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American Express is working on a vision

for the future. And to do so more effec-

tively, the New York credit card specialist

is breaking away from the pastliterally.

Its new nerve center for fresh thinking is a non-

descript ofice building just a stones throw from

the Holland Tunnel, in a Manhattan neighborhood

known as Silicon Alley, home to a cluster of tech start-

ups. Its not so far from Amexs headquarters in the

World Financial Center that you couldnt take a brisk

walk from one to the other. But you could argue that

theyre worlds apart.

One operation, unquestionably successful, is

grounded in the way things have been. The other,

yet to make a proit, is charged with envisioning how

things will be.

Dan Schulman, Amexs group president of enter-

prise 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 technoloy and Big Data reshape the inan-

cial services industry.

He foresees a day when the information yielded by

transactionswhat you bought, and where and when

you bought itis worth more to Amex than what the

company earns now on fees and services. We are be-

ginning 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 tradi-

tions of its corporate parent.

Schulman talks openly about this motivation

while hosting reporters at the new ofice this spring.

Hes 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 program-

mers seen going about their work during the press

visit are in T-shirts and jeans. A guy with heavily tat-

tooed 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 ofice 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 Californias

Silicon Valley, which inspired this neighborhoods

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. Pro-

grammers, Web developers, marketers and sales peo-

Mobile is the financial industrys Wild West, so maybe its fitting that Amexis relying on a guy in cowboy boots to stake its claim. By Sean Sposito

InnovatorIncubator

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As Amex plots how to expandbeyond cards into mobile andonline payments, Dan Schulman,group president of enterprisegrowth, is intent on creating theright culture in the right locationto attract the right people.

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ple 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 speciics 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-busi-

ness owners. But as with other major players in the inancial

industry, its still scoping out the possibilities in the newly emerg-

ing, but rapidly growing, digital payments sector.

On this frontier, agility is considered crucial. So besides hav-

ing Serve ensconced in Silicon Alley, Schulman also opened an of-

ice for his enterprise growth group in Silicon Valley late last year.

Led by Harshul Sanghi, who previously handled venture activities

for Motorola, the ofice is charged with forging partnerships with

local startups to beneit Amexs mobile and online initiatives.

Several analysts agree with Schulman that location is impor-

tant for what he hopes to accomplish. They like the idea of Serve

having an emphasis on thought and action unimpeded by bureau-

cracy, which is bound to exist in any inancial company, especially

one so massive. (Amex has 5,000 employees based in New York,

many of them at its headquarters. Recently asked about Serves

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 thats

a technoloy hub, particularly as upstarts outside the traditional

inancial industry reshape the payments space. Its 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 ive years, or California

in ive 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 ofice in San Francisco last summer, precisely

to gain greater access to Silicon Valley. Spains Banco Bilbao Viz-

caya Argentariawhich has a retail banking presence in California

through its U.S. unit BBVA Compassdescribes its new ofice as a

strategic move to put its people near companies like Google, Face-

book and Apple. It expects this proximity to be helpful as it works

to identify the latest technoloy trends, develop strategic partners

and build a business model around multichannel relationships.

The ofice, in the city s tech-heavy SoMa district, next to compa-

nies like Zynga and Foursquare, is run by Jay Reinemann, former

director of Visas Venture Group. It falls under a recently created

area within BBVA called New Models Stratey and M&A.

Some skeptics say that most established players in the inancial

industry simply cannot move fast enough to retain their edge in

paymentswhere newcomers such as Google and PayPal are wide-

ly 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.

In a conference room at Serves new office, Jacob Styburski, vice president for customer experience, makes use of the walls to sketch an interfacedesign idea for colleagues.

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Bareisis endorses the decision to open a separate ofice for

Serve. He lists three reasons that echo Schulmans own thinking: It

affords the freedom to experiment with less risk of being too dis-ruptive 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 irms, with all the associated

beneits of talent-sourcing and cross-pollination of ideas.

Jim Van Dyke, president and founder of Javelin Stratey & Re-

search, 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 de-

sire to achieve what has yet to be realized, and regulatory forces.

As a monoline, Amex has a singular focus, which gives it an ad-

vantage over traditional banksthough 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

companys 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 function-

ality similar to the service PayPal offers, but with the option of

linking to a reloadable prepaid card. (Serve was built from Amexs

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 al l of its credit cards to

Serve. Progress already is being made. Schulman says that by the

end of the year, all of Amexs prepaid cards will be linked to Serve.

Once that happens, he expects consumers will become more fa-

miliar 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 maxi-

mize 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 Serves 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 pay-

ment would jump to $8. The problem for Google is that 70 percent

of its clicks result in an offline sale, which cant be tracked. In Schul-

mans 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, themore 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 wont sell the data. But the com-

pany 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 com-

paniesone of the most ubiquitous being Cardlyticshave laid

out a similar proposition with debit rewards programs now being

used by numerous banks.

But Schulman, with the conident 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 igure it out.

A

mex is busily experimenting with new features for Serve,

such as direct deposit. Not all its experiments will suc-

ceed, which is just ine 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 dont 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 inancial companies.

Amex wont share how many people use Serve. It doesnt dis-

close inancials for the business or say when it might turn a proit.

Schulman says its still early going. Only a year in, the battle plans

are just being drawn, and there isnt enough merchant acceptance

or consumer awareness for Serve to declare success or failure yet.

Nonetheless, many in the industry are watching Amex closely.

Celents 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 Schulmans en-

terprise growth group, new as it is, has been a catalyst for many

of these ideas.

Sean Sposito is a technology reporter for American Banker.

June 2012 AMeRICAn BAnKeR MAGAZIne 35

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