(June 20, 2008) Nine months after its official launch, Revolution Money Inc.’s PIN-secured credit card is being accepted at 150,000 merchants, a number a top executive at the St. Petersburg, Fla.-based alternative-payments provider says will reach 1 million by year’s end. David Cautin, senior vice president and general manager for online business at Revolution Money, says the company also has a year-end goal of 1 million for number of cardholders, though he won’t say how many consumers carry the card currently. “The company is very comfortable it can achieve those targets based on current performance,” he says.

A former America Online Inc. executive, Cautin says much of the build-up in merchant acceptance has come through the processor’s efforts to recruit retailers as marketing partners, or “distributors,” as the company calls them. In this scenario, a merchant agrees to promote Revolution Money’s card, providing incentives for usage. Merchants may cobrand the card at their option. The card’s chief advantage to merchants is its acceptance cost—0.5% of each purchase amount—which compares favorably to bank card discount fees at a time when merchants are disgruntled about the cost of accepting cards.

Revolution Money’s merchant fee doesn’t vary by volume and is the same for online as well as for point-of-sale transactions. Bank card merchant costs are generally higher for card-not-present transactions, which carry a higher perceived risk. Cautin adds that, since the card requires a PIN, it also reduces chargebacks and other fraud-related costs for merchants. “It’s a cost-saving message that resonates” with merchants, he says. “The response to the interchange-free, PIN-based card is very strong, and universal across the board [among both online and brick-and-mortar merchants].”

The company has been marketing its card to online as well as POS merchants, but will not break out its merchant count by type. Online, cardholders enter their card numbers and PINs at the checkout page. Secure PIN entry for e-commerce has been a much-debated subject lately in the payments industry, and electronic funds transfer networks have been reluctant to allow it, fearing the potential for fraud. Revolution Money says it does not accept merchants that do not encrypt data entered into their checkout pages.

Cautin says the target categories for now are groceries, e-commerce, petroleum, sports, and what he calls home services, a category that includes such providers as cable TV companies and wireless networks. He adds the company may work with third-party sales agents in some categories. Revolution Money’s direct sales force, he says, is concentrating chiefly on the distributor program.

Also helping Revolution Money toward its goal is a strategy of signing gateway agreements with merchant processors. The company signed up Fifth Third Processing Solutions, which serves 156,000 merchant locations, in February to offer Revolution Money acceptance. “We’re working with the processing community to get large numbers of merchants on,” Cautin says. “We’ll have more announcements in the months and weeks to come.” Other alternative-payment processors have also followed this route in an effort to accelerate acceptance. Tempo Payments, for example, cut a similar deal with Fifth Third shortly after it launched its PIN-based debit card in 2003.

To help reach its cardholder goal, the company has made agreements with a number of undisclosed partner banks to underwrite credit. The bank issuing the card is First Bank & Trust, Brookings, S.D. With a variety of underwriting partners, Cautin says, the likelihood of approving an application is higher. “We can look at an application and say which bank is likely to say yes,” he says. A selling point of the card to consumers is that it doesn’t bear the cardholder’s name, making it harder for fraudsters to use it for identity theft. Though the card when introduced last year was oblong-shaped, it has since assumed the dimensions of a standard credit card.

Approving card applicants in high numbers could prove crucial to the fledgling processor’s success. Merchants may be responding favorably to the card’s ultra-low acceptance cost, but many will lose interest in promoting the card if they don’t soon see people using it, analysts say.

One factor in Revolution Money’s favor is the payments-industry experience of its top management. The company’s founder and chief executive is former MBNA Corp. executive Jason Hogg, whose father, former MasterCard International Inc. chief executive Russell Hogg, sits on the company’s board. Backing the company is Revolution LLC, an investment firm founded in 2005 by former AOL chief executive Steve Case.

The company, originally called GratisCard Inc., changed its name to Revolution Money last year.