- Revolution LLC, an investment company created by AOL co-founder Steve Case, has launched a subsidiary called Revolution Money to offer consumers a secure credit card that has lower fees for merchants and a free online money transfer service.
- The new subsidiary's chairman will be Ted Leonsis, vice chairman emeritus of AOL LLC and majority owner of the Washington Capitals and Washington Mystics.
- In addition, Revolution Money has secured debt financing from Citi to fund growth of its prime consumer loan portfolio.
- Revolution Money's goal, he said, is an "easy-to-use and secure payment system that puts money back where it belongs, in consumers' pockets."
- Generally, when consumers use a traditional credit card the merchant is required to pay the card company an average of 1.9 percent of the total sale, but Revolution Money says its new payment system, based on a secure Internet technology, slashes those fees to 0.5 percent.
- Revolution Money's first two major offerings are Revolution MoneyExchange, a service for social and instant messaging networks that enables consumers to safely transfer funds via the Internet for free; and RevolutionCard, a credit card protected with a personal identification number.
Takeaway: This is interesting on a number of fronts. The reduction to vendors of fees from 1.9% to 0.5%, if it truly affects the market would be a sea change. While I am not saying Visa/Mastercard drop their charge to 0.5% but what if they are forced to go down even 0.4-0.6% over time? That would be quite negative for them.
On the other end, this is interesting from the perspective of a move more and more each year to a paperless society. I know myself, I barely ever use my checkbook anymore and my monthly bills are pretty much automated - I joke that if I get struck by lightning tomorrow, I think my bills would continue to be paid until the bank account goes empty. This move to transfer funds via social networks and instant message is also interesting. It looks like Paypal could have some more competitors coming down the pike.
While I don't think it's a direct threat at this time to these major franchises (i.e. ING Direct didn't kill off traditional banks) it does point to the direction in the future. And with some serious heavy hitters behind this project to boot. (for those who don't know Steve Case was essentially the face behind AOL in it's boom era)
Long Mastercard in fund; no personal position