Business Report

Beyond Credit Cards: Q&A with Dan Schulman of American Express

American Express built its brand around a material that’s going out of style. One word: plastic.

American Express started out in the 19th Century delivering money by horseback. It issued the first widely accepted plastic charge card in 1959, and has more or less stayed the course since.

But an expected global boom in payments made on mobile phones and tablets—their dollar value will surge 76 percent to $86 billion in 2012, Gartner predicts—now leaves the third-largest U.S. credit card issuer preparing for a future without plastic.

Enter Serve, a prepaid, reloadable spending account Amex launched last March. Serve is partly an Internet service and partly a debit card whose minimalist design is missing the familiar gladiator logo. The target market is clear: the young and less obviously credit-worthy. Not only is the service free, but new customers are being offered a $10 credit to get started.

If it is successful, the card design won’t matter. Serve is the New York–based company’s first product born for the Web and mobile phones, and it aims to compete directly with Paypal. Both, for example, have added applications that let users send money to friends online via Facebook. Verizon Wireless and Sprint have agreed to put Serve on phones, turning it into a “digital wallet” from which money can be zapped to merchants or anyone else.

More is to come. Since 2010, Dan Schulman, once CEO of Virgin Mobile, has headed Amex’s Enterprise Growth division, the unit that runs Serve and is busy orchestrating Amex’s entry into mobile commerce. Schulman’s war chest is sizable: he has $100 million available to invest in technology companies.

Technology Review business writer Jessica Leber interviewed Schulman to learn how Amex is responding to an environment where wireless carriers, retailers, banks, and Internet companies are all vying for a piece of credit card profits.

TR: How do you see the nature of money changing?

Schulman: Approximately 85 percent of transactions across the world today are in cash. But cash will start to become less dominant. The mobile phone is going to rapidly become a form factor in which you’ll not just pay for your groceries but, increasingly, you’ll find out about the information around your groceries. What’s organic, what may not be organic? What are your friends thinking about it? What offers and deals may be around it? The way you fundamentally pay for it could change. You can pay for it now. You can pay for it later. You can use virtual currencies. You can use loyalty points that you’ve accrued. So the very nature of how we will pay for things will fundamentally transform.

Why did you launch Serve?

The future of our company is along the dimensions of digital commerce. The launch of Serve was one important step in that direction. Serve will begin to realize its full potential as we begin adding features that move Serve from a payments platform to a true enabler of digital commerce.

What’s always been part of the ethos of American Express is we aggregate data and share that with merchants, and show where a retailer might be more effective in their marketing. As everything becomes digitized, a marketer can be much more targeted and much more efficient with their marketing. And consumers, instead of getting spammed with one offer after another, could actually get offers for exactly what they are interested in.

American Express began in the 1850s as a competitor to the U.S. Postal Service. Is anyone worried credit cards are headed to irrelevancy like paper mail?

If you don’t change, and you don’t constantly innovate, then any company runs the risk of losing relevance going forward. You can name one company after another, from Kodak to the music companies, that have had to fundamentally change their business model.

We recognize that. It was one of the reasons why my group was formed. My online and mobile teams are based in Silicon Alley in New York. We’re operating almost as a startup. If you walked into our office space there, it’s radically different than what might come to mind when you think “financial services company.” The people we have there are primarily from software companies, wireless companies, user design companies, Amazon, you name it.

The difference is we get to leverage all of the assets of American Express. I do think our brand is perhaps more valuable in a digital age than an analog age. When you think about storing your commerce identity online, that’s very different than your social persona. Your social persona that you have on Facebook—it could be real or not real. It’s really up to you to define what that is. But your commerce persona—that’s your financial information, your brand preferences, your shopping list. It needs to be 100 percent accurate. American Express is one of the brands people trust. There are also very unsexy elements of this business—fraud management, risk management, regulatory compliance. Those are things we understand quite well.

Business at risk: Credit cards use isn’t growing fast in the U.S. In fact, the number of payments on cards has declined as consumers move to debit and prepaid cards or Internet banking. Mobile payment methods could accelerate the shift.

You recently opened an office in China. What’s the strategy there?

We just announced we are partnering with a Chinese company, Lianlian. The idea behind that partnership is to take our digital platform, to take Serve, and to license that and embed that in Lianlian’s infrastructure.

The vast majority of mobile phones over in China are prepaid. So a Chinese consumer goes to a merchant and gives them cash, and that cash is translated into minutes in their mobile phone. Our partnership plans to enable digital wallets for those merchants, and from that digital wallet, the consumer can allocate a percentage to minutes on their cell phone. Lianlian, with the benefit of Serve’s technology, will enable online purchasing, digital payments, and getting offers and deals loaded into their wallet. It can now open to the Chinese consumer the ability to do a wide array of digital activities that they might never have been able to do before.

Near-field communication chips are now coming to phones. These could allow us to pay with just a tap on a terminal. Will this technology catch on?

If you’re just using your phone instead of a plastic card, I think that will take quite some time to come about for making payments. It may be this technology finds other uses first—it allows you to unlock your house and not have to worry about your keys anymore.

I think the real breakthrough occurs when you can tap your phone on the doorway of a retailer and selectively expose your commerce identity to that retailer. You tell them, “I’m a first-time customer, or a loyal customer. I’ve got this shopping list that I’m going after, or I’m brand-loyal to these products. I’ve got this kind of budget.” Then you, as a retailer, can segment to an individual—complete personalization around the offers and deals and information the consumer may want. So then there’s a real reason for you to tap your phone. That’s what a lot of us are thinking about now.

Is social networking changing your business?

Social networks are becoming this great form of discovery. What do my friends like? The second thing that they’ve really started to do is create this whole idea around virtual currencies. These virtual currencies are very real. For a certain demographic, giving a virtual flower versus a real flower is actually very meaningful.

We bought a company called Sometrics, which last year did 3.3 trillion units of virtual currency on their platform. You can buy virtual goods such as gold coins or whatever it may be. That acquisition lets us tap into the massively growing space of online gaming and to develop capabilities to manage virtual currencies, a business that is projected to nearly double by 2014. The acquisition isn’t just about gaming, though. It’s about getting the capabilities and talent we need to expand the Serve platform into new features and applications.

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