revolutionmoney.jpgRevolution Money, a new company backed by former AOL chief executive Steve Case, has launched a free online money transfer service to compete with PayPal. It has landed $50 million in a second round of funding.

The service is designed to be used on fast-growing instant messaging services such as AOL’s AIM and other social networking sites, and could appeal to younger users who balk at PayPal’s fees.

The Largo, Florida company is also offering a credit card it says will lower interchange fees for merchants. It is called RevolutionCard, and the company calls it the industry’s first anonymous, PIN-protected credit card. It will slash fees to 0.5 percent of a transaction, instead of the average of 1.9 percent charged by the credit card industry.

Revolution Money, formerly known as GratisCard Inc., boasts a number of other well-known executives on its team or advisory board: Ted Leonsis, former United States Treasury Secretary Larry Summers, former Charles Schwab CEO David Pottruck, and former MasterCard International President and CEO Russell Hogg.

The funding comes from Citi, Morgan Stanley and Deutsche Bank, and included Leonsis, and original controlling investor, Revolution, Case’s investment firm.

The money transfer service is called Revolution MoneyExchange. It is not yet open fully to the public, but users can register at the site to request an invitation when it is ready. It will allow online transactions, and is designed for social and instant messaging networks. Eventually, MoneyExchange says, it will let users link their accounts to the RevolutionCard, which can be used for offline payments.

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