Networks AmEx Serves up Serve

 

Linda Punch

 

A product of its acquired Revolution Money program, Serve is American Express Co.’s entrant into the increasingly competitive mobile, online, and person-to-person payments market. Will it deliver?

 

When an industry heavyweight like American Express Co. throws its hat into the digital-payments ring, people sit up and take notice. Especially when the system is based on the high-profile Revolution Money Internet-based payments platform that AmEx bought in 2010.

 

So when AmEx in March announced the launch of Serve, the travel-and-entertainment payments network’s initiative to stake out territory in e-commerce, m-commerce, and person-to-person payments, it caused a stir.

 

Serve is an online and offline payment system centered on a digital account and reloadable prepaid card that enables person-to-person payments as well as physical, online, and mobile purchases. The digital account is funding-agnostic, meaning it can receive funds from any credit or debit card as well as through the automated clearing house. Serve currently is available only to Americans, but AmEx plans to offer it outside the U.S. later this year.

 

But while many say Serve could become a significant player, they also say AmEx has a lot of work to do. Indeed, some observers note the initial product offering is nothing special.

 

“I’ve got a Serve card and so far it doesn’t seem to be much different from some of the other prepaid cards that are out there,” says Aaron McPherson, practice director for financial services at IDC Financial Insights, Framingham, Mass.

 

And many say it’s hard to judge whether Serve will be innovative and successful until AmEx offers more details on where it’s headed with the product.

 

“At this point, it’s a matter of how they continue to deploy it and roll it out, whether it actually does achieve the kind of direction they’ve intended,” says Beth Robertson, director of payments research at Javelin Strategy & Research, Pleasanton, Calif. “With a lot of announcements, there’s kind of an initial fanfare and sometimes there’s not the ongoing support for it.”

 

Adds McPherson: “It seems unfinished. There’s a lot more they could do with it and I’m not sure they’ve effectively articulated what it is yet.”

 

Work in Progress

 

But AmEx admits Serve is a work in progress and says the prepaid card approach allows consumers and merchants to begin using the product even as mobile-wallet technology evolves, says David Messenger, executive vice president of online and mobile at American Express. Serve will add new technologies, such as near-field communication (NFC) for contactless cards, as innovations in mobile payments emerge.

 

“The key is this is an open platform that really works in the world as it is today and can evolve as new technologies roll out,” he says. “Building on the Revolution Money platform, we have a very scalable, robust platform that is integrated with American Express’s infrastructure and its merchant network and payment rails. We think we’re in a very good place as we really start to ramp up our market presence.”

 

This low-tech entrance into the market is a practical approach to introducing Serve to consumers and merchants, says Gwenn Bézard, research director at Boston-based Aite Group LLC.

 

“I like the fact that they’re not trying to come up with another solution that requires unique technology to enable mobile payments at the point of sale, because they are issuing a piece of plastic,” Bézard says. “People can start using Serve anywhere cards are accepted, and that’s very powerful to have a solution that right off the bat is going to work and you don’t have to wait for terminals to be changed because essentially they don’t really do mobile payments.”

 

AmEx already is adding to its mobile-payments arsenal. In April, it announced it was investing in a startup called Payfone Inc. and would integrate Payfone’s technology with the Serve mobile-pay platform.

 

Founded in 2008, New York City-based Payfone uses a consumer’s mobile-phone number to authorize purchases. Its system potentially could make it easier for AmEx to capture more payment transactions and expand abroad, especially in areas where there are few conventional payment cards.

 

AmEx expects Serve to attract users who now mainly use cash or debit cards and avoid credit and charge cards. That’s incremental transaction volume for AmEx, whose core products are credit and charge cards.

 

One-Click Coming

 

Consumers can set up Serve accounts through the Serve.com Web site or via applications for Apple Inc.’s iPhone or smart phones running Google Inc.’s Android operating system. There also is an app under development for Research in Motion Ltd.’s BlackBerry smart phone.

 

Consumers can set up a so-called master account, which can hold up to four sub-accounts for family members, friends, or employees. A parent, for example, could create a sub-account for a child attending college and put spending controls on it. Funding options include automated clearing house debits from checking or savings or payments from AmEx or other networks’ credit and debit cards, or cash.

