The St. Petersburg, Fla. company, which started its RevolutionCard two years ago, started telling some cardholders this month that their accounts had been closed to further use "as part of the process of adding an additional banking partner to our network."
Revolution would not identify the new partner or explain why its addition led it to close accounts. But that action, though not out of step with the card industry retrenchment trend, is counterintuitive for a company that has spent the past two years establishing itself as an alternative to traditional networks like Visa Inc. and MasterCard Inc. and their issuers.
A year ago, Revolution was "making a lot of speeches, a lot of inroads. A lot of people were talking about them because they had a different model for merchants," said Brian W. Smith, a former general counsel at MasterCard and a former chief counsel at the Office of the Comptroller of the Currency who is now a partner at Latham & Watkins LLP. But "this is a very difficult time for the card companies, and the extension of consumer credit. With the new regulations, compliance costs are going up, and there's the increase in delinquencies. … I could see where it would be a very stressful period to get moving."
Revolution has tried to compete with the traditional networks by offering a relatively low transaction fee to merchants; its 50 basis points per transaction is generally lower than the interchange rates set by Visa and MasterCard. It has also pitched consumers with discounts at retailers and greater security features; unlike conventional credit cards, the RevolutionCard does not bear the user's name or account number, and instead of signatures, transactions are authorized with a PIN.
Revolution's only disclosed issuing relationship so far is with First Bank and Trust in Brookings, S.D., a unit of Fishback Financial Corp. And First Bank has stayed largely behind the scenes: Revolution is a network like Visa or MasterCard, but it also functions like the main provider of the cards, similar to prepaid companies or retailers who outsource their private-label cards. For example, Revolution's brand name or those of its merchant partners dominate the cards, and First Bank's name appears in small print on their backs. (Revolution's Web site still identifies First Bank as the issuer of all its cards; Fishback did not return calls.)
But Revolution, a unit of AOL co-founder Steve Case's Revolution LLC, also has acquiring and underwriting relationships with banking companies including JPMorgan Chase & Co., Royal Bank of Scotland Group PLC, Fifth Third Bancorp and Citigroup Inc., the latter of which is also an investor. A Citi spokesman said it is not the new banking partner, and a spokeswoman for Fifth Third reported "no change" in its relationship with Revolution. A spokeswoman for Citizens Financial Group Inc., RBS' U.S. arm, also reported no change in its relationship with Revolution. JPMorgan Chase did not respond to queries.
A statement from a Revolution spokesman said, "Customers, most of whom have inactive accounts, were informed that they no longer qualify for the existing credit line offered by our company. This policy change impacts only 2% of account holders."
But its e-mails to cardholders, not all of whom were inactive, gave differing impressions. Revolution told some cardholders that it was shutting down some products as part of the transition process, and it invited these cardholders to reapply. Other cardholders were given different reasons — and not invited back.
