To make a successful digital payments product, American Express is shedding a lot of tradition.
In August, the New York credit card network opened a new Manhattan office to nurture its digital wallet, Serve — and to remove the 200 employees devoted to that project from the culture and tradition of its main office.
That unit, built from Amex's 2010 acquisition of a Florida company called Revolution Money, now works on projects such as Amex's (AXP) collaborations with tech companies such as Facebook.
"We are beginning to realize that data is actually more valuable than the payment transaction itself," says Dan Schulman, Amex's group president of enterprise growth. "The reason that Google wants to move in with Google Wallet is not because they want to move into payments ... What they really want is the data from that transaction."
Schulman's division also manages Amex's prepaid cards, which are known for having nearly no fees (rival prepaid cards are often criticized for their high pricing).
These newer products, which are designed for a demographic that may not qualify for Amex's traditional credit and charge cards, provide Amex with valuable transaction data.
On a per-click basis, Schulman says advertisers pay Google (GOOG) 80 cents to 85 cents. If Google could tell that marketer that each click resulted in a direct sale, that knowledge would be worth $8, he says. The problem for Google is that 70% of its clicks result in an offline sale, which Google can't track.
Serve is designed to follow the payment from the original advertisement to the sale, wherever that sale takes place.
"That data is tremendously valuable to marketers," Schulman says. "They can start to target all of that data to you."
Amex will let users decide what data they share, he says.
Amex is also experimenting with new features for Serve, such as direct deposit and the ability to store digital receipts.
"With the Serve platform we are on … version 1.5," Schulman says. "Then 2.0 comes out, and 2.3 and 2.4. I actually don't know when we stop."
Serve isn't yet profitable, and Schulman would not say when Amex expects it to make money. Amex also does not say how many people use the Serve platform or how much revenue it attracts.
The investment in Serve may pay off over time, observers say.
"Fundamentally [financial companies'] reason for being isn't to create technology... but they now have to use technology to attract customers," says Ben Knieff, a director of product marketing for Nice Actimize, a unit of Nice Systems Ltd.
But, while the credit card company certainly has the resources to make such advancements, what is going to happen to community banks that can't innovate at the same pace?
Sean Sposito, Reporter, American Banker
I believe they might have to turn to their current core banking providers for innovation. Companies such as FIS, First Data and Fiserv have several offerings for banks focused on mobile banking/bill payments and other new technologies. Turning to their current provider will probably help them save by bundling their services.
I also think big banks will use 3rd party providers to keep up with innovation. For example, B of A's BankAmeriDeals pilot program, which uses transaction data to provide targeted advertising/offers, is run by Cardlytics. Although turning to this solution probably limits their potential revenues from valuable transaction data, B of A is hedging its IT investment risks and at the same time adding value to their services.
That said, I think banks are already falling behind in terms of technology. There are many new VC funded companies with innovative solutions for services traditionally offered by banks. Services such as P2P and bill payments. It will be very interesting to see what banks do re innovation in the next couple of years to prevent losing those services.