A Forrester Research report analyzes the early successes and failures of Apple’s mobile payments system.
American Express today announced plans to acquire Revolution Money, a competitor to Visa and MasterCard that offers merchants lower fees. American Express says the deal will help it offer new products, especially for Internet and mobile payments.
American Express Co. said today it would buy fledgling payment card network Revolution Money for $300 million and use it to develop new ways for consumers to pay online and through mobile phones.
“While Revolution Money is a young and relatively small company, we believe it has big potential,” says Kenneth I. Chenault, chairman and CEO of American Express. “This is a smart, nimble business. It’s run by an accomplished management team who have quickly developed some cutting edge e-payment offerings. Joining with American Express will help unlock their potential, while allowing us to deliver competitive online payment products more rapidly and efficiently.”
Chenault says initial areas of focus will include introducing new products for AmEx cardholders who currently use other alternative payment systems, creating payment products for use on social networks and developing mobile payment products.
While four-year-old Revolution Money has always positioned itself as an alternative to Visa and MasterCard, in the online world its targets also include PayPal, the most widely accepted of web-based alternative payment systems. Revolution Money CEO Jason Hogg appeared to be referring to PayPal when he commented in a conference call today, “There is a mega-competitor that has created a great business model online.” AmEx declined to elaborate on the comment.
The power of a well-known company like American Express with a nearly $50 billion stock market value could make Revolution Money a serious rival in online payments relatively quickly, says payments consultant Steve Mott. “Up to now, alternative payment systems have been bootstrapped from the bottom up, and, even with PayPal, it’s take a lot of time and effort to gain traction,” Mott says. “If AmEx prices these services reasonably-a big ‘if’ historically-a company with their brand power and market heft could penetrate the market much, much faster.”
Low price for merchants has been a key selling point for Revolution Money. The company charges merchants only 50 basis points, or one-half percent of the value of a purchase, when the consumer pays with a Revolution Card. That’s typically a savings of 120 to 180 basis points (1.2-1.8%) over Visa and MasterCard fees, says Allen Weinberg of payments consulting firm Glenbrook Partners. If AmEx, which charges merchants even more than Visa and MasterCard, keeps the price low, it could be attractive to online merchants, Weinberg says. “But even if it’s priced low today, is it going to increase over time?” Weinberg wonders.
An even bigger question is whether Revolution Money will ever be a significant enough player for online retailers to bother with. Parent company Revolution LLC has attracted a lot of media attention, in part because AOL co-founder Steve Case created the company. Revolution Money’s strategy has been to offer merchants low fees and encourage them to offer rewards to get cardholders to sign up and use the card. The company claims 1 million merchants now accept the Revolution Card. Company executives have not disclosed how many Revolution Cards have been issued, although company CEO Hogg says it attracted about 400,000 cardholders during a trial marketing campaign about a year ago, before scaling back those marketing efforts to focus on technology enhancements.
Revolution has announced only a few online merchants, notably Buy.com, No. 33 in the Internet Retailer Top 500 Guide (a PDF version of the company’s financial and operating profile can be ordered by clicking on its name).
“AmEx’s acquisition should bring additional funds to help further develop the platform and market Revolution Money to consumers,” says Greg Giraudi, chief operating officer of Buy.com, which says it was the first e-retailer to accept the Revolution Card, starting in November 2007. “Revolution’s focus for the Revolution Card has been merchant adoption, which has significantly grown over the years as the Revolution Card provides significant benefits to merchants.”
Revolution announced a deal in September 2008 with online payment processor CardinalCommerce Corp. to promote acceptance of Revolution Card on the web. CardinalCommerce did not immediately respond to a request for comment on its progress in signing up e-retailers to accept the Revolution Card, which requires cardholders to enter a four-digit personal identification number when making a purchase.