Ben Milne, CEO of Dwolla. (Photo: Lanyrd)

Visa and Mastercard have long dominated the retail payment business (after all, when was the last time you saw someone flaunting a Discover card?). But now, Dwolla*--which recently launched an NYC office--and the San Francisco-based Square may be collaborating to knock the two legacy institutions off their pedestal.

Quartz reports that there may be a deal in the works between the two--one that would benefit both merchants and customers. Square provides a way for businesses to process credit card payments without clunky POS systems; Dwolla allows users to instantaneously transfer money with a flat fee of $.25. By teaming up, the two could really give the dominant credit card processing companies a run for their money.

Writes Quartz:

Square hasn’t replaced credit cards; it’s merely provided a new way to swipe them. That means that merchants are still paying Square 2.75% per transaction, a fee that can’t be tamped down without replacing credit cards altogether....Dwolla charges nothing for transfers less than $10, and a flat fee of $0.25 for everything over that amount. On a $100 purchase, a merchant would save $2.50. For merchants like grocers, who are making only between 1 and 3 percent profit on every sale, that would on average double their margins on a sale.

So: pair an easier way to pay (good for customers) with a cheaper way to transfer money (good for merchants) and you have a winning combination.

Dwolla has hinted at this kind of collab before, saying that they are "agnostic" when it comes to how users pay for goods. Square, meanwhile, recently nabbed a massively lucrative partnership with Starbucks. If Square could convince the coffee king to use Dwolla for its money transfers--touting that miraculously low transfer fee--that could mean big business for Dwolla.

"Dwolla's a lot like another mastercard, another visa, another amex, in that it's a payment option," Jordan Lampe, a communications rep for Dwolla, told Betabeat by email. "Square has built an amazingly simple, beautiful way to accept payment options on the behalf of their merchants. Any proposition that provides a customer with real value is a worthy conversation for any company to engage in."

But, as Quartz notes, "Persuading shoppers will be the harder part." Visa and Mastercard are well-known brands that people have come to trust their money with. It will take a tremendous marketing push to convince customers to trust a little-known company with their cash, but it might just be worth it for everyone involved.

*Disclosure