Revolution Money Inc., a fledgling consumer finance company that until now has been known primarily for its free person-to-person transfer system, is poised to deliver to the mainstream its other main product, a credit card with low fees for merchants.
The St. Petersburg, Fla., company, which counts AOL founder Steve Case among its backers, announced Tuesday a merchant acquiring pact, with Fifth Third Bancorp's processing unit. The deal means Revolution's Internet-based network, pitched as a low-fee alternative to Visa, MasterCard, and others, is set for a meaningful marketing test.
The RevolutionCard model is built around two features aimed at reducing costs: improved security and streamlined back-end systems. Its cards contain no personal information and require holders to enter a PIN to authorize transactions, a setup that reduces the chance of card misuse. While analysts say the setup will likely attract merchants, they were somewhat divided on whether consumers would take to the cards.
Jason Hogg, Revolution's founder and chief executive, said in an interview Tuesday that Fifth Third gives RevolutionCards access to several thousand merchant sites. By yearend he is planning on getting that number to a million. He also hopes to have a million people using his company's cards and its MoneyExchange person-to-person system by yearend.
A critical part of the security strategy is the generic nature of the cards; they do not bear the customer's name or account number.
"Our cards are anonymous," Mr. Hogg said. "They don't actually contain any personal information on the card."
Using a PIN to authorize a transaction "is unique on credit, but it's certainly not unique as a technology," he said.
The cards are issued by First Bank and Trust, a unit of Fishback Financial Corp., and Union State Bank, a unit of U.S.B. Holding Co. Inc. handles the settlement.
Revolution routes transactions over a secure Internet connection and has built its own processing network. Mr. Hogg said the network is less expensive to operate than the closed ones used by the big card companies.
"We take the transaction from Fifth Third and we are able to process it end to end," Mr. Hogg said. Revolution charges merchants a fee of 0.5% of the purchase to handle RevolutionCard transactions. Though Revolution uses an Internet-based back-end system, it was designed to work with the standard acquiring systems to make it reach merchants.
Fifth Third delivers the transactions through its Jeanie network to Revolution, which authorizes the transactions. Angela Brown, the senior vice president and general manager of financial institution services for Fifth Third Processing Solutions, said Jeanie was built to handle PIN authorizations for automated teller machine and debit transactions, so it was easy to let Revolution use PINs for its credit purchases.
The Cincinnati acquirer handles card payments at 150,000 merchant locations, and Ms. Brown said customers have been very interested in accepting RevolutionCards.
She declined to identify any of the companies where the cards can be used now, but she did say that among the companies her sales team has approached, only "a handful" were uninterested.
Because Fifth Third is acting as a gateway processor, she said, her company can also connect Revolution to other merchant acquirers.
Mr. Hogg said that he has signed other acquiring agreements, though he would not name the other acquirers.
His company has relationships with several major banking companies. Citigroup Inc., Morgan Stanley, and Deutsche Bank AG have all provided funding. It main backer is Revolution LLC, an investment company headed by Steve Case.
The second hurdle for Revolution Money will be persuading people to use the cards, and Mr. Hogg said it is working with several merchants to provide incentives. One example he mentioned involves talks with a cable company (which he would not name) to offer consumers free HBO access when they pay their bills with a RevolutionCard.
The MoneyExchange system lets users send payments to one another for free through AOL's Instant Messenger. Mr. Hogg would not give any details on MoneyExchange's progress Tuesday.
Avivah Litan, a vice president and research director at the market research company Gartner Inc., said that requiring a PIN would keep fraud on the cards substantially lower than on traditional credit cards.
"PINs definitely lower the fraud. Consumers like PINs, so the only ones against PINs now are the banks and the issuers" that make more money on interchange revenue for transactions authorized with signatures, she said.
Ms. Litan said Revolution Money is on the right track with its incentives. "Free HBO is a good start."
Merchant acceptance is a given, she said. "The merchants are dying for an alternative, low-cost, ubiquitous solution where they don't have to change their processes."
Red Gillen, a senior banking analyst for the market research firm Celent LLC, said the biggest challenge will be getting enough merchants to offer such incentives. "Are you going to have to set up 150,000 different rewards schemes? It's complicated, but that's what they have to do."
