Hosted by top 5 banking and fintech influencer, Jim Marous, Banking Transformed highlights the challenges facing the banking industry. Featuring some of the top minds in business, this podcast explores how financial institutions can prepare for the future of banking.
Payments Innovation Drives Growth at American Express
The future of payments includes a world where consumers and businesses can move funds to anywhere in the world, instantaneously, 24/7/365, with full transparency, privacy, and security.
While there is agreement on the desired outcome, there are multiple paths to achieve this goal, leveraging varied payment rails, artificial intelligence, blockchain technologies and even digital currencies.
We are very fortunate to have Luke Gebb, executive vice president of Amex Digital Labs on the Banking Transformed podcast. He discusses the massive changes that have occurred in the payments marketplace since the pandemic and the ways Amex has responded to these changes.
This episode of Banking Transformed is sponsored by FIS.
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This episode of Banking Transformed is sponsored by mParticle.
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Jim Marous: Hello and welcome to Banking Transformed. I'm your host, Jim Marous, owner and CEO of the Digital Banking Report and co-publisher of The Financial Brand. The future of payments includes a world where consumers and businesses can move funds to anywhere in the world instantaneously, 24/7, 365, with full transparency, privacy, and security. While there's an agreement on the desired outcome, there are multiple paths to achieve this goal, leveraging various payment rails, artificial intelligence, blockchain technology and even digital currencies. We are fortunate to have Luke Gebb, executive vice president of Amex Digital Labs with us on the show today. He will discuss the massive changes that have occurred in the payments marketplace since the pandemic and the ways Amex has responded to these challenges.
Jim Marous: Even before COVID-19, the way people paid for goods and services was rapidly shifting to digital payments, a shift that may ultimately lead to a cashless global society. In fact, according to PWC, global cashless payment volume are set to increase by more than 80% between this year and 2025. So how does this and other marketplace changes impact legacy payment organizations? I am excited to have Luke Gebb, executive vice president of Amex Digital Labs on the show today to discuss how American Express is responding to the opportunities and challenges surrounding payments today. Welcome to the show today, Luke. Before we start, could you provide our listeners your short background on your 20 year career at Amex?
Luke Gebb: Sure. I have spent most of my time at the company involved in digital product development. And I have two stints with the company wrapped around a web 1.0 startup and I've been lucky enough to work in markets like New York, living in London, and now I'm working out of Philadelphia and I run Amex's Digital Lab.
Jim Marous: We should probably start by talking about the impact the pandemic had on both the technology initiatives at Amex as well as the customer experience initiatives around payments.
Luke Gebb: So I look at it as in your intro you mentioned this, it accelerated a number of trends that were already happening. So it maybe pushed us forward a handful of years. And what we saw is absolutely a large expansion within our card network. Card, not present transactions, so different methods of e-commerce or remote commerce or things like Apple Pay accelerating. Bigger picture, we also saw more account to account payments happening via open banking rails, more P2P payments happening, and some emergence of crypto and other new rails that could facilitate payments in the future. So all of that took like a solid leap forward with the pandemic. But none of it is different in my mind than what we would've been seeing a couple of years hence.
Jim Marous: Obviously, the entire payments marketplace has been disrupted, where consumers are using plastic or metal less often as they opt for mobile options where the credit card rails may not be used at all. What are some of the most significant changes you have seen that your team has had to respond to?
Luke Gebb: Sure. So across a lot of the aspects of our business, there were pieces in place that allowed people to flex their own experience. So from the basics of what people are spending money on, Amex cards have quite good coverage in all sorts of everyday spend categories, supermarkets, drug stores, et cetera. So people were able to simply shift their spend patterns to what they needed at that moment. And rewards similar. We have a very diverse rewards program in membership rewards. It's maybe most known for its travel redemption options, but it has tons of other redemption options.