 

Cardholders can make purchases at any store that accepts American Express by presenting the prepaid card. Merchants don’t need to make any changes to their payment systems. For online or mobile purchases, the user types in the Serve account number or prepaid card number. AmEx is developing one-click functionality for later this year.

 

Recipients of person-to-person payments must have a Serve account to receive funds. AmEx gives recipients a week to open an account. If not, AmEx returns the funds to the sender.

 

AmEx is waiving Serve’s consumer fees for the first six months to attract users. Normal account loading costs are 2.9% of the amount plus 30 cents, but discounted to 0% for cash, debit card, and ACH funding. ATM cash withdrawals cost $2 after the first withdrawal. AmEx won’t reveal the discount rate merchants will pay to accept a Serve prepaid card, saying only it will be generally lower than rates for AmEx’s regular cards.

 

One of the greatest challenges facing Serve is increasing competition in mobile payments from both existing players and new entrants. In the weeks following AmEx’s announcement, several big players joined the fray, including three major banks and Google Inc.

 

Mega banks Bank of America Corp., JPMorgan Chase & Co., and Wells Fargo & Co. in May announced a joint P2P service named clearXchange. While clearXchange currently is limited to the banks’ customers, it could be integrated with other P2P systems and possibly become a payment option for merchants.

 

That same month, Web search giant Google announced it is working with four partner companies and some 16 retailers to offer consumers a payments-and-rewards system based on its Nexus S smart phone, which comes equipped with an NFC chip for point-of-sale transactions.

 

The competition doesn’t stop there. Archrival Visa Inc. announced this spring it is joining the race to build digital wallets that will work with mobile phones. Its wallet, Visa said, will house cards branded by any network.

 

Furthermore, Serve faces competition from other startups such as Spindle Mobile Inc.’s Rhino Pay, a P2P mobile wallet similar to the PayPal model, and Isis, a mobile wallet that will enable payments as well as give retailers the ability to offer targeted coupons and messages via smart phones. Isis is a joint venture of telecommunications providers AT&T, Verizon Wireless, and T-Mobile.

 

Viral Marketing

 

To raise Serve’s profile above the crowd, AmEx will step up marketing of the digital-payment system early in the third quarter, following encouraging results from a local pilot, Messenger says.

 

“We’ve done a market test in Eugene, Ore., and got some great initial feedback there,” he says, declining to give details. “We’ll be rolling out broader marketing approaches shortly.”

 

As part of the initial rollout, AmEx primarily is focusing on marketing Serve through partnerships with other companies. It has already announced hookups with Ticketmaster LLC, Concur Technologies Inc., a provider of online expense-management services for businesses, and Flipswap Inc., which facilitates trade-ins of used cell phones.

 

Ticketmaster will offer Serve as a platform for customers to make and collect payments towards ticket purchases from other customers.

 

“Ticketmaster’s a great one where embedding Serve’s capabilities within Ticketmaster’s platform will allow someone to buy a group of tickets for a concert and actually get the money from their friends for those tickets in a very seamless, effective way,” Messenger says. “An example like that we think will really start to raise awareness in the market of what Serve can do.”

 

He adds that AmEx also is in “active discussions” with other major partners. Last month, AmEx announced a daily-deal service with AOL Inc. that will use the Serve platform. It also unveiled a low-fee prepaid card it said wasn’t related to Serve.

 

Using partnerships with companies like Ticketmaster allows AmEx to introduce Serve to a wider range of consumers, Javelin’s Robertson says. She notes that Ticketmaster has a good demographic mix of both younger repeat customers and older consumers.

 

And since Ticketmaster has a national presence, “it’s not limited by any geographic boundary like a lot of the other trials that are going on for mobile offerings,” she says.

 

Serve also is trying to make its system attractive for charitable donations by offering software apps called widgets that can be downloaded on its site or on Facebook and then shared to encourage donations. AmEx will match donations up to $100,000 for each of its five initial partners: Autism Speaks, Best Friends Animal Society, Malaria No More, Save The Children, and Stand Up For Kids.

