Amex Going Forward
Muhammad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Ever get frustrated with finding a vending machine on a hot day needing a soda only to find out that you have no dollar bills? Then you realize that this machine accepts a credit card so out of relief you try your card, find it doesn’t work, so you give it a second swipe, then you realize the machine no longer works. What if you could simply hold your card up to the machine with little to no effort and pay for your soda without swiping?
Visa (NYSE: V), and MasterCard (NYSE: MA) have already released their own sets of solutions for how this will work. Now the good news is that they are close to developing these technologies and have made major headway with Europay, in Europe. The lone member of the group of course is the always unique American Express (NYSE: AXP), who has expressed little interest in the digital revolution of mobile payments.
Recently (last month), the company gave way to some exciting news for any digital fans, the company announced it would begin placing chips inside their cards. Additionally they have joined with their other siblings in requiring merchants to accept chip based payments by 2015. The company had originally not intended the changes as domestically there wasn’t much demand, but has since changed course.
On August 1, Google (NASDAQ: GOOG) announced that every major credit card company was on board to adopt Google Wallet, the company’s mobile payment platform that utilizes NFC devices, chips on phones that allow for authentication. The move stunned many considering American Express’ history with convergence. However a week later American Express announced that they were not in partnership and still on the fence about the platform. The company’s spokesman Bradley Minor had this to say "while we are interested in the technology and remain in discussions with them [Google] about opportunities to work together, we did not provide approval to be included."
Fair enough, I suppose the company does not want to lose focus of the messaging their company is associated with. Speculation supposes the company is reluctant to be shared on a platform that allows for use of any card, be they Visa, or MasterCard. This actually falls in line with the company’s current business model with merchants, requiring that they pay a 4 percent transaction fee unless they carry the American Express exclusively, which drops it to 2 percent, close to what MasterCard and Visa allow.
"We want to make sure Google's mobile wallet product meets the standards we set for our card members in terms of the transparency and clarity about transaction detail," Minor said. "And right now, American Express does not have an agreement with Google for our cards to be used in the Google mobile wallet."
This seems to make sense; unlike other providers American Express provides many incentives to be a card holder. Having some of that information kept secret or out of their hands might seem overreaching considering the card member benefits.
Google, however, seemed to disagree, maintaining American Express had already been a client on previous payment platforms, and that the system has hardly changed. I suspect that while that may be true it is another story to compare an unpopular online gateway with something that could be the dominant system for years to come.
While American Express still continues to discover if they will use the platform, Visa, MasterCard, and Discover have already signed on as partners helping to contribute to the final implementation. A major concern is the added security a user will enjoy, knowing if their phone is stolen they will be able to wipe the device remotely avoiding unwanted charges.
Whatever AMEX chooses not to do with the future of mobile payments they have managed to do with social media. Early this month the company announced a new partnership with Twitter to instruct and promote the use of Twitter for small businesses, entrepreneurs, and medium sized business. The videos will be profiled by Melissa Barnes, head of Agency and Brand advocacy at Twitter. American Express will be debuting the videos as part of their LinkedIn group, Business Knowledge Share, which currently has 5,700 members.
Small steps are better than nothing and for many companies the leader of an industry can easily increase sales for them. It’s like opening a pizza place next to a popular one with a long line; if the line is too long frustrated consumers will cut their losses and buy your pizza instead. This very premise was recently demonstrated during Samsung’s Superbowl ad, which featured Apple customers tired of standing in line for the new phone. After seeing the new Samsung Galaxy Note the consumers left impressed and ready to buy.
Interest in mobile payments may not be high for American Express, but their larger siblings can pave the road for them to walk right in. On July 18, the company posted a $1.3 billion profit up 3 percent from the previous year, yep things are good.
muhammadbazil owns shares of Google. The Motley Fool owns shares of Google and MasterCard and has the following options: short OCT 2012 $55.00 puts on American Express Company, short OCT 2012 $60.00 calls on American Express Company, and long OCT 2012 $65.00 calls on American Express Company. Motley Fool newsletter services recommend American Express Company, Google, and Visa. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.