Luke Gebb: And we saw people shifting their redemption to more everyday categories. And we spent a fair amount of time looking at our card value propositions and adapting them to pandemic time. So ensuring that there was really great value in terms of streaming services, in terms of the types of things that people wanted to do in the middle of a pandemic in a lockdown when travel was really close to zero for a solid almost a year. And now of course travel has rebounded heavily. So having all of those options still out there, I think has worked in our favor and will be a big runway for us or over the next few years.
Speaker 3: So, as I mentioned, a huge organization that needs to serve numerous constituents, including the consumer merchants partners like Delta and Marriott internal business units. So in Amex Digital Labs, how do you serve these multiple constituencies when you develop new products or new offerings?
Luke Gebb: The main thing is we try to get out there and listen to them all. So whether it's B2B meetings, whether it's different forms of listening to our customers and what they're doing, both on the card side and the merchant side and listening for those insights. And as an example, listening deeply to merchants led us to launch Amex offers, which comes out of this merchant interest to... Merchant has a great service, great offering, and they want to find more customers like the ones that they have. And so through listening to that, we created Amex offers, which then also allows for the card member to save money and get an offer somewhere that they might like. And so a win-win listening to all of our constituencies.
Jim Marous: So, how do you approach innovation in Amex, is it driven centrally, or is it a process that's distributed across your teams or even outside your organization?
Luke Gebb: So all business units are innovating at American Express and it is part of our DNA. And we look to them to have deep expertise with the customers that they're currently serving and to enable enhancements on products that they already have, or adjacent products to those that they already have. But when the business units don't have the time, expertise or resources to get beyond a certain spot, then that's where Digital Labs comes in. And we might work with a startup or build something ourselves, or work with some other type of big tech entity and create something a couple years ahead of when a business unit might be ready to work on it. And then we'll a look to graduate that out to a business unit, to run it in earnest as it gets off of its feet and shows some success.
Jim Marous: So can you talk a little bit about how you determine, you mentioned about outside entities, FinTechs or whatever, how do you determine whether to build or buy when it comes to expand product suite?
Luke Gebb: We have a bit of a build first culture, to be honest. And so we have to check that and stop and think to ourselves, is there a player out there that could help accelerate us? And that could come in the form of an acquisition. It could come in the form of a minority investment and an operating agreement, or just simply a partnership with an entity that accelerates us. So maybe 10 ish years back, we were very much building 90% of the time. And now I think we follow a very diverse set of strategies for across build by and partner.
Jim Marous: When you look at that build or partner or even purchase, how do you approach the potential partnership or purchase of technologies from FinTech firms? Because as you said, very much like any large organization in the finance services area right now is you're built as a build from within type organization, but when it comes to speed, I would imagine, or even some innovations, you have to look at entities in a new way and say is this something that we should just basically purchase, how do you look at that in today's marketplace?
Luke Gebb: Yeah. So we have teams that specialize in whether it's startups emerging small companies, big tech we have teams decked against working on roadmaps with all of the big tech companies and a massive team out there that manages our merchant base that end up being a source of a lot of innovation. So we have a lot of feelers out there. And then in terms of our approach, we try to make it a win-win because it is hard for each incremental partnership that you forge, whether it's even the legal process and the process of getting to a solution that works for both parties. You want to make sure it's a win-win and that it's focused on the long term because otherwise there's a lot of time to be wasted. So we really look to make sure that each entity that we're partnering with is getting something good at it, as you know, out of it as we are.
Jim Marous: So, as I mentioned, Amex is very unique in that you have major relationships on both sides of the payments equation. How do you leverage payment insights to drive the innovation process at Amex?
Luke Gebb: So having the closed loop that we have in which we have merchant data, and we have card member data, and the transactions between them, does allow us to see where the growth trends are and to focus our efforts. And many, many years ago, it was easy to see that eCommerce was one of the highest growth areas in the business because we're sitting over that data set and we can see divided all up into industries and customer type and see where the growth is coming, and then make sure that we're embracing that. So with something like e-commerce working with all of the big platforms and big tech, as well as some of our own innovations along the way to ensure that we're making it super easy and valuable for our customers to use American Express when they are out doing e-commerce.