 

AmEx also is developing widgets so that consumers can sell personal items or raise funds for their favorite charities by dragging the widgets into the social network or online communities of their choice, such as a circle of Facebook friends.

 

Another component of Serve’s marketing strategy is that it has open-system functionality that would enable third-party developers to include Serve in their apps, Messenger says.

 

While partnerships will be the major focus for driving growth, AmEx also plans to do direct consumer marketing, mainly digital outreach through social networks such as Facebook, Messenger says.

 

“We’ve had some great response to some of our online and more viral marketing approaches in Eugene, Ore., so the bias will be towards that rather than traditional media,” he says.

 

“The Big Challenge”

 

AmEx also will shortly begin signing up new Serve merchants, Messenger says. Serve already can be used at any merchant accepting AmEx cards. But AmEx also will focus on P2P payments since early market testing indicates that using Serve for person-to-person payments “really resonates” with consumers, Messenger says.

 

“It isn’t only younger demographics who actually want to be able to send money back and forth to friends and to people they shared a meal with or they split the rent with,” he says. “There’s a lot of untapped demand out there for really good P2P functionality.”

 

The fact that AmEx already has an existing base of cardholders (40 million U.S. cards in force as of March 31) and merchants gives Serve a leg up on many mobile-wallet schemes, Robertson says. But she notes that other competitors, such as Google and Visa, also have good merchant and cardholder access.

 

Just where Serve will end up in the mobile-payments market is anybody’s guess, says William Clark, president of Scottsdale, Ariz.-based Spindle Mobile.

 

“We all have a very busy space,” Clark says. “Once or twice a week there is somebody coming out—a new wallet, a Google, something going on that makes this segment very exciting.”

 

But Clark says Serve “has as good a chance as anybody at being successful, although certainly with the PayPals and Googles and what not there’s going to be a lot of room for us all to run hard and prove our value.”

 

That competition “validates the market segment and the next six months or so will really tell whether or not [Serve has] got a good solid business plan. It certainly looks good on paper,” Clark says.

 

The main challenge AmEx will face is giving users a good reason to actually start using Serve, since consumers are reluctant to hand out the credit card and bank information necessary to use a digital wallet, Aite’s Bézard says. For example, PayPal users wanted access to eBay auctions while iTunes users wanted the ability to download music.

 

Consumers have given out that confidential financial information “not for the sake of having a wallet, but because they wanted to get something they badly wanted,” he says. “To me, that’s the big challenge [for Serve].”

 

 

 

Recent Mobile And P2P Headline Grabbers

 

Serve: American Express’s online and offline payment system centered on a digital account and reloadable prepaid card that enables person-to-person payments as well as physical, online, and mobile purchases. The digital account can receive funds from any credit or debit card as well as through the automated clearing house.

 

clearXchange: A joint person-to-person service from Bank of America, JPMorgan Chase, and Wells Fargo. The service is limited to the banks’ customers but could be integrated with other P2P systems and possibly become a payment option for merchants.

 

Google: The search giant is working with four partner companies, including MasterCard Inc. and Citigroup Inc., and at least 16 retailers to offer consumers a payments-and-rewards system based on its Nexus S smart phone, which comes equipped with a near-field communication (NFC) chip for point-of-sale transactions.

 

Square: Twitter co-founder Jack Dorsey’s payments company recently added a direct consumer application called Card Case that enables a customer to register with a Square-accepting merchant for fast payments via a smart-phone app. The app displays a tab listing, for example, a coffee shop’s menu and prices. The app also generates digital receipts. Merchants using the new Square Register system on Apple’s iPad can send customers a link to download the Card Case app.

 

Isis: A startup company from telcos AT&T, Verizon Wireless, and T-Mobile offering a mobile wallet that will enable payments as well as give retailers the ability to offer targeted coupons and messages via smart phones. Isis recently abandoned plans to build a proprietary merchant network.

 

Rhino Pay: Startup company Spindle Mobile’s person-to-person mobile wallet is similar to the PayPal model, linking a consumer’s phone to his bank account, credit card, or other funding source.