American Express is working on a vision for the future. And to do so more effectively, the New York credit card specialist is breaking away from the past—literally.
Its new nerve center for fresh thinking is a nondescript office building just a stone's throw from the Holland Tunnel, in a Manhattan neighborhood known as Silicon Alley, home to a cluster of tech startups. It's not so far from Amex's headquarters in the World Financial Center that you couldn't take a brisk walk from one to the other. But you could argue that they're worlds apart.
One operation, unquestionably successful, is grounded in the way things have been. The other, yet to make a profit, is charged with envisioning how things will be.
Dan Schulman, Amex's group president of enterprise growth, oversees this outpost, which opened in August. It is meant to nurture a digital payments initiative called Serve. But the broader mission, as Schulman describes it, is to stay ahead of how trends in mobile technology and Big Data reshape the financial services industry.
He foresees a day when the information yielded by transactions—what you bought, and where and when you bought it—is worth more to Amex than what the company earns now on fees and services. "We are beginning to realize that data is actually more valuable than the payment transaction itself," Schulman says.
He orchestrated the decision to create a separate space for Serve, in no small part to remove these 200 employees from the button-down culture and traditions of its corporate parent.
Schulman talks openly about this motivation while hosting reporters at the new office this spring. He's wearing his usual uniform of cowboy boots and jeans, along with a blue polo shirt. Others here share his fashion sense. All of the developers and programmers seen going about their work during the press visit are in T-shirts and jeans. A guy with heavily tattooed arms is in short sleeves.
Schulman once said at a payments conference that his attire helps him recruit more relaxed, tech-savvy talent. Now he considers the office a recruitment tool as well. "I think that just being in Silicon Alley allows us to attract talent," Schulman says.
He wants Serve to adopt the culture of California's Silicon Valley, which inspired this neighborhood's name. An idea. A quick hack. A few resources. Voila, an improved product. Think, do, fast.
Employees can sketch their ideas on the frosted glass that separates the small conference rooms; in effect, the walls function as dry erase boards. Programmers, Web developers, marketers and sales people work together in teams, on projects that involve collaborating with the likes of Facebook and Verizon Wireless.
A Serve app introduced in February allows users to exchange money with Facebook friends in just a few clicks, and presumably other features are in development. Plans to preload the Serve digital wallet on many Verizon mobile phones and tablets have been announced as well. Schulman offers no specifics on what else is in the works with either of these partners.
In the credit card world, Amex has long inspired envy of its marketing prowess with upscale customers and small-business owners. But as with other major players in the financial industry, it's still scoping out the possibilities in the newly emerging, but rapidly growing, digital payments sector.
On this frontier, agility is considered crucial. So besides having Serve ensconced in Silicon Alley, Schulman also opened an office for his enterprise growth group in Silicon Valley late last year. Led by Harshul Sanghi, who previously handled venture activities for Motorola, the office is charged with forging partnerships with local startups to benefit Amex's mobile and online initiatives.
Several analysts agree with Schulman that location is important for what he hopes to accomplish. They like the idea of Serve having an emphasis on thought and action unimpeded by bureaucracy, which is bound to exist in any financial company, especially one so massive. (Amex has 5,000 employees based in New York, many of them at its headquarters. Recently asked about Serve's move, a spokeswoman for the company noted that the American Express Tower has run out of room.)
Analysts also see the value of physically being in an area that's a technology hub, particularly as upstarts outside the traditional financial industry reshape the payments space. "It's a time when a lot of card issuers have been looking at the place where they are located," says Brian Riley, a senior research director in the retail banking and payments practice at CEB TowerGroup. "Whether or not MasterCard should be in New York in five years, or California in five years, is a major question."
Bankers are just as preoccupied with what the future holds. Notably, a banking company with a reputation for mad tech skills opened an office in San Francisco last summer, precisely to gain greater access to Silicon Valley. Spain's Banco Bilbao Vizcaya Argentaria—which has a retail banking presence in California through its U.S. unit BBVA Compass—describes its new office as a strategic move to put its people near companies like Google, Facebook and Apple. It expects this proximity to be helpful as it works to identify the latest technology trends, develop strategic partners and build a business model around multichannel relationships.
The office, in the city's tech-heavy SoMa district, next to companies like Zynga and Foursquare, is run by Jay Reinemann, former director of Visa's Venture Group. It falls under a recently created area within BBVA called New Models Strategy and M&A.
Some skeptics say that most established players in the financial industry simply cannot move fast enough to retain their edge in payments—where newcomers such as Google and PayPal are widely seen as innovators to watch. Banks in particular are hampered by legacy systems and legacy thinking, the naysayers contend.
But, says Zilvinas Bareisis, a senior analyst at Celent, "I actually consider Amex to be much closer to the disruptors and innovators than to the traditional banks."
