AOL Founder Case Launches RevolutionMoney–Through AOL


Some more good news for beleaguered AOL: Former CEO Steve Case is using AOL’s AIM platform to launch Revolution Money, a new online payments firm.  According to Reuters, Revolution combines the person-to-person payments of PayPal with a far-less-expensive credit card interchange platform:

The new venture…will let users transfer money to individuals and online merchants for free through its Revolution MoneyExchange service. The payment system is in a pilot stage.

Revolution Money will go up against popular online payment systems such as industry leader PayPal from eBay (EBAY) and one offered by Web-based retailer (AMZN). An initial partner will be AOL, which will let users make payments and fund transfers through its AIM instant messaging service for free, Revolution said.

The company also said it will offer RevolutionCard, a credit card with an interchange fee of 0.5 per cent, compared with an average of 1.9 per cent for other cards.

As many would-be PayPal competitors have discovered, online payments is a chicken-and-egg business with strong network effects, so this will be a tough nut to crack.  This said, using AIM as the initial distribution platform is clever, for both Revolution and AOL.  AIM is a huge, underdeveloped asset, and AOL should be making every effort to do more with it.  As long as the Revolution sign-up is simple, moreover, its millions of users should easily be able to take advantage of the new service.

Revolution’s reduced interchange fee (0.5%), meanwhile, should be very attractive to merchants tired of getting gouged by VISA and MasterCard, which charge an average of an astronomical 1.9%.  Revolution also has big backers–Case, Citigroup, and Morgan Stanley–and plenty of money ($50 million)