Revolution Money Inc., a new online payment venture, is betting that its system for sending funds through instant messaging software, and its roster of backers, will help it stand out among the alternative transaction providers that are trying to attract users.
On Monday the St. Petersburg, Fla., company said it has developed a free online person-to-person transfer system and a merchant cobranded card that includes both credit and prepaid debit features. Four banks, including Citigroup Inc., are involved with Revolution Money in various ways.
Bankers are increasingly concerned about the growing number of payment options that can be used both online and at the point of sale, and merchants are showing more interest in less-expensive alternatives to standard credit and debit cards. Some of Revolution Money's ideas are similar to systems that are already available.
Jason Hogg, Revolution Money's founder and chief executive, said in an interview Monday that its proprietary payment system uses a secure Internet connection, which is less costly to operate than a dedicated network.
"I find the existing infrastructure of credit cards to be archaic," he said. "We're taking control out of the hands of the card associations and putting it in the hands of the merchants and consumers."
Revolution Money has attracted a marquee lineup of supporters. It began offering its cards in April under the name GratisCard, but it has changed its name to align itself more closely with its primary venture-capital backer, Revolution LLC, an investment company headed by Steve Case, the founder of America Online Inc. (now AOL LLC, a unit of Time Warner Inc.).
Another AOL alumnus, Ted Leonsis, is Revolution Money's chairman, and its board includes former Treasury Secretary Lawrence Summers; David Pottruck, the former CEO of Charles Schwab Corp.; Franklin Raines, the former CEO of Fannie Mae and former director of the Office of Management and Budget; and Jason Hogg's father, Russell Hogg, the former president and CEO of MasterCard International.
Revolution Money is backed by Citi, Morgan Stanley, and Deutsche Bank AG, which participated in a $50 million venture capital round.
Revolution Money began testing the MoneyExchange online payment system Monday. The test is by invitation only now, and will open to the public in November.
Users will be able to send money to each other through the widely used AOL Instant Messenger application, and Jason Hogg said his company hopes to establish relationships with popular social networking Web sites.
Revolution Money will receive no income from person-to-person payments, but it sees the system as a way to win users, he said.
An AOL spokeswoman said it is working with Revolution Money to develop software to support payments. The instant messaging software provides a similar function for users of Obopay Inc.'s person-to-person payment network.
Mr. Hogg said that the RevolutionCard, which is available now, differs from conventional payment cards because it does not carry the cardholder's name or an account number. Instead, the card has reference numbers in magnetic stripes and bar codes that are linked to users' Revolution Money accounts. People can deposit up to $15,000 into the prepaid RevolutionCard accounts. All transactions, including credit payments, require the user to enter a PIN.
Because the transactions travel over Revolution Money's network, the company can offer merchants processing fees of 0.5%, rather than conventional interchange fees that average 1.9%, according to the company.
Citi is Revolution Money's credit partner on prime accounts, and CompuCredit Corp. is the partner for subprime cards. Mr. Hogg said that structure gives his company approval rates as much as three times higher than the industry average for credit applicants.
"We have a broad range across the entire Fico spectrum by having multiple banking partners on the back end," he said.
First Bank and Trust, a unit of Fishback Financial Corp., issues the cards. Union State Bank, a unit of U.S.B. Holding Co. Inc., is the merchant settlement bank.
The company began offering the cards in April in Philadelphia, under the GratisCard name, through partnerships with hockey's Philadelphia Flyers and basketball's Philadelphia 76ers.
Revolution Money's system lets merchants offer both instant issuance at the point of sale and instant rewards. Mr. Hogg described the arrangement as a "multibrand reward network."
For example, the Flyers offer fans a free jersey if they use their Flyers RevolutionCard to buy their season tickets, he said.
The company also expects to announce soon a deal with a cable television company that lets cardholders qualify for free pay-per-view programs or other premium services. And it is working with a gasoline retailer to give cardholders discounts on purchases there.
"The discounts make sense across the entire network. No one else is doing that now," Mr. Hogg said.
Nick Holland, a senior analyst at the Boston consulting firm Aite Group LLC, said that Revolution Money is entering a market that is crowded with alternatives to the traditional card brands.
PayPal Inc., a unit of eBay Inc., grew to dominate online auction transactions because the card companies were slow to provide mechanisms to serve that market, he said, but other vendors are trying to win users in the same markets where Revolution Money hopes to make its mark.
Tempo Payments Inc., for example, offers merchant-issued cards that tout low-cost processing, though they use the automated clearing house system rather than a proprietary network. Obopay offers person-to-person payments through mobile phones.
Whether any alternative providers — including Revolution Money — can overcome the entrenched card networks remains an open question, Mr. Holland said. "I put it down as a curiosity at this point. If Steve Case wasn't involved, I don't think it would get much attention."
