- The Washington Times - Thursday, November 19, 2009

In business, sometimes opposites do attract.

American Express agreed to buy startup rival Revolution Money for $300 million from AOL co-founder Steve Case’s investment firm on Wednesday, marrying the most prestigious credit card issuer with the lowest-cost issuer.

Revolution Money’s Internet platform processes payments inexpensively, the company says. Its cards charge merchants a flat interchange fee of half a percent of customers’ purchases - one-fifth of what American Express charges.

The four-year-old company’s cards enhance users’ security through the use of a personal identification number (PIN) and the absence of a name, account number or signature.

Its MoneyExchange is an online payment service that allows consumers to send money online to friends and family at no charge, said Ted Leonsis, chairman of Revolution Money.

“We’re PayPal meets MasterCard without the high fees,” he told reporters and editors of The Washington Times on Sept. 30.

Mr. Leonsis is owner of the Washington Capitals hockey team and also an AOL co-founder.

During that interview, he was sharply critical of the credit-card networks, including American Express, for their antiquated technology and monopoly behavior, which he called a “silent tax” on business.

A hockey fan could buy Capitals season tickets for $10,000, and if he puts it on an American Express card, “we could pay $500 to American Express,” Mr. Leonsis said.

“So what Revolution Money does is, we go to the merchants and say, ‘Accept our card; in fact, market our card for us, and you’ll save in that transaction $450, you keep half, prop up your margins and profit, and right away give the other half to the guy who’s using the card.’ ”

The company, which started as GratisCard and sold a controlling stake to Mr. Case’s Revolution LLC in 2007, says it has 300,000 customers and that its cards are accepted at nearly a million locations, such as Barnes & Noble, Whole Foods Market and Murphy Oil.

American Express will be able “to go into new markets with a lower-cost product without compromising [its] premium image,” Janney Capital Markets analyst Thomas McCrohan said in a research note.

The iconic financial services firm charges merchants, on average, more than 2.5 percent of each transaction, the highest in the industry.

“We have built a next-generation payments platform that will enable American Express to compete even more effectively, especially against online competitors,” Mr. Leonsis said Wednesday. He will stay on as a special assistant to American Express Chief Executive Officer Ken Chenault to help with digital applications.

Jason Hogg, founder and CEO of Revolution Money, will stay in that position.

Mr. Chenault said the acquisition will help his company stay on the “cutting edge” of a rapidly changing industry, and will be followed by more purchases.


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