As a child, Revolution Money Inc.'s Jason Hogg liked to build toy houses out of old credit cards.
Today he's trying to build a fifth credit card brand in a market already crowded with issuers, networks, and card products.
The biggest challenge facing Revolution Money, a unit of Revolution LLC of Washington, is finding a way to attract consumers and merchants who have more card options than they need. Mr. Hogg hopes that linking the plastic card with an online transfer service will help set Revolution Money apart.
By yearend, the St. Petersburg, Fla., company plans to link its RevolutionCards with its free, person-to-person money transfer system, Revolution MoneyExchange, which allows people to send one another money through AOL LLC's Instant Messenger program.
Mr. Hogg, Revolution Money's president and chief executive, described the capability as "PayPal meets MasterCard" and said no other card brand offers a comparable product, with a direct link to an open-loop, prepaid account.
"We're starting to see a tipping point where consumers are looking for a payments solution that meets their needs both online and offline," he said. "We're bridging both the online and offline world."
As Revolution Money tries to establish itself, Mr. Hogg said his network — or rather his lack of one — is also a big draw.
Unlike the four other major U.S. card companies, all of which operate their own proprietary networks, Revolution Money transactions are transmitted over a secure Internet connection, and payments are processed with a proprietary system.
Not only does this reduce costs, allowing the company to offer lower merchant fees, it also supports real-time rewards.
Merchants typically pay an average of about 1.9% in fees to accept the four major credit cards. Revolution Money charges 0.5%, and Mr. Hogg said merchants can pass their savings to consumers through rewards and loyalty programs.
Customers can preload the card or apply for a line of credit.
Another feature that might attract security-conscious cardholders is their anonymity, because the cards do not bear the users' names or account numbers, and cardholders authorize purchase using a PIN.
Avivah Litan, a vice president and distinguished analyst at Gartner Inc., a consulting firm in Stamford, Conn., said Revolution Money's chief selling point is security. "Requiring a PIN on every transaction eliminates most of the fraud."
Though he wouldn't how many people have signed up for RevolutionCards, Mr. Hogg predicted that a million people will be using the RevolutionCards and the MoneyExchange systems by yearend.
Analysts said RevolutionCard's security features are likely to appeal to some people, but questioned whether Revolution Money would be able to sign up enough users.
David Robertson, the publisher of The Nilson Report, a newsletter for the payment card industry, said the average U.S. credit card user has 5.4 general-purpose cards. "There's always room for a new pretty face," he said. "But the biggest challenge for" Revolution Money "will be putting cards into the hands of consumers who already have too many cards."
Mr. Hogg said that the appeal of his product is not the rewards, but the instant gratification.
For example, in March, Revolution Money introduced a cobranded credit card with Shipley Energy Co. of York, Pa. The Shipley Group Inc. division rewards consumers for using the cards at its Tom's Convenience Stores with a 10-cent discount on every gallon of gasoline purchased at its pumps.
About 200,000 merchants accept the RevolutionCard, and Mr. Hogg said that number would increase to 1 million by yearend and 2 million by mid-2009. He also said he is in negotiations with a major cable company (which he would not name) that would offer free HBO to consumers who pay their bills with the card.
(Revolution LLC is headed by Steve Case, the founder of AOL, now a unit of Time Warner Inc.)
Mr. Robertson said these promotions are a vital part of its plan to establish itself.
"They've got to come into the market upping the ante, so they can cut through the clutter and try to come up with a compelling proposition," he said.
RevolutionCard's "smart alignment with merchant offerings" was one of the reasons Fifth Third Bancorp of Cincinnati signed a merchant processing agreement with Revolution Money in February, according to Angela Brown, a senior vice president and the general manager of financial institution services for Fifth Third Processing Solutions.
It also gives Fifth Third's merchants another payment option.
The agreement was a big break for Revolution Money, giving it access to Fifth Third's Jeanie network, which handles card payments for 150,000 U.S. merchant locations. Ms. Brown said many Fifth Third customers have expressed interest in accepting the RevolutionCard, though she would not specify how many are actually doing so.
The Jeanie network is also a gateway processor, and connects Revolution to other acquirers.
Whether U.S. merchants are ready for PIN-based transactions is another question. According to Mr. Robertson, about a third of U.S. businesses that accept credit cards are PIN-enabled, but he said it would take at least a decade for the rest to accept PIN transactions.
Mr. Hogg said these PIN-enabled merchants generate 80% of U.S. charge volume. "That's starting to reach ubiquity in my mind. Whether it's debit or credit doesn't matter to me. The fact is that it's PIN-enabled."
Revolution is depending on customer use to drive profits, because it is not underwriting the credit and will have to "share those revenues," Mr. Robinson noted.
Citigroup Inc. is underwriting the card's prime customers; CompuCredit Corp. was underwriting the subprime ones, but Mr. Hogg said that he discontinued Revolution Money's relationship with CompuCredit last month and that he would announce a new subprime underwriting partner soon.
Mr. Hogg said about 90% of his cardholders have prime credit ratings, and he predicted that over 80% would be prime when he hits a million cardholders.
The credit card world is familiar turf to Mr. Hogg. His father, Russell Hogg, is a former president and CEO of MasterCard Inc., and before starting his current venture, Jason Hogg was an executivea at MBNA Corp.
"I'm not thinking we're going to overtake MasterCard or Visa," Mr. Hogg said. "But the industry is significantly large, and consumers are looking for solutions that provide immediate benefits and provide greater security."
Industry experts and analysts agreed with that assessment, though with a caveat.
"I think it could find some traction in the market," Mr. Robertson said of RevolutionCard. "But it's still early, and this is a program that's yet to prove itself."
