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Financial Software - Tuesday, September 25, 2007

Steve Case's Gratis Card Relaunches As Revolution Card

We ran a solid post on Steve Case's Gratis Card back in May. Now the company has changed its name to Revolution Health and is officially launching with $50M in funding. The company has been formed by Steve Case, Ted Leonsis, Larry Summers, David Pottruck, Russell Hogg. The $50M in funding comes from Citi, Morgan Stanley, Deutsche Bank, Ted Leonsis, Case’s investment firm Revolution.

In addition to the Revolution Card, the startup is launching Revolution MoneyExchange, a Paypal competitor that will work via IM and social networks.

Let's rewind the tape on the story..,

In 2005, Visa and Mastercard generated $25.1 billion in what are called "interchange fees" on more than $1.1 trillion in credit card purchases, an average of 2.2% per transaction, according to The Nilson Report, a payment industry trade publication. Debit cards charge about 1.75%.

What if there were a credit card that charged merchants just .5% (half of 1%)? No chance, right? Visa, MasterCard (now public, NYSE: MA) and the gargantuan banks behind them like JP Morgan, Bank of America and Citigroup, sitting atop 330M credit card accounts, are just too
muscular, correct?

But say the upstart firm (GratisCard, how Revolution Card) is backed by Steve Case's Revolution.com, where Case has put about $500 million of his money to work. And imagine that GratisCard's chief executive, Jason Hogg, not only was a founder of MBNA Canada, now part of Bank of America, but is also the son of credit card veteran Russell Hogg, chief executive of Mastercard in
the 1980s...and on the Board.

And in an era of rising nervousness regarding traditional plastic, say that Revolution Card transactions are encrypted and routed over the Internet.
And customers have to use a personal ID number, which can be changed
regularly, to authorize purchases. The oblong card has no name or account
number embossed on it.

A typical credit card purchase of a $100 pair of pants costs retailers
$1.80 in fees, eating into already thin profit margins. In fact, in 2003,
MasterCard and Visa settled a suit filed by Wal-Mart Stores-- later joined
in a class-action by hordes of other retailers— agreeing to pay back $3
billion in hefty interchange fees.

And yes-- Revolution Card also works within the existing point-of-sale
infrastructure so merchants don't have to buy additional equipment.
Indeed, reducing the costs for merchants gives them more leeway to provide
instant rewards to Revolution Card holders, instead of the profoundly complex
rewards programs that have been foisted upon us for years (and take years
to earn).

Sure, on paper, St. Petersburg, FL-based Revolution Card has no chance. It's
the "Tucker" car, and Visa/MasterCard/The Big Banks are Detroit. But the
web can help disrupt the most calcified of markets.

Read - Ted Leonsis Blog