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Revolution MoneyPayment Processor Revolution Money Pumped With $42M.

At a time when both consumers and merchants are looking for ways to cut costs, several major financial firms and individual investors have pumped $42 million into Revolution Money, the payment-processing company backed by AOL co-founder Steve Case.

By harnessing the Internet for its payment platform, the company slashes costs for accepting credit cards by up to 75% for merchants, who in turn pass part of those savings on to consumers to drive loyalty. With the new funding, the company will continue developing its technology as it looks to steal market share from traditional credit card companies like Visa and MasterCard, as well as popular payment service PayPal, a unit of eBay.

The Series C funding was provided by an unnamed Goldman Sachs affiliate, Citigroup and Morgan Stanley as well as individual investors Case, Revolution Money Chairman Ted Leonsis, former Charles Schwab Chief Executive David Pottruck and former JP Morgan Vice Chairman David Golden.

Case is the largest shareholder, followed by CitiGroup and Leonsis, respectively. Leonsis said the post-money valuation of Revolution Money is less than $200 million.

“It’s a vote of confidence from the insiders and we were able to bring in this affiliate of Goldman [a new investor],” Leonsis said. “It’s such a big opportunity and big play. There hasn’t been a new entrant since PayPal, which was about a dozen years ago.”

The investment follows a $50 million infusion led by Citigroup in September 2007. Deutsche Bank AG and Morgan Stanley also previously invested.

Revolution Money’s Internet-based, proprietary RevolutionCard Network supports two products: RevolutionCard and RevolutionMoneyExchange.

RevolutionCard is a general-use credit card that charges no interchange fees and only a half-percent processing fee per transaction to accept – compared to a 1.5% to 4% fee charged by traditional companies. Merchants turn some of these savings into customer loyalty and cash-back programs. For example, cardholders can save three cents per gallon at the nearly 1,000 Murphy USA and Murphy Express gas stations typically located in Wal-Mart Supercenter parking areas across 20 states. RevolutionCard is accepted at more than 650,000 merchant locations and 85% of all ATMs throughout the U.S.

Revolution MoneyExchange is a free online peer-to-peer payments service that enables users to exchange money for free. Users can also access their online funds at all merchants and ATMs on the RevolutionCard Network. Leonsis said MoneyExchange essentially serves as a customer acquisition mechanism for the company. Once consumers register for MoneyExchange the company can pitch RevolutionCard.

Leonsis, who is also an owner of the National Hockey League’s Washington Capitols, said when fans call to renew season tickets for the team they are offered the opportunity to register for a RevolutionCard to pay for the tickets. If they choose to accept the offer they receive an autographed jersey from a star player — a $500 value that costs the franchise $100.

In turn, the team saves processing fees on an average transaction of $8,000, Revolution Money acquires a new cardholder with a typically high credit score and the consumer receives an expensive gift.

The company is aggressively targeting new retailers and expects to reach 80% of the merchant community in three years, Leonsis said.

Currently, participating retail locations include Barnes & Noble, Bed Bath & Beyond, Bloomingdale’s,, CVS, KOHL’s, Macy’s, Marshalls, Walgreen’s, Nordstrom, Office Depot, Office Max, T.J. Maxx and Whole Foods.

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