Today’s guest on the show is Mohammed Badi, head of American Express’s global network business. He spoke at our Power of Payments conference last year and I invited him back on our podcast to talk about two new recent launches Amex made that I wanted you to hear more about.
The first is Amex Business Link, a B2B payments ecosystem that includes Amex’s commercial bank partners, for their customers and their suppliers. B2B payments continue to be an important theme, as different players come at this from their unique angles.
The second launch is a co brand card Amex recently launched with Simon malls that rewards in-person shopping. As the pandemic wanes, there is an appetite for in-person shopping (remember that?) – this card targets a younger demographic with incentives for spending money at malls. Mohammed and I discuss these new products as well as trends in Amex’s network business.
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The following excerpts were edited for clarity.
Levers to grow the network
The Amex network is core to the American Express enterprise business: we’re the rails that carry tens of millions of transactions every day. We've got the lowest fraud rates in the payments industry. We connect partners, bank partners, merchants and card members in whatever way they want to be connected to execute payments around the world. Within my network business, we have our wholly owned subsidiary and world class fraud prevention platform that we call Accertify.
Our levers are more issuers and more acquirers around the world on the American Express network, so that we have even more merchants and more Amex cards in card members’ hands to spend at those merchants. There are two concepts that we use quite a bit within our business. One is of scaling and relevance, so increasing the scale and relevance of the American Express network. And then the other is vibrancy – we're looking to, in every geography, drive a vibrant network for American Express. So lots of card members showing up at lots of merchants and spending.
Approaching the global business
It depends on the geography of payments, which can be at a different stage of evolution. You've got, say, China, where we're at a point where mobile wallets like Alipay and WeChat are the norm. With QR codes, there are 20 million to 25 million merchants that have POS terminals, but you have so many more where the cost of a payment terminal is less than a penny because all you have to do is print out a QR code and you're set.
Contrast that with some parts of Africa, where it's still very much a cash based society. And not just Africa, actually, there are many parts of the world where you have a cash based society and cards are just starting to show up. You've got debit cards and credit cards are just starting to come. Underwriting is still relatively new, because the databases for consumers and small businesses are relatively nascent. And you’ve got everything in the middle. That's one way to look at it.
The second is, as we think about it, around payment technology and payment capabilities. Take South Korea as an example. So Apple Pay was just approved over the weekend. I think Apple has around 10 countries in the Asia-PAC region where Pay is live. Contrast that to the US where Apple pays been live since 2014. Take the hype around Buy now, Pay later. It hit the US and another number of other countries by storm over the last few years but BNPL has been around in places like Latin America for decades. It's the standard way to pay – where the capability is integrated at the merchant terminal and you can choose whether you want to pay 4, 12, or 24 installments.
The fun part about any network business, and in particular, the American Express network businesses, you get to deal with the nuances and differences across geographies. It's a country by country strategy based on what's happening in that specific country: what are the dynamics of credit versus debit? What are the challenges around technology? And what expectations do the people that live in that country have?
Global product and service organization
We're the classic matrix. As a network business, we've got geographies – North America, Latin America, EMEA, and then AIPAC – and then the orthogonal axis is product and marketing and then partner solutions and integration. We've got two different teams. And so whenever we look at any geography, it is a combination of the business development and partner teams within the geography, and then the orthogonal of the product team, or any team, and then the teams that work with our partners to actually get the partners live on their network.
Innovation and creating a platform around it
There's a couple of dimensions to the network business: you've got the core network infrastructure and technology and the bank partners that both issue and acquire on the Amex network. And then over time, there's been a need to support fintechs that are looking to bring their value propositions to market. And the approach we've taken at American Express is to offer our network platform to those fintechs to enable them to drive their innovations.
Now, we're selective on the partners we work with as they come to the Amex network. And the reason is because we feel we have a lot to offer. It's something unique to offer in terms of our brand value proposition and the assets that we make available to our partners. And so over the last, let's say, year and a half, we've established a strong fintech platform. We've partnered with banks and with issuer processors to enable them also to bring fintechs on the network.
That combination of Amex network, issuer processors, and different banks, banks that specialize in the fintech space, creates what I pictorially think of as a triangle with three vertices. In the middle of that triangle are fintechs that have interesting value propositions that we're excited to bring to the network. We are working with established players, but they're also putting a fair bit of energy into more emerging fintechs as well, to be able to drive the right kind of innovation that can bring scale quickly and innovation from players that are experimenting in the space.
Work with Square as an example
We recently launched a new credit card for Square sellers. This is part of the broader partnership and evolution of American Express and Square. We've been working with Square for quite a long time. Square is a great partner to drive scale and relevance for American Express and the geographies in which they play. They have both small and micro merchants that accept American Express cards. And as we looked at the opportunity together, we realized that there's this untapped potential within merchants in terms of being able to put a credit card in their wallet. The idea is it's a seller card, so Square will identify the sellers to whom they want to offer this card. And there'll be a set of benefits that American Express and Square will make available to the Square sellers when they get our product.
Partnering vs. competing?
There really isn't a tension. It's a great question, Zack, and we get this a lot. We get this question around our work with Square, Pay Pal, as well as with others. These are partners for American Express. I don't think of Square as a network – I think of Square as an acquirer or a payment solutions provider – that would probably be the more accurate way to describe them.
They have their own ecosystem, for sure. And that ecosystem drives their business. But at the end of the day, they have a large number of micro merchants and small merchants and some medium sized merchants that they work with to accept payments. And American Express is part of that portfolio of players that they accept. And so you put that together, it is completely consistent with our strategy. We want all merchants that accept payments to accept American Express. And therefore our strategies actually go hand in hand.
