The Digital Skeptic: Apple Saw Truth About Making iPhone 5 a Credit Card

It's still a network, stupid
Milne explained to me -- patiently, I might add; this is complex stuff -- how his ultra-low-cost financial transaction services company, based in Des Moines, Iowa, bypasses something called the Automated Clearinghouse network. The ACH dates from the 1970s and is what traditional financial institutions tend to use to move money. Instead, he has adapted how the financial network's large companies themselves used to move funds internally.

And the savings for moving cash are staggering.

Dwolla takes no stiff fees and asks for no percentage cut of the action. There is no cost for equipment. In fact, there can be no costs at all. Transactions of less than $10 are free. Above that, it's 25 cents each. Not 25%. Just a flat fee of 25 cents per transaction!

Even at these dirt-low rates, Milne's Dwolla is making major wampum. As of April, it reports 100,000 users and 15,000 Dwolla-associated merchants. And when I test the system, it definitely works. The company recently locked down $5 million in funding from backers such as Union Square Ventures and A-Grade Investments. (That's the one with Ashton Kutcher's money.)

"We now have the resources to fully explore this new approach to moving money," Milne says.

A fraction of a penny for your thoughts
And here we go again, friends, looking at yet another market taking a fatal digital bullet. Dwolla is is making a heck of case that digital funds transfers on a network are just like digital music, books and legal expertise on a network -- nothing more than commodities nobody can charge much for.

So the lucrative fees smartphone makers are betting on probably will not materialize.

Which, by the way is the M.O. at Apple. Even Apple partisans such as the Apple Insider blog openly agree digital content services such as iTunes are essentially break-even affairs for Apple. That means that when iCashRegister or iMoney or whatever it winds up being called goes live, it will probably be just another digital content loss-leader to drive the sale of iPhones, iPads and iPods.

"It just is not that hard getting money from one person to another," Milne say. "It's a simple thing."