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New card to mount charge

St. Petersburg-based Gratis aims to capitalize on merchants' dissatisfaction with fees.

By HELEN HUNTLEY
Published March 14, 2007

A startup St. Petersburg company with big-money backing aims to revolutionize the credit card business by undercutting the fees Visa and MasterCard networks charge merchants.

Business Week reported Tuesday that GratisCard, based in St. Petersburg, will formally launch its new card in April. Its largest shareholder is the private investment company Revolution, which media mogul Steve Case started with $500-million of the fortune he made launching America Online. Case and AOL executive Ted Leonsis are directors of GratisCard.

The company's card already is being test marketed with three Philadelphia sports teams: the NBA's 76ers, the NHL's Flyers and the minor league hockey Phantoms.

Incorporation papers filed with the state in December indicate GratisCard Inc. has an office on the 19th floor of the Bank of America building at 200 Central Ave. in St. Petersburg, although the headquarters is shown as New York. The company's Web site www.gratiscard.com gives a Largo post office box for a "contact us" address. Company officials declined to speak with the Times on Tuesday.

Gratis aims to tap into merchant dissatisfaction with fees that average close to 2 percent per transaction and cost them more than $25-billion a year. Business Week said the GratisCard will cut that fee to 0.5 percent of purchase cost by processing sales over the Internet.

The card also is being touted as more secure because it will not be printed with the cardholder's name or account number or have data embedded on a magnetic stripe. Instead, it will have a bar code that does not identify a particular account, and the cardholder will enter a personal identification number to make the transaction. No signature will be required.

GratisCard claims its system will speed processing and reduce lines. The company also says that it will have higher approval rates for less credit-worthy borrowers and that it expects to offer special features such as parental purchase controls.

Two former MBNA executives will be running the company. President and chief executive Jason Hogg was a founder of MBNA Canada and chief business development officer. His father, Russell Hogg, is a former chief executive of MasterCard International. GratisCard's chief operating officer Dax Cummings was a group president at MBNA.

The payments industry is "ripe for disruptive change," Case told the Wall Street Journal. However, the Journal said the traditional credit card industry isn't worried yet about alternative companies such as GratisCard; Tempo Payments, which issues branded debit cards; or National Payment Card LLC, which converts driver's licenses and loyalty cards into debit cards.

In fact, the Journal said new companies coming into the field might help Visa and MasterCard fight legal claims that their networks are anticompetitive.

The investment company Revolution's other projects include a health care services company, a car-sharing service and a distributor of yoga videos.

No information was available about job opportunities at GratisCard.

Helen Huntley can be reached at hhuntley@sptimes.com or (727) 893-8230.

[Last modified March 13, 2007, 23:07:50]