clear them. I mean, jesus. Fax machines have been antiquated for a decade now." At the time, the only people who gave a shit were private pilots and regional aviation - see, a goodly portion of a pilot's hours-in-seat could be acquired, at a financial wash, by flying checks from one bank to another. Big bags of dead trees in the seats, etc. Which meant that your check became "money" to the banks once it had landed safely in Fargo or wherever. Yeah, they'd extend you credit until then as if they actually had the money, but they didn't:

http://en.wikipedia.org/wiki/Check_21_Act

This was great for the banks because it allowed them to operate on marginal interest much quicker. When the whole of your business is related to making money off of people's money, the more money you have in your possession and the longer you have it, the more money you'll make. Visa/MC/etc were down with it, too - their whole business model is all about making it really easy to get the money out of your pocket and into merchants, whom they hit for 3% (Target has said in the past that bank transaction fees are the single most expensive line item on their balance sheet, above payroll, above insurance).

When Paypal decided to start offering interchange, it was using the existing ACH network with all its expenses. This was okay back then because the alternative to Paypal was money orders (some of us remember trading online in the good old days of Usenet). Paypal was a comparative bargain. When Square came online, they used the existing ACH network. Quicken? Existing ACH network. It works, it's there, it's acceptable, and they've got a shitload of money invested in it so let's keep on keepin' on.

Here comes this kid from Des Moines. He's pissed that frickin' Visa makes 3% of his overhead just for being Visa and says "why the fuck do I need to pay this?" He's right, he doesn't - the Check 21 Act kind of rewrote the whole ACH, it's just that nobody had an incentive to poke holes in it and make it die.

Enter Occupy Wall Street. Enter "everyone hates their bank." The legal infrastructure exists to essentially decimate Visa and Mastercard; there's no reason why your bank can't talk to every other bank on the planet now, since we're all on the same Internet. Going through ACH is kind of like using an analog phone line when you've got a T1 and Skype would cost you nothing. Pulling the plug is an inevitability.

Except there will be hell to pay. That's what this article is setting the stage for "we've got a great idea and we're using it just fine in Iowa and we're going to roll it out across the country because we figured out how." Every major banking network in the country is going to do their level best to prove that Dwolla is not legal, is not sanctioned, and is not possible in the current environment because it will decimate their profits. And Dwolla's gotta know that.

So get out in front of the consumers, set yourself up as Mr. Smith, go to Washington and hope the public furor buys you a healthy, profit-making industry.

They're in the right. They know it. Anybody who isn't a banker can see that. And they're still going to be facing one hell of a fight.

That's how it's different from Paypal.