You're No PayPal, AmEx

I'm sorry, American Express (NYSE: AXP  ) . One buy doesn't turn you into a PayPal killer.

The financial services giant is paying $300 million for Revolution Money, the online payment platform spearheaded by former AOL whiz kid Steve Case. It may be a perfectly reasonable purchase for AmEx, but I had to laugh at the headlines that played this up as a serious threat to eBay's (Nasdaq: EBAY  ) PayPal.

Do we really need to go through a history lesson, here?

The dot-com graveyard is littered with companies that tried to take on PayPal. Yahoo!'s (Nasdaq: YHOO  ) PayDirect, Microsoft's (Nasdaq: MSFT  ) Passport, and Citigroup's (NYSE: C  ) C2it all faltered. Even eBay gave it a college try, teaming up with Wells Fargo (NYSE: WFC  ) to launch Billpoint. That was another flop, forcing eBay into acquiring PayPal to ride the gravy train that was facilitating many transactions on its auction site.

Revolution's MoneyExchange platform has potential, but bigger companies failed when PayPal was significantly smaller. No one is likely to catch it now.

Then again, maybe this deal isn't so much about making a dent in PayPal as it is for the name of self-preservation. A key component of MoneyExchange is the RevolutionCard credit card. Offering no interchange fees and a mere 0.5% transaction and settlement hit, Revolution has already landed a fast-growing list of merchants including Whole Foods Market (Nasdaq: WFMI  ) . AmEx charges considerably more, so why can't this be a defensive purchase? If it sees Revolution bumping AmEx out of stores, it now has the power to twist the screws accordingly.

So kudos to AmEx for killing a disruptor while it was still in the crib. Slaying PayPal, however, is a different matter entirely.

Is PayPal really untouchable? What would it take to topple eBay's financial platform? Share your thoughts in the comment box below.

eBay and Whole Foods Market are Motley Fool Stock Advisor recommendations. American Express and Microsoft are Motley Fool Inside Value picks. Motley Fool Options recommended diagonal calls on Microsoft. Try any of our Foolish newsletters today, free for 30 days.

Longtime Fool contributor Rick Munarriz misses the good old days when actual greenbacks traded hands. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (4) | Recommend This Article (7)

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  • Report this Comment On November 19, 2009, at 3:39 PM, sugars2 wrote:

    Are the fools missing the point? Perhaps there are patents on the credit card technology which alows no name , no number cards. Suppose only a photo and the AMEX emblem appeared on the card. Millions of dollars in fraud would disappear. Not to mention identity

    theft. Who might be the fool?

  • Report this Comment On November 19, 2009, at 3:49 PM, Joelshann wrote:

    Interesting how Paypal was eBay's only stellar acqusition. Issues with Skype, issues with Craig's List, issues, issues, issues.

    Eventually, eBay will be Paypal plus the trimmings...at which point they should change their name to eBaynk.

  • Report this Comment On November 19, 2009, at 10:36 PM, tuityfruity wrote:

    I still love you Rick. Even when you write things I disagree on.

    I want the big credit card companies to get into the P2P payments, we need competition

  • Report this Comment On November 20, 2009, at 5:34 AM, PhilipCohen wrote:

    The eBafia Don will talk about the possibility of disposing of PayPal only because he is just smart enough to know that PayPal is as “clunky” as the eBay auction system is, that PayPal is a system more suited to a banking operation and that if “the banks” and their credit card company partners ever get off their butts and introduce a like terminal/card-less payments system (which [i]they[/i] would undoubtedly implement professionally), the banks will dispose of PayPal—outside of the ever-shrinking eBay marketplace—in about five minutes flat.

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