Jim Marous: Well. And you mentioned earlier in the podcast that with Amex, so ingrained within travel entertainment, things that really were shut down during the pandemic, you had to make a number of adjustments, not only to your product set, but also to your rewards program because of the pandemic, which probably set a brand new foundation level that ever coming a little bit out of the pandemic makes it a little bit easier to work, and also gives you some flexibility as organization. Can you discuss some of the changes, some of the new products that may have made it here and what prompted these changes?
Luke Gebb: As I discussed before, a lot of the changes in habit during the pandemic played to optionality that we already had in the system. Yes. While we are known as a travel and entertainment player, our network is all set up to handle everyday transactions. We have outstanding coverage in those areas and similar with our rewards program. But if we think about some of the overall trend lines and what we are working with, even going into the pandemic before it and accelerated during it would be other types of payments that are going digital, such as P2P payments, instead of paying, I don't know, a gardener at your house with cash or with cheque that is happening through P2P platforms, often like a PayPal and a Venmo. And so we worked really hard with them to integrate those platforms into our mobile app and allow our customers to set aside, move funds from a credit card into a P2P send account that is specific for that purpose, and then pay anyone on the PayPal or Venmo network. And that's something that is proven very, very valuable during 2021 and continues to grow into 2022.
Jim Marous: So how is Amex an organization then? Because you mentioned the Venmo, the PayPals and I use my Amex card quite a bit through my Amazon relationships, as well as through my mobile app. How do you try to ingrain engagement into the Amex brand when really the gateway to that maybe with another brand entirely?
Luke Gebb: I think continually focused on customer value. And I think that if we're bringing something with a partner to the table for our customers we just look to add as much value as we can and deliver for our customers what they would want and let the rest fall where it may, I think that's worked pretty well for our brand over time. And the brand may have been more standalone and yeah, standalone really like 20 or 30 years ago almost even before I was even a customer, but these days, the tie-ins are many from Delta to Amazon, to PayPal, to every other player out there. So I think it's worked well for us and our customers have been appreciating those things that we bring to the table.
Jim Marous: You it's interesting because you mentioned about the value proposition. I come out of the traditional retail banking industry and it drives me nuts and we always drive everything down to the zero cost gain and without thinking about the value proposition and when I used to do a lot of international speaking, I'd ask people in the United States, well elsewhere how many of you have an Amazon account and how many of you ever question the amount you pay every year for the right to shop, even though delivery is free as with every big box player right now. And people don't question it because they get the value proposition in return. And pay ahead for a very hefty sum for my platinum card with American Express, but I never challenged the renewal because the value proposition, what I get for it. And it's probably different for every consumer. You keep track of that. And that's a big difference between the way that Amex looks at their customer base and what I'll say traditional retail banking looks there.
Speaker 3: Let's ake a short break here.
Luke Gebb: That's a product that we keep improving and that we keep pricing for it. And it's getting more and more popular over time as the value grows. And so I think, your experience is pretty common.
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Jim Marous: Welcome back. I am joined today by Luke Gebb executive vice president of Amex Digital Labs. We've been discussing the payments innovation process at Amex and how a legendary financial institution can remain relevant in a marketplace that's disrupted by outside players. So Luke, it's no secret that there are new players, big and small that are dramatically impacting the payments ecosystem and even the lending ecosystem. How does Amex respond to these non-traditional competitors that often have less overhead are very agile and are highly focused on the customer experience as is Amex?
Luke Gebb: Sure. We look to learn from them and partner with them as much as possible if there's something unique that is being brought to the table and we've developed a number of partnership models that work really well from starting with a minority investment. If it's let's say a series A or series B player that has something interesting and synergistic with American Express will make an investment and will create an operating agreement with them and go test things. And so, that works really well at the small end and at the large end of the market with the big tech players, as an example, we're working with them and building on a consistent basis, not creating one off partnerships here or there, but constantly working to ensure that our products and services are well integrated together.