To get Square to market, we worked with i2c. So when I talked about the triangle before, i2c was the issuer processor.
The new Simon card
This was actually a super fun one. It's through one of our other partners, Cardless, which is a fintech that we've been working with. They are a program manager. And this is a digital first co brand with Simon malls. And the idea is that it was an easy path to market for Simon malls partnering with Amex and Cardless to be able to bring their value proposition to market. This is simply loyal Simon mall shoppers using a Simon American Express card to earn valuable rewards with their shopping.
The thought is: this is the right time. There was a decrease in face to face, point of sale spending as we went through the pandemic. As we come out of the pandemic, the view is as well, where we were seeing in our data where people are going back out and they're spending. Ecommerce continues to grow. But the growth in face to face spending has actually been even higher.
Being able to have a retail focused card is great for us in a couple of ways. One, it taps the fintech ecosystem that we've developed. Second, just support the overall narrative of card acceptance and coverage within retail establishments for American Express.
Demographic focus
The demographics we focused on are on two different dimensions. There's the Millennials and Gen Z consumers who are aging actively with rewards based products. And as American Express, we're winning in that segment. It's really helpful to have this card for them. But then there's also the one minus that population, which we're always looking to grow our affinity with.
There's different demographics that shop. We want to be able to tap those demographics with our proprietary cards. Your more traditional American Express Platinum Card or Gold Card doesn't resonate as much as the Simon card – it gives us an alternate product for those demographics. So it's a bit of a win-win for us.
Going after younger consumers has been a focus of ours for many years, actually. We've always had the younger population as an American Express segment. Our belief is that when you capture people early, you are able to support them through their overall lifecycle. We find that when we capture the younger population, their overall lifetime value is greater. And as they grow, we get to grow with them.
We have tilted the value proposition of our products to resonate well with younger people. Take our proprietary cards, offering streaming discounts, mobile phone discounts for a period of time, a lot of the travel benefits – they really work well with that population. So we've tilted the brand slightly to resonate well with millennials and Gen Z voters. And as we've thought about our fintech proposition within the network, we've found a similar set of behaviors, where the products that we are bringing to market are resonating well.
How the Amex network goes about targeting demographics
The network business focuses much more on partnering with our bank partners and supporting our bank partners as they go after those segments. We bring the learnings and expertise that we have within our issuing business. But at the end of the day, it's a decision by our bank partners. From a brand perspective, there actually isn't a significant shift we've had to make – the fact that Gen Z is a significant population, they are aspirational. And we have an aspirational brand – that match is actually really, really strong and really good.
The younger population prioritizes experiences, travel, and all elements that have been core to the American Express brand proposition since the beginning of time.
New B2B use cases: Amex Business Link
I'm super excited about this. Commercial banking is an important pillar for our bank partners. And as a network business, we're looking for ways to create more value for bank partners. So we created Amex Business Link in order to support them. What is Amex Business Link? I think of it as a B2B payments ecosystem that we offer to our bank partners, issuers, and acquirers, so that they can bring a superior value proposition to their business customers.
It's a platform that offers digital onboarding of buyers and suppliers for bank partners. It offers them lending solutions, as well. So when a buyer is making a transaction with a supplier, if the payment terms that the buyer and supplier would like are different, the bank can come in and actually offer lending, so you now have an additional revenue source for them. And then hopefully, over time, it will actually drive more commercial customers to our big partners. So that's what's in it for network issuers, acquirers, and our bank partners.
The end customer value prop, which is the buyers and suppliers of that bank. Our view is that Business Link will bring more flexibility to those businesses. They will be able to manage their invoices, they'll be able to manage their accounts payable or accounts receivable, the ability to choose how to pay, they can do card transactions or non card payments, as well. That's an important feature of Amex Business Link. They'll be able to make local and cross border transactions, they'll be able to connect seamlessly to their ERP systems, and then they'll have the standard reporting and reconciliation, as well.
The easy summary is, as a network, we're looking to support bank partners. Our bank partners are actively looking for solutions to bring to their commercial customers, so they can take our platform and offer it to their commercial customers.
Our overall objective is to play in a broad range of countries – you should expect to see Business Link going live in different parts of the world over time. Your point around the verticals, we're going to actively watch that, see if there are some verticals where the uptake is greater.
2023 priorities
A couple of things. One is continuing to strengthen our partnerships with issuers and acquirers around the world, and continuing to drive to that objective of vibrancy. And having even more card members showing up at even more merchants around the world. To drive scale and relevance to the American Express network. That's one.
Second, you'll see more from us around debit in particular. So we're launching more debit portfolios within the various countries for American Express. Third is B2B. We made an announcement in December about Amex Business Link. We’re looking to continue to expand that part of the business.
And then the last innovation is around bringing more fintechs’ value propositions to market, all to deliver on scaling relevance with the American Express network, but then also supporting fintechs as they look to innovate, and allowing them to innovate with American Express. And then, depending on how things evolve with digital currencies, it's an interesting time right now for digital currencies, continuing to keep our finger on the pulse and looking for ways to innovate in that space.
Blockchain
Our approach has always been that we're looking to partner in that space – we're looking to allow innovation on the American Express network,with our partners, but to do that in a careful and measured way. Now we’re in a crypto winter, so let's see how things play out. But the beauty of being a network business, you can continue to partner and as the industry evolves, we can evolve with it.
And digital currencies are more than just crypto, right? There's Central Bank Digital Currency, as well. Right, and there's that too. And so as the space evolves, we're going to look to continue to partner. Our overall strategy is to establish and compensate, build relationships with players and as the space grows, we grow with it. To a certain extent, we don't really need a crystal ball. We just need to be good partners, and that's what we are.