Step 1: Install the Dwolla extension
First, you'll need to install the Dwolla Magento Connect extension. To do that, login to your Magento's admin section, and navigate the top menubar to System -> Magento Connect -> Magento Connect Manager.(see screenshot)
Since the Dwolla extension if officially hosted by Magento, we can make use of the automated install process. Simply paste the extension's unique ID (thats: http://connect20.magentocommerce.com/community/DwollaPaymentModule) into the "Install New Extensions" section's text box, and hit the "Install" button.(see screenshot)
Magento will list the extension, and show you the version its about to install. Hit the "Proceed" button.(see screenshot)
You'll know the setup is completed when the black/green terminal window on the bottom of the page reads: "Package installed: community DwollaPaymentModule 3.0.0"
Step 2: Create a [free] Dwolla application
Before we enable the Dwolla integration, we'll need to setup a quick (and free) Dwolla application for you site. Simply head over to dwolla.com/applications, and click on the "Create an application" button.
The only 2 fields you'll need to fill out are the Application Name, and Application Website. For the name, put in your store's name. For the website, type in your store's website addrses. Scroll down, type in your PIN in the "Verify your PIN" box, hit the "I agree to the Terms" checkbox, and click "Create your application".(see screenshot)
The last step in this process, is to configure your application to alert your Magento store about transaction status changes. To do that, simply click on the "Edit Features" link inside your application box. Type in your PIN, and switch the "Web Hook Notifications" dropdown to "Enabled". Then, in the "All URL", type in the following while replacing the italicized [YOUR DOMAIN HERE] part with your website's real address: http://[YOUR DOMAIN HERE]/index.php/dwollaPaymentModule/payment/webhook ... Hit the "Update Features" button, and you're all set.(see screenshot)
Step 3: Configure some Dwolla options
Lets head back over to Magento's admin section and configure the Dwolla extension. Hit the "Return to Admin" link on the top of the page. Then, navigate the top menubar to System -> Configuration. Then, open the "Payment Methods" tab from the left menubar. (see screenshot)
Scroll down the page to find the "Dwolla" payment option. First, flip the "Enabled" dropdown to "Yes". Then, fill in your application's key and secret from step 2 into the "API Key" and "API Secret" textboxes, respectively. Lastly, put your Dwolla ID (or whichever ID the money should go to) in the "Send money to Dwolla ID" textbox.
We've also included dropdowns that let you toggle the Dwolla Direct option (read more about Dwolla Direct here), and the Test Mode option. When running in test mode, it is important to remember that you cannot send money to yourself. If you'd like to test your Magento/Dwolla integration, you may set the "Send money to Dwolla ID" to our Reflector account -- that account is programmed to send you back any money you send it (read more about the Reflector account here).