What was your initial reaction to the news?
My initial reaction was that AmEx move to purchase Revolution is a direct reaction to two big moves PayPal has made in recent months. First, last November, PayPal announced the acquisition of BillMeLater. If the incumbents needed a signal that alternative payments were ready for prime-time, PayPal/BillMeLater provided it. AmEx’ acquisition of Revolution Money only solidifies the trend and highlights how controlling the payment instrument is as important as controlling the back-end. Related to this, it is clear that AmEx wants to buoy it’s at-risk issuer-side revenue streams with the transactional revenues that are characteristic of alternative payment instruments.
Second, and perhaps more importantly, PayPal’s recent PayPal X developers conference is sending ripples through the industry. In my mind, this highlights how the coming battles in payment will be about controlling how payment services are integrated at the point of payment wherever and whenever the user wants to access it. Bullet number three in the press release makes it clear that the legacy payment infrastructure must open up through APIs that allow developers to access new payment instruments and core processing infrastructure. In my mind, none of the incumbents have the skills, capabilities and resources to create a truly open platform that application developers can easily consume. PayPal made a big case around mobile at PayPal X and as bullet number four of the AmEx/Revolution Money press release highlights, mobile will play a key role at the edge of the payment network.
AmEx likely chose Revolution for its innovative management team and culture and for its scale, relative to other alternative payment instruments in the market.
Where do you believe AmEx will get the biggest bang for their buck?
In the short-term, AmEx certainly has the opportunity to drive Revolution’s services through its existing channels. With 4 million small businesses as customers, there is an opportunity to drive Revolution as an alternative payment instrument but also to enable SMB B2B payments. The long-term opportunity is, however, much bigger and much more strategic. AmEx can use Revolution’s P2P service as a wedge to drive AmEx services into emerging payment venues, like social networking sites, mobile, and instant messaging services. In the long-run, the opportunities to drive new payment instruments through hyper-fragmented software and web-based channels is compelling.
Also, in the mid-term, this could also create compelling transaction fees for Amex in the offline world as Revolution inherently uses PIN authentication. The implication is lower merchant fraud with this instrument but the platform could also be used to create a new PIN debit network tied to, perhaps, a broader push by AmEx into offering DDA’s for their cardholders.
How will this affect the payments industry overall?
For the past year, there has been pressure building on payment industry incumbents to open up their infrastructure, enabling massive innovation and new payment instruments at the edge of their networks. The combination of PayPal’s recent moves and AmEx’ acquisition of Revolution Money solidify that trend. As a result, I think you will see the core processors and other payment networks looking for ways to rapidly open up their infrastructure to enable innovation