American Express Co. (AXP), the world’s biggest credit-card issuer by purchases, introduced a payment system for smartphones and computers that competes with Visa Inc. (V), MasterCard Inc. (MA) and PayPal Inc.
Serve, as it’s called, is a prepaid electronic wallet that can be funded by linking with a checking account, debit card or credit card, said Dan Schulman, group president of enterprise growth at New York-based AmEx. Starting today, Serve customers may send money to each other through smartphones, shop online and receive plastic cards for use at bricks-and-mortar retailers that accept American Express.
AmEx lacks a branch network and doesn’t issue debit cards linked to checking accounts, the world’s fastest-growing payment method. That has put AmEx at a competitive disadvantage with lenders including Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM), the two biggest U.S. banks measured by assets.
“This is really the first time that American Express is going to be able to address those consumers that typically would utilize either a debit card or checking account,” Schulman, 53, said in a phone interview last week. “There’s a large cultural shift happening at American Express in terms of us really moving to becoming more of a software- and platform-based company.”
Global consumer spending and cash transactions on Visa and MasterCard debit cards climbed 20 percent to $3.95 trillion last year, according to data from the companies. In the U.S., spending on debit cards rose 15 percent in 2010, compared with 6.3 percent for credit cards, according to the Nilson Report, an industry newsletter.
AmEx, the world’s third-biggest payments network, is looking to take market share from PayPal, a unit of San Jose, California-based EBay Inc. (EBAY) and larger rivals Visa and MasterCard, based in Purchase, New York. Visa, based in San Francisco, said in a statement on March 16 that it will let U.S. consumers send funds worldwide from one eligible Visa card account to another.
Visa’s offering doesn’t require consumers to open a new account, which is “a key value proposition,” Elvira Swanson, a spokeswoman, said in a telephone interview today. Joanne Trout of MasterCard said person-to-person payments already are part of its network and used by banks that issue its cards.
PayPal is “perfectly positioned” to provide customers with an e-wallet, said spokesman Anuj Nayar. “Commerce is going to change more in the next two years than it has in the last 10, and PayPal looks forward to leading the way.”
Last year, AmEx spent $305 million to buy Internet-based payment processor Revolution Money from the investment firm run by Steve Case, the co-founder of America Online Inc. Revolution Money became the technological foundation for Serve, said Schulman, who joined AmEx in August from Sprint Nextel Corp. (S)
Consumers can open accounts at www.serve.com and download an application to their Apple Inc. (AAPL) iPhones and iPads, or smartphones using the Android operating system, Schulman said. Users of Research In Motion Ltd. (RIM)’s BlackBerry will have access later this year, he said. There’s no initial cost for opening an account, a minimum balance isn’t required and deposited funds don’t expire.
Fees for funding accounts with credit cards are waived for the first six months. After that, AmEx will charge 2.9 percent of the transaction total plus 30 cents, which is competitive with PayPal’s pricing, said Joanna Lambert, an AmEx spokeswoman. There’s no charge for using debit cards or checking accounts to fund a Serve account.
Customers can shop online without being required to enter payment credentials, such as a credit-card number and mailing address, each time. They also will be able to send money person- to-person in the U.S. by entering a personal-identification number and recipient’s e-mail address. That feature will be available worldwide later this year, Schulman said.
“These remittances back and forth both domestically and internationally can be quite a good business for us,” he said.
AmEx also is partnering with companies to offer coupons that can be clicked on a website, loaded into a Serve account and applied when a consumer shops online or in a store, he said.
“I found it a little underwhelming,” said Beth Robertson, director of payments research for Javelin Strategy & Research, based in Pleasanton, California. “What is going to drive people to actually use this versus similar things already in the market?”
The product is a way for AmEx to position itself as mobile payments expand, said Mike Taiano, an analyst at Sandler O’Neill & Partners in New York. “It’s hard to know how well it will be received by consumers.”
Account holders will receive plastic cards linked to their e-wallets, with the Serve logo on the front and a blue box on the back to signal to merchants and consumers that it may be used at any of the millions of locations accepting AmEx, Schulman said. Customers using the card will get one free withdrawal a month from an automated teller machine and be charged $2 for each subsequent withdrawal.
The Serve card is labeled as a “prepaid” product, which means it’s exempt from caps on debit-card transaction fees mandated by the Dodd-Frank law that overhauled the financial industry last year, Schulman said.
The Federal Reserve in December proposed capping interchange fees charged to merchants at 12 cents a transaction, replacing a formula that averages 1.14 percent of the purchase price. Such a cap may reduce annual revenue by $12 billion for U.S. lenders including Charlotte, North Carolina-based Bank of America, New York-based JPMorgan and Wells Fargo & Co. (WFC), based in San Francisco.
Merchants who currently accept AmEx credit cards pay fees totaling about 2.5 percent of the purchase price. Those retailers “generally” will pay a lower rate for accepting Serve payments, said Lambert, who didn’t elaborate.
American Express climbed 13 cents to $45.72 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have gained 6.5 percent this year.