(November 18, 2009) American Express Co. is acquiring Revolution Money Inc. for $300 million in a move the two companies say will help the travel-and-entertainment card giant move into next-generation electronic payments while providing a major boost for Revolution’s nascent Internet-based payments platform.

The deal enhances AmEx’s position in the alternative-payments niche, but it marks the end of Revolution Money as an independent company that openly challenged the payment card status quo with backing from an investment group that includes America Online founder Steve Case. Just last month, Revolution Money announced $20 million in new financing and said that Fifth Third Bancorp would issue Revolution cards (Digital Transactions News, Oct. 20).

One analyst sees the deal as a victory for the entrenched payment card networks over a challenger. “What this is showing is that it will be very, very hard to replace the card networks,” says Adil Moussa, an analyst at Boston-based Aite Group LLC. “What the card networks are doing is working” despite merchant complaints about high interchange rates, he says.

Revolution Money came with the promise of charging merchants probably one-quarter or one-third of what the other networks charged, “but they have had a heck of a hard time to convince anybody to jump in,” Moussa says. “They’ve had a really hard time finding cardholders, and they were able to get merchants only by joining Fifth Third [Bancorp’s acquiring subsidiary] and being offered as one extra option. They really had a big challenge.”

By acquiring Revolution Money, AmEx eliminates ”unnecessary competition” from the market while gaining access to its technology, Moussa says.

Under the acquisition agreement, St. Petersburg, Fla.-based Revolution Money will operate as an AmEx subsidiary and be the first component of its recently formed Enterprise Growth organization, AmEx chairman and chief executive officer Kenneth I. Chenault said in a press conference Wednesday morning. Jason Hogg, Revolution Money’s founder and chief executive, will continue as president and CEO. Ted Leonsis, Revolution Money’s chairman and major shareholder, will serve as a special adviser to Chenault on overall digital and online payments strategy. The deal is expected to close during the first quarter, pending regulatory approval, Chenault said.

“Revolution Money has room to grow as it competes head-to-head with online and person-to-person providers,” Chenault said. “Joining with American Express will help unlock their potential while allowing us to deliver competitive online payment products more rapidly and efficiently. We’re committed to using our global brand recognition, our marketing reach and our network expertise to help Revolution Money reach a critical mass of customers.”

Leonsis said Revolution would be able to reach more customers under AmEx’s wing. “We believe that by blending this platform and set of technology and applications with the brand, the reach, and frankly the resources that American Express has, we can drive this technology and set of applications to a mass consumer audience as well as to a large and growing online merchant community,” he said.

Last fall, Revolution Money introduced the Money Exchange RevolutionCard, a reloadable card that can be used for free online person-to-person payments to other account holders, for point-of-sale purchases, and for ATM transactions. Revolution Money’s PIN-based credit card charges merchants a flat 0.5% per transaction. The card bears no identifying information or account numbers.

Revolution Money’s products target the “new consumer that lives his life on the ‘Net and has become very comfortable with moving money around and having payments on a different format, be it their laptop, be it their mobile device,” Leonsis said.

Once the deal is final, AmEx will work with Revolution Money “to make the most of our respective strengths,” including developing reloadable prepaid products for new market segments; introducing new products to AmEx cardholders who currently use other alternative payment systems; and creating payment alternatives for social media sites, Chenault said. AmEx also plans to allow open application programming interfaces (APIs) that can help software developers distribute new products, and will be developing mobile payments solutions in the U.S., he said.

AmEx also plans to extend product offerings to the banks that issue cards on the American Express network and create new forms of PIN-based debit products, though it wasn’t immediately clear if banks, which as credit card issuers compete with AmEx, would embrace such products. Besides Fifth Third, Revolution Money already has signed several bank issuers, including First Bank & Trust, Brookings, S.D.; Citigroup Inc.; and CompuCredit Corp. Revolution has merchant-processing agreements with Chase Paymentech Solutions LLC and RBS WorldPay in addition to Fifth Third Processing Solutions.