American Express & Revolution... The Reach Down (AXP)

American Express Company (NYSE: AXP) is about to get larger in the credit arena, and in a new path than its traditional high-end clients.  The company announced that it has agreed to acquire Revolution Money, which was launched by AOL Co-founder Steve Case in 2007.  The purchase price is expected to be approximately $300 million.  This may just be the first of several reach-down initiatives from AmEx.

Revolution provides secure payments through an internet based platform. What is interesting about this is that no names or account numbers appear on Revolution cards and transactions are authorized by using a PIN number. The online person-to-person payment accounts are also FDIC insured and ideally suited for social and instant messaging networks. Revolution also offers a prepaid card linked to those accounts that can be used for offline payments or to withdraw cash from ATMs throughout the United States.

Jason Hogg will continue as president and chief executive officer of Revolution Money. Ted Leonsis, a Revolution Money angel investor, major shareholder and chairman, will become a special advisor to American Express working with Mr. Chenault on overall digital and online payments strategy.

The transaction is subject to regulatory review and is expected to close in the first quarter of 2010 and will then operate as a subsidiary of American Express.  American Express also noted that this will be the first component of its recently formed Enterprise Growth organization to leverage existing assets and capabilities to generate incremental fee revenue and to drive the company’s entry into new payment areas and related businesses.

There is one issue here.  American Express has reached farther down the credit chain before, and it exited that effort.  Maybe this time it has no choice as many ex-AmEx customers have been forced farther down the chain as well.

JON C. OGG