American Express is joining the ranks of old-school credit card companies that have realized they need to embrace the future of digital transactions. Its new Serve platform enables novel digital payments that threaten PayPal and pave the way for NFC.
The new system acts like an extra layer between AmEx and its clients' own cash facilities—be they another credit card, a debit card (even a competitor's one) or a bank account. The idea is that it'll facilitate digital transactions online, cash extraction from ATMs, and person-to-person payments from a computer or smartphone.
If that sounds unremarkable, that's because it's intended to be so, at least at first. Serve's genesis is simply a traditional payment-clearing system that'll work anywhere an existing AmEx card is accepted. But the system is actually all about infrastructure changes and a more future-focused business model inside American Express itself, and ultimately the company will evolve the way Serve works to embrace the imminent wave of novel digital transaction technology. According to the company's Group President of Enterprise Growth Dan Schulman, the idea is genuinely to "put into place a platform—not a card, or an e-wallet—that enables digital payments and commerce that allows consumers and merchants to seamlessly move between online and offline."
Dig through the business-speak there, and you'll discover that AmEx has seen the writing on the wall from innovations like Square (which enables cheap and simple client-merchant credit payments that short-circuit the usual cash clearing systems), Google's and MasterCard's embrace of NFC, Visa's structural changes and a horde of patents from big tech players like Apple that promise to re-write how we think about digital cash and threaten to overturn the business of old players like AmEx. Interestingly, Schulman is skeptical about NFC, seeing it as merely an "uninteresting" "form factor shift" in its current incarnation—(although critics would say it would seem Schulman hasn't been reading Apple's and Google's patents too closely—their smartphone interactivity could quickly take NFC far beyond a mere form-factor shift).
Serve comes from AmEx's $300 million acquisition of Net-payments firm Revolution Money. What sets it apart is instant accessibility from Apple and Android apps, its cross-platform nature, and the fact it's distinctly distanced from the AmEx brand (which Schulman thinks will help AmEx break into a younger demographic). Plus, since the card is technically considered a "pre-pay" card, it's treated differently at all levels of transaction: Consumer fees for using it are waived for at least the first half-year, the first ATM withdrawal per month is free (later ones cost $2)—ostensibly because AmEx already has your money, so they can afford to let you access it less expensively. Merchant rates for accepting Serve will also be discounted compared to traditional cards, again because AmEx already has control of client's funds, so it doesn't have to collect them at an indeterminate time in the future—something that affects how its traditional business model works.
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