Jim Marous: One of the major changes that happened in the payments marketplace this year and really it's interesting because it's not really a major change, just a new marketing of an old concept. It's the whole buy now, pay later mechanism. And how is Amex felt about what's happened there, but also the new players that are really doing a lot to dramatically change the profile of how let's say the lower end consumer is really addressing payments?
Luke Gebb: We've paid a lot of attention to it and there have been impressive gains by a lot of those players. We have a product called pay it planet. That is an installment product that we launched four or five years ago. Now I could be slightly off in the number of years, but I was around helping with the launch and helping with the mobile experience of it. And our customers love that product. And it speaks to a generation of customers in a different way about loans that learned that having any outstanding balance with a credit card is a very bad idea. And so instead very transparent installments with a very specific fee that you can look at and see and know that it's not going to spiral out of control. Our customers love it too. And we see that product growing dramatically.
Jim Marous: Yeah, it's interesting. You mentioned this is not a new product for you either. It's just a repositioning of a product that was in place that maybe wasn't used as much as it's currently doing it with all the other organizations focusing on that. So another major area discussion payments today is the increase in interest in blockchain technology NFTs and crypto currency. What work has been done by Amex around this potentially completely new payment alternative.
Luke Gebb: Yeah. It is a fascinating space for sure. And a few areas that we're looking at. I mean, we don't have new announcements to make on this day, but here's what I find interesting. Certainly our customer are using cryptocurrencies as assets and stores of value and we want to help our customers do what the things that they want to do. So that's interesting to us, the NFT space, especially as it evolves and becomes a tool of engagement between artists and their super fans, we're interested there.
Luke Gebb: And we did an NFT drop with CSA and we see going further into a number of areas from there, but where we are helping connect artists with their super fans in our base and maybe using NFTs as the unit of currency between them and the contract between them. So that's interesting. And then clearly payments big picture you could see a chain like Ethereum becoming a settlement layer for cross border movement of money, that sort of thing. And that's definitely an interest area for us as well on the merchant settlement side of the business. So there is a lot of intrigue there and yeah, we're focused on it as well.
Jim Marous: Your job has gotten just dramatically more interesting almost every day, because you open the trade pub and you go, "Geez, I didn't see this coming" or something else comes about many organizations that are major players have made overtures also around the development of super app or something embracing open banking to embed more than simply payments into the consumer's life. And it really is revolving around doors organizations that have the most insight into consumer behavior. Do you see Amex going into more of the direction around and it's used so frequently, but in so many different ways around the soup wrap projection and do you see Amex going that direction possibly?
Luke Gebb: I think in the US market, it's a fine line. So we've looked very, very hard at some of the Asian super app players and what they're up to and look to learn as much as possible from what has been successful there. And what is really cool is that the payment moment does provide this high frequency use case that works well for WeChat as an example and building engagement. And when I look at the US market, there is a fine line though. The American express app, the card servicing app is JD Power award winning. It has a lot of functionality, both obviously all the things that you can do in terms of your card, but you can also make P2P, send payments in it. You can find our lounges, you can do banking increasingly inside of our app.
Luke Gebb: And there's tons of functionality there. And as I said, it is JD Power award winning. So our customers are giving it great feedback, but when you get into a depth area like dining and look at our acquisition of REZI, if a customer is going to deeply immerse themself in finding and booking a restaurant reservation, we think that that is a separate app experience in our REZI app and that makes sense, and it has its own depth and breadth that it has to deal with. And we don't see the US market going the WeChat way, where it's an app in side of WeChat to find your restaurant and book it. Like in the US market, we see people continuing to use apps like REZI.
Jim Marous: You've also, you mentioned banking. You also recently announced the introduction of a fully digital business checking account that connects with an existing American Express credit cards and comes with a debit card as well. Can you share the strategy behind this and a little bit move and also the acquisition of cabbage in 2020?
Luke Gebb: These are moves made by our commercial business unit. And when we talked about innovation coming from business units and then my digital labs team working beyond what the business units are up to with their current resources, this is an example of something that is totally championed by the commercial business. And we're looking to meet the payments and cash flow needs of small businesses so that they can run and grow their business. And cabbage fits right into that back to the app conversation. If a business is going to really run their business on a day to day basis, it's got to have a lot more functionality than a credit card than the basic credit card T&E functionality. And so you'll see us having that offering to the small business customers and becoming a more essential part of their life.
