While many banks and credit unions are dumping their card portfolio’s this
news makes one think “wow, smart move.” A new payment platform company
named RevolutionMoney announced (today) their plans to yank the rug out from
under traditional card payment processors by circumventing the credit card networks that charge merchants an average of 1.9% on transactions.

This couldn’t have come at a better time, as I spent two frustrating hours last night
searching merchant account programs looking for a better deal for my wife’s
new business. I went to bed with no resolution and angry.

Revolution Money believes they can reduce traditional fees by 75%; a mere fraction of what card companies are charging today. This is sure to make every merchant jump with joy, including myself. But this isnt jsut a one trick pony. By no mean the first to take on PayPal, RevolutionExchange (one of two products launched, today) allows consumers to transfer funds to anybody via the Internet, for FREE! Think free International wire transfers!

Now, I don’t know if that is part of the deal, but it sure makes one ponder the possibilities. Do you know how many billions of dollars are transferred out of this country by individuals, and the fees they incur? So if it’s free, why would RevolutionExchange bother. Well, that brings us to the second product announced today, and a bombshell in itself.

The RevolutionCard is a highly secure alternative to the mag-stripe cards in your wallet and will be accepted using existing point of sale equipment. The RevolutionCard is a PIN based credit card with no visible or physical information on it. The card, of course, carries an APR on balances. It’s pretty novel, but whether or not it will be accepted by the masses is left to be seen.

But if anyone can pull this off it’s the impressive team behind Revolution Money. It’s a who’s who of heavy hitters. Former AOL chairman Steve Case is the main man behind it. AOL Vice Chair emeritus Ted Leonsis will chair the company. Joining him will be former Treasury Secretary Lawrence Summers, former Mastercard CEO Russell Hogg, former Charles Schwab CEO David Pottruck, former Vice Chairman of JPMorgan David Golden, and former CEO of Fannie Mae, Franklin Raines. The company recently announced a $50million Series B round from Citi, Morgan Stanley, Deutsche Bank and others.

As Case puts it, “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.”

Where do I apply?

Three weeks ago I started getting letters from Certegy explaining that someone was using my name, address, and driver’s license number on fraudulent checks in Houston, Texas. Since I had never been a victim of ID theft (at least that I am aware of), I called Certegy then hit the couch with my laptop in a search for facts.

Wow, what a confusing world! Let me preface this by saying, I’m in the information security field and understand the many forms of ID scams that exist. What I soon realized is that ID Theft is not only a big business for the criminals it has become a big business for legitimate companies. All the estimates we see about the losses incurred by ID theft should include the revenues of the companies offering services to prevent it; insurance, credit monitoring, incident assistance, education, hand holding, account locking, etc. It’s an industry folks! …and a competitive one, at that.

I dove into the details on this one because, many of the financial institutions I work with have considered contracting with one of these companies to offer assistance to their account holders. I wanted to know if these services are worth the money and whether or not this is something the financial institutions should be offering.

After studying the market, the crimes, and methods of protection, prevention, and resolution and as a recent victim, here is my take. ID Theft, card fraud, check fraud, etc is diverse and dynamic. I think these services can be helpful in some cases. Especially, those where the consumer knows nothing about this problem, has no desire to understand it, and has some extra cash laying around. Although that being said, consumers should understand that the services vary. There are good companies and suspect companies offering these services. So you don’t end up with a false sense of “protection” is highly advisable in this case to understand what you are buying. As much as these service providers want you to believe that all you have to do is spend 10 minutes signing up and SHAZAM! Your protected. This is not always the case.

There are differences in these services. There are differences in the costs. Some services I’ve seen offer next to nothing for $9.99 a month. To be honest, you’ll spend just as much time determining what the companies services really are as you would learning how to do this on your own. For free! And folks, it’s very easy to do if you know what to do.

So, do I think a bank or credit union should offer ID theft prevention/response services? Absolutely! I would love to have been able to contact my bank for some assistance. In fact, that is a huge relationship development opportunity that institutions could take advantage of.

Should they contract with one of these service providers? Well, that depends on what the service really is. Third party service provider due diligence comes to mind here! To put it in perspective, there is a widely recognized provider named Lifelock, that is endorsed by many reputable companies and is funded by two top venture capitalists. Google them to open the can of worms they are now dealing with. Would you want your institution’s name behind this company?

I did find a couple providers (which Im not going to name) that offer relatively valuable services. But I think if an institution is going to promote one of these services for a fee, they should also offer up advice on how their account holders can do this stuff on their own. It is really not that hard.

Lastly, nope, I don’t plan to subscribe to one of these services right now.

Second Life has it’s own real estate, currency, and exchange rates. Basically an entire second economy exists in Second Life. Up until now, if you wanted to buy something in Second Life, you needed to pay upfront in L$’s (Linden dollars, the Second Life currency). If you did not have enough L$, you could get more by purchasing them in various ways (like with a normal credit card).

I guess this process was kind of a pain, because now Singapore based FirstMeta has launched a full featured credit card that operates directly with the L$ virtual currency ! That’s right, you can now buy things in Second Life using your FirstMeta credit card and deal totally in L$ thru the whole process.

The terms would be hard to swallow for a real currency based credit card. The card comes in a basic and gold variety, with the gold card limit being $L10,000 (or about $37 at the current exchange rate). The interest rate for the gold card is 0.13% per day, which works out to around 50% per year ! Ouch, good thing we are talking about low dollar amounts.

What’s really interesting is how full featured the card is, and by this I mean they have a rewards program that earns you 0.09% per on your spending, not bad.

So what’s the point of all this?

Think of it as experimentation. There is a good chance this will flop, and a small chance that this will succeed in a big way. These things are very hard to predict. This is one reason you see so many new things showing up all over the place. It’s relatively easy to create some new technology or business model and throw it up on the internet and see what happens. Everyone has learned that predicting success is tough. Just look at all the Youtube skeptics and naysers who basically thought Youtube was doomed because of high bandwith costs. Well, just 9 months into Youtube, they are bought for $1.6B (not L$). The model these days is spend more time doing and less time stewing.

Oh, get this, they even have ATM machines located in Second Life!