Revolutionary Money: Upstart Challenges the Credit Card Industry

Sam Gustin reckons that Jason Hogg, the chief executive of Revolution Money, is about to shake up the credit card industry with the RevolutionCard, which aims to be a bank-secured PayPal killer.

Revolution Money, an offshoot of former AOL boss Steve Case's Revolution investment vehicle, is part online-payment platform, part credit-card company, with a compelling hook: a Web-linked physical card with drastically lower fees than traditional credit card companies like Visa and MasterCard.

The standalone company has received over $50 million in funding from Citi, Morgan Stanley, and Deutsche Bank and is poised to tap into the frustration felt by many merchants forced to pay two to four percent interchange fees on every credit card transaction.

"We're PayPal meets MasterCard without the fees," Hogg told Portfolio.com recently.

Because the company uses its own internet-based payment processing system, instead of traditional credit card clearing networks, RM is able to offer significantly reduced fees -- one half of a percent -- to merchants.

Those merchants, in turn, can take the savings and funnel them back to consumers in the form of discounts and rebates, which create a built-in incentive for consumers to use the RevolutionCard.

"You might get ten cents off a gallon of gas, or a premium cable channel thrown in just for using the RevolutionCard," Hogg said. "It's immediate gratification for the consumer." Hogg expects to have 1 million merchants signed up by the end of the year.

The second part of the business, MoneyExchange, is a secure online payment system that allows consumers to instantly transfer money online for free. Last year, the company launched a MoneyExchange application on Facebook which allows users to easily transfer funds to their friends. The company has also partnered with AOL's instant messenger service to allow users to transfer money while they're chatting.

Revolution Money, which is part of former AOL chairman Steve Case's Revolution LLC family of companies, has attracted a formidable roster of financial backers and board members. Besides Case, the board includes longtime AOL executive Ted Leonsis, who serves as chairman, former U.S. Treasury Secretary Larry Summers, former Fannie Mae chief executive Franklin Raines, and David Pottruck, the former chief executive of Charles Schwab.

"If we succeed at this, we will have many exit opportunities, because the numbers are so big," Pottruck said.

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