Revolution Money Expects to Gain Traction Early with Merchants

The electronic payments venture formerly known as GratisCard Inc. added more muscle this week with a free person-to-person payments service, a credit card, new bank partners, and a new name to boot. Now called Revolution Money, the payments system founded by an investment firm created by America Online Inc. co-founder Stephen Case is attracting bank issuers and investors, but it's still not known if it will gain traction with merchants despite its low acceptance costs. Still, the fledgling company has high ambitions for acceptance of its Revolution Card. “We are working to have about 100,000 [merchants] over the next few months and 1 million within 12 months,” a Revolution Money spokesperson tells Digital Transactions News via e-mail. Though Revolution Money's success is far from assured, the firm has more money and more management experience than most startups in the payments market, not to mention a business plan with solid potential. “If you put everything together, it is a great strategy from beginning to end,” says Adil Moussa, an analyst at Boston-based research firm Aite Group LLC. Revolution Money claims its P2P service, called Revolution MoneyExchange, is the first online payments platform for social and instant-messaging networks. It allows consumers to transfer money using the automated clearing house network after registering on the revolutionmoneyexchange.com Web site. A by-invitation-only test version of the service launched this week, with the AIM service of AOL, as America Online is now known, as the first disclosed partner. AIM is the largest-instant messaging community in the United States, according to a Revolution Money news release. Starting this fall, AIM users will be able to download a software plug-in to make payments via instant message directly from their AIM Buddy List feature. Sending and receiving payments is free, as are electronic withdrawals and deposits. Check withdrawals and paper statements cost $2.50 and $5. Overdraft and ACH returns are $35 per transaction, while stop-payment fees are $20. Sioux Falls, S.D.-based First Bank and Trust offers the accounts. The oblong credit card, meanwhile, differs from conventional cards in that it doesn't carry the cardholder's name or account number, a feature that Revolution Money claims greatly reduces the chances of identity theft. Cardholders also must enter a PIN to initiate a transaction. Issuing partners are CompuCredit Corp. for subprime customers and Citigroup Inc. for more creditworthy applicants. The card's big selling point for merchants, as the company disclosed this spring, is its 0.5% interchange rate, about a third of the average bank card interchange rate most merchants pay. Revolution Money also is touting its Web-based processing platform, which it says easily integrates with point-of-sale payment systems. Back in March, Revolution Money said its test merchant site was the Wachovia Center sports and entertainment complex in Philadelphia. Now it's testing online, credit, and gift card versions of its system in several different categories, with the largest current acceptor being Northwest Airlines. The settlement bank is Union State Bank of Orangeburg, N.Y., and Revolution Money has brought in Cincinnati-based Fifth Third Bancorp's Fifth Third Processing Solutions, one of the nation's largest merchant acquirers, to sell card acceptance to merchants. And, says one observer, therein lies the potential pitfall: Can the issuers crank out enough Revolution cards to make acceptance worthwhile for merchants, even if transaction costs are low and processing supposedly easy? “That's going to be very crucial,” says Aite's Moussa. The actual ease of implementation isn't widely known yet, and Moussa notes that large retailers dealing with multiple systems upgrades and related tasks simultaneously may need a year to get Revolution card acceptance implemented. “I haven't seen anything as to how they [Revolution Money] are going to do it,” he says, adding that the quickest way may be to bring in the services of a gateway. Though its business model is promising but unproven, Revolution Money has two things many payments startups don't: deep pockets and experienced management. The company, a unit of Washington, D.C.-based Revolution LLC, an investment firm Case founded in 2005, recently obtained $50 million in new financing through several banks and investors. The spokesperson would not reveal Revolution Money's total investment. Revolution Money's chief executive officer is Jason Hogg, formerly of MBNA Corp. His top management team includes other bank and card veterans. The board of directors includes his father, Russell Hogg, the former chief executive of MasterCard International Inc. Other directors include Case, former U.S. Treasury secretary Lawrence Summers, and the former heads of Fannie Mae and Charles Schwab. The chairman is Ted Leonsis, vice chairman emeritus of AOL and majority owner of the Washington Capitals and Washington Mystics, and minority owner of the Washington Wizards.