Revolution Money

» see revolutionmoney.com as it lived, on the wayback machine

~ the last words ~

Jason Hogg incorporated the company as GratisCard in April 2007. His father had run MasterCard, so the family knowledge of what a payment network costs to operate was not theoretical, and the pitch he built the business on was that almost all of that cost was rent. Card networks took roughly two percent of every transaction. Hogg's argument was that the actual work of moving the money was worth a small fraction of that, and that a network built from scratch on the internet could charge accordingly.

The money behind him made the claim loud. Steve Case put Revolution LLC in as parent company and sat on the board alongside Ted Leonsis, with Citi and Morgan Stanley among the institutional backers. That is an unusual amount of establishment weight behind a company whose entire premise was that the establishment was overcharging.

There were two products. RevolutionCard was a general-purpose credit card with no account number printed on the plastic and no signature at the register, authorized instead by a PIN, which killed the most common failure mode in card fraud at a stroke. RevolutionMoneyExchange was the peer-to-peer side, a free way to send money to another person online, aimed squarely at PayPal.

On 18 November 2009 American Express announced it would buy the whole thing for about $300 million. The deal closed on 15 January 2010 at a cash price of roughly $305 million, the Revolution Money brand kept operating for another year, and on 28 March 2011 it was switched off.

~ the record ~

~ the interchange pitch ~

Interchange is the fee a merchant pays every time a card is used, and it is the reason a corner shop puts a five dollar minimum sign next to the register. Revolution Money went to merchants with a number far below what Visa and MasterCard charged, and merchants signed up, because the arithmetic on a two percent line item is not complicated when your margin is eight.

The problem was on the other side of the transaction. A payment network needs merchants who accept it and customers who carry it, and neither group has any reason to move first. Merchants will take a card their customers already have. Customers will carry a card the shops already take. Revolution Money spent three years and a great deal of institutional money trying to start that engine from a standstill, which is the same wall that took down every independent payment network before it.

~ what Amex actually bought ~

Buying a competitor at $300 million to shut it down fourteen months later looks wasteful until you read what American Express said it wanted. The purchase was described as an acquisition of a platform and a set of capabilities in online and mobile payments, in a market where Amex had watched PayPal build a decade-long lead with no card network involved at all.

What arrived with the deal was working infrastructure for issuing accounts and settling money between individuals, along with the regulatory footing to do that in every American state. Building that inside a company the size of American Express would have taken years of internal argument. Buying it took one announcement.

~ the rebrand ~

The acquired company was renamed Serve Virtual Enterprises almost immediately, and in March 2011 American Express launched Serve as its own digital wallet and prepaid account. Revolution Money was retired the same month, on 28 March, its customers folded into the new product.

Serve outlived its ancestor by a decade in one form or another, mostly as a prepaid card sold to Americans without a normal bank account, which is a long way from a credit card that was going to cut the interchange rate in half. Jason Hogg stayed on at American Express for a while and then went back to founding things. Steve Case had already returned to the business he is better known for, which is buying his way into the next one.

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