In its press release today American Express revealed explicitly that its new $100 million Digital Commerce Investment Initiative was destined to fund "early stage startups to facilitate the company's digital transformation." If that sounds like a firm that's aware it's got to rapidly pivot, that's because that's exactly what's going on.
Amex's Dan Schulman, Group President Enterprise Growth, spoke to Fast Company to explain the move: As far as saying that the credit card is going to evolve, Schulman noted, "It goes even further than that. Our view of the world is that all of commerce is being redefined as the world moves somewhat rapidly into the advent of smartphones and mobile payments and the digitization of information across the entire commerce lifecycle." This quick change, covered by many a column-inch in the media over recent months, means that the areas where Amex "traditionally added value between merchants and consumers" is going to "fundamentally change" and payments will only be "one part of that."
Where traditional credit card transactions were all about giving the merchant a secure and authenticated copy of those all-important 16 raised silver numbers on the face of your card, technological developments like NFC, smartphone payments and even innovations like Square and Google Wallet show that there's scope for a much richer interaction to go on at the moment of payment--something that's never been possible before. That's what American Express is aiming at. "The information that is derived from a payment transaction" can be used in "closed marketing loops, can be used to populate your budgets automatically, it can be used to automatically create loyatly, to be able to pay for things in ways that we traditionally haven't been able to do," Schulman was careful to point out. A lot of people think of future payments as an evolution of payment method, "like tapping your phone at a point of sale. We think of that more as a form-factor change, as opposed to a complete value-proposition change" in the way the entire process of commerce is conducted, he added.
To that end Amex will be trying to identify young, emerging technology companies that can help it innovate its business model and then will invest in them--a trick the company has previously tried with Payfone. But it's not just a venture capital move, because the companies chosen will have their technology integrated into systems Amex has been already inventing, such as its Serve platform. Amex may very well "partner with different hardware manufacturers, whether those will be OEMs, handset manufacturers or point of sale terminal manufacturers" but the primary intention is to look at software solutions to form an ecosystem that operates alongside the transaction itself (which could not involve a credit card number but instead a phone number) including loyalty points, offers, discounts, and so on.
And that's where the company's sensitive to new opportunities. The current credit card market, cutthroat as it seems, is pretty stable and is dominated by a short list of big players with many millions of subscribers. Simply due to the scale of the operation, effecting a big change in subscriber numbers for any of these firms is tricky. But a rapidly changing market can level the playing field, and that's also what the new investment plan is all about--"not just for existing card members, but to new segments of the market and new geographies across the world," said Schulman. This covers new ways of paying as well as new customers who'll be able to make digital payments for the first time, "the millennials, the youth market, the underbanked or the un-banked" population segments, as well as other parts of the world "where charge and credit is a very small part of the payments industry."
As for the plan itself, which may be considered unusual--after all the company is saying it's going to spend a tenth of a billion dollars on its very near future evolution, which is a public admission that the game its playing in is changing in real time--Schulman agreed that Amex is "very focused on the changes that are sweeping through the payments and commerce industries, and in order to make those changes--for an established company to go and do that--you have to make some bold moves." It's a nailing your colors to the mast manuever, in fact: "You have to declare your intentions. You need to assure that you let the outside world know you're very open to partnering, that you're looking to form ecosystems." As far as Schulman thinks, "no one company can drive digital commerce" so American Express "very much wants to encourage this both inside the company and outside the company."
And here's what's behind it all: "Cloud-based services now available, high-speed mobile networks, the ubiquity of smartphones" and the fact "we have the Internet with us at all times." In other words, just as we concluded, American Express knows that the "card" bit of its "credit card" business is about to disappear, and it needs to get clever at delivering rich data to the consumer, and the merchant at the point of sale. Just as money, with its abstract value, replaced bartering and then digital payments replaced physical money, so the actual process of shopping is about to evolve into something new.
[Image: Flickr user images_of_money]