You say you want a Revolution?

Implications: Although companies are trying to transform the traditional interchange system and provide a reduced interchange fee structure, consumers don't believe that merchants will share the gains with them. Companies should focus more on security and the ability to accept the method of payment through existing infrastructure and/or with existing payment partners, which may resonate better with consumers.

Analysis:

Apologies to both the Beatles and to Gonzo Banker for the blog title. I couldn’t resist, given the splash that newly renamed Revolution Money (formerly GratisCard) is trying to make…

The company is using the age-old strategy of finding the pain points within the industry and purporting to have THE solution to end those pain points. Quotations such as the following will give you some idea of what I mean:

“Traditional, and even online, incumbents have been charging what adds up to billions of dollars of fees every year that ultimately comes out of consumers’ pockets,” said Steve Case, chairman and CEO of Revolution LLC. “So we have built an innovative Web 2.0 company based on the latest technology to disrupt the decades-old system with the goal of offering the industry’s most accessible, easy-to-use and secure payment system that puts money back where it belongs, in consumers’ pockets.”

[Queue the sob-story “merchants pay too high interchange and consumers are the real victims” music here…]

“Today, merchants, and ultimately consumers, pay an enormous sum just to have the convenience of using a credit card,” said Jason Hogg, Founder and CEO of Revolution Money. “Revolution Money’s proprietary operating system uses the Internet to circumvent the traditional interchange system, providing a drastically reduced fee structure that could create billions of dollars of merchant and consumer savings – essentially flipping the industry on its head.”

The question is this…do consumers really believe that merchants will share these gains with them? Javelin data says no.

But, the links that they’re making to security and the ability to accept the method of payment through existing infrastructure and/or with existing payment partners may resonate.

Creating a new payment network to take transaction away from Visa, MasterCard, et. al. requires a “revolution” among consumers and merchants. If they make the case for merchants, will consumers follow? Only if consumers can see the immediate value in switching payment types. Some of the savings in interchange will have to be plowed back into building the loyalty (most commonly derived from rewards, but we might see some innovation here) among consumers.

Long way to go and a lot of entrenched behavior (not to mention revenue streams) to overcome.