Bareisis endorses the decision to open a separate office for Serve. He lists three reasons that echo Schulman's own thinking: It affords the freedom to experiment with less risk of being too disruptive to the existing business; it facilitates creating the right type of culture, where risk-taking and collaboration are the norm; and it puts Serve close to other innovative firms, with all the associated benefits of talent-sourcing and cross-pollination of ideas.
Jim Van Dyke, president and founder of Javelin Strategy & Research, says that innovation often comes down to attitude. "The factors that slow down established players are a greater desire to protect what they already have, as compared to the secondary desire to achieve what has yet to be realized, and regulatory forces."
As a monoline, Amex has a singular focus, which gives it an advantage over traditional banks—though a small startup is likely to be even more focused and nimble.
"In the end it is all about execution and being willing to throw out some established rules and assumptions," Van Dyke says.
Schulman clearly gets that.
The former Sprint executive, who was in charge of the company's prepaid wireless business, does not have a static view of what Serve is, as evidenced by its evolution thus far.
Serve launched in spring 2011 as a digital wallet, with functionality similar to the service PayPal offers, but with the option of linking to a reloadable prepaid card. (Serve was built from Amex's 2010 acquisition of the Florida company Revolution Money, which had been a PayPal competitor.)
Quickly, though, Amex began adding features and building its wallet into more of the "digital payment and commerce platform" it envisioned, and set a long-term goal to tie all of its credit cards to Serve. Progress already is being made. Schulman says that by the end of the year, all of Amex's prepaid cards will be linked to Serve. Once that happens, he expects consumers will become more familiar with the still-not-so-well-known brand.
The prepaid cards, which are designed for consumers who may not qualify for traditional credit cards, provide the company with a treasure of transaction data. And Serve is designed to maximize how useful the data is, by following the payment from the original advertisement to the sale, wherever that takes place. This is what excites Schulman about Serve's potential.
"The reason that Google wants to move in with Google Wallet is not because they want to move into payments," Schulman says. "What they really want is the data from that transaction."
Advertisers pay Google 80 cents to 85 cents per click, he says. If Google could show that a click resulted in a direct sale, then the payment would jump to $8. The problem for Google is that 70 percent of its clicks result in an offline sale, which can't be tracked. In Schulman's view, Google Wallet is a move to try to close that marketing loop. "They want to know that someone went into a store and bought a particular item and what other items did they buy," he says.
So does Amex.
Schulman says the company will let customers decide what data to share, by opting in. But ultimately the more data it has, the more powerful its digital wallet becomes.
"If you can take a link, it gives you an offer, you drag that offer into your digital wallet and you go off and you tap the phone [at the point of purchase] and it says, 'Ah, they clicked on that. They bought it. And they bought $20 of other stuff as well,'" Schulman says, "that data is tremendously valuable."
Schulman is adamant that Amex won't sell the data. But the company can use it to sell advertisements and services to merchants. That way, marketers are able to target individuals with offers that are more relevant, and thus more effective. And customers perceive the offers as a reward for using Serve rather than as annoying ads.
The scenario Schulman describes is a familiar one. Other companies— one of the most ubiquitous being Cardlytics—have laid out a similar proposition with debit rewards programs now being used by numerous banks.
But Schulman, with the confident air of a college professor who is as enthused by his subject matter as he is well versed in it, makes it clear that Amex is thinking ahead, too. Like others across the industry and beyond, he expects the taming of Big Data to be transformational. Exactly how is still uncertain, but his team is working to figure it out.
Amex is busily experimenting with new features for Serve, such as direct deposit. Not all its experiments will succeed, which is just fine with Schulman. "It means: What are you doing next?'" he says. "With the Serve platform what we are on now is version 1.5. Then 2.0 comes out, and 2.3, and 2.4. I actually don't know when we stop."
Schulman is not forthcoming about what version 2.0 might look like, preferring to talk instead about digital wallets in general. They have a lot of promise, he says, and adding functions to store digital receipts and to maintain wish lists should make them even more useful to both customers and financial companies.
Amex won't share how many people use Serve. It doesn't disclose financials for the business or say when it might turn a profit.
Schulman says it's still early going. Only a year in, the battle plans are just being drawn, and there isn't enough merchant acceptance or consumer awareness for Serve to declare success or failure yet.
Nonetheless, many in the industry are watching Amex closely. Celent's Bareisis, for one, is optimistic. "In the last few years they demonstrated that Amex can be very innovative and creative with their solutions around wallets, prepaid, mobile, loyalty, social commerce and other areas," he says, adding that Schulman's enterprise growth group, new as it is, has been a catalyst for many of these ideas.
Sean Sposito is a technology reporter for American Banker.