Jim Marous: Yeah, it's interesting because I look at my destruit relationship and I have a business bank, but I don't consider that my business partner, they don't use the data. They don't track the data, but it's also, I receive payments through a third party app. I disperse money through a third party app. And you mentioned it that in the business area, the small business areas specifically, there's a huge gap between the needs of a small business and what most traditional banks are providing and to combine a business, checking account, a business debit card and credit card. And also the services of cabbage really fills a need that isn't filled in one place right now. And I thought it was very need play, but one that really feels like a major gap in the marketplace right now. So as you, as you look at the payment marketplace today, what do you see as the biggest opportunity in the marketplace?
Luke Gebb: So big picture, you see old analog payments yielding to digital payments of a variety of types, right? So cash going away, paper cheques going away yielding to wind at the back of many of the systems that are up and running presently. So more credit card volume, our volumes are well up over pre-pandemic levels. So you have more things going to credit cards, whether those physical cards are present at the point of transaction or not, they're running across credit card rails, you have more account to account. So open banking style transactions for sure. More P2P transactions. And I think also you'll see crypto coming on the scene and as these transactions go from analog to digital, then you have all these services that you can interlay within them.
Luke Gebb: Like buy now, pay later, because if you are walking into a urchin with a lot of cash that's not really conducive to them saying like, "Okay, I'll write you up for a loan or whatever" that's but when all of that is happening digitally and you have some history on the individual, you know what they might need, you can make them a good offer and execute on it really well in digital channels. So I think that adding more services and functionality on top of the movement of digital money is the big opportunity in front of us. And it's to your earlier point. It's multi-pronged lot of different ways to go with it.
Jim Marous: So really what you're saying is if I'm correct in saying this, that you're really looking at that Amex has done quite well in the past, is really the power of engagement it beyond the transaction, that the loyalty is not going to come from how well you can process that transaction because the loyalty, the transaction part of it is getting easier and easier to move that around. On the other hand, it's the engagement beyond the transaction that you're really spending a lot of time focusing on isn't?
Luke Gebb: That's absolutely right.
Jim Marous: Yeah. So, do you have any trends or predictions that you have around the future payments, something big that may or may not happen the next year or so?
Luke Gebb: Sure. I mean following on what I said before, a growth in all these digital payment rails, credit card, account to account P2P and new use cases for crypto in payments, all growth wind at the back of all of those. And I think you'll see more and more new functionality emerging on those rails and certainly faster, more efficient cross border payments comes to mind. But yeah, many areas where just simply using these new rails will facilitate better experiences and better value add outside of the transaction.
Jim Marous: Great to have you on the show, say you're the first person from Amex we've had on the show. We've been trying for quite some time because we sometimes forget about because it is so seamless in it and it's part of our life having Amex around. But the reality is your organization probably has had to do as much pivoting as any, as the marketplace has changed over time. And what's interesting to see how the innovation function within Amex continues to evolve and the products and services that you've continue to be out there with that that really are changing the marketplace and changing for all the other players as well in an area that certainly the payments area is extraordinarily fluid right now. So again, thank you so much for being on the show today.
Luke Gebb: Thanks for having me.
Jim Marous: Thanks for listening to Banking Transformed, raise a top five banking podcast and winner of three international awards for podcast excellence. If you enjoy what we're doing, please take some time to show some love in the form of review. It really helps us get guests like Luke on the show and helps us get future guests. Finally, be sure to catch our recent articles on the financial brand and check out the research we're doing for the digital banking report. This has been a production of Evergreen Podcasts, a special thank you to Leah Longbrake. Our producer, audio engineer, Sean Rule-Hoffman and video producer Will Pritts. I'm your host, Jim Rous. Until next time, remember creativity is thinking up new things. Innovation is doing new things.