With its deal to buy Revolution Money, American Express is taking aim at the growing market for online and alternative payments, in a challenge to recognized leader PayPal, analysts say.
The financial services giant announced plans on Wednesday to buy the Web payments firm started in 2005 by Internet firm AOL founder Steve Case, with the purchase price set at US$300 million.
Analysts say AmEx is most interested in the so-called peer-to-peer services of Revolution, which enables low-cost money transfers among individuals and businesses.
“I think it’s a challenge to PayPal, but it’s more than that,” said Ed Kountz, an analyst who follows financial technologies at Forrester Research.
“AmEx is positioning themselves for more effective innovation, and for the next generation customer,” he said.
Kountz said a variety of new technologies are emerging for person-to-person and alternative payments, but that few companies have been able to get the critical mass with both consumers and merchants to gain a foothold.
PayPal, a unit of eBay, has been able to dominate in this area, but Google Checkout has struggled, analysts said.
Kountz said the market is growing with younger customers looking for convenient ways to make person-to-person transactions without cash, and with credit card usage hurt by the financial crisis.
“People are feeling greater comfort with cashless transactions,” Kountz said.
Revolution also aims to compete against traditional credit card firms by handling payments at a lower fee.
Joe Weisenthal at the online analysis site Business Insider said Revolution is “frequently described as a PayPal killer,” but has been unable to grow during the financial crisis.
The action by AmEx comes with PayPal expanding its offerings with new ways to transfer money using mobile phones or social networks like Facebook.
Revolution “offers a unique card that seems to blend the idea of traditional credit and debit cards with Internet-based payments along the lines of PayPal and Google’s service,” said Jim Kim of the financial technology Web site FierceFinanceIT. “We’ll see how the other big boys react.”
American Express hopes to close the deal early next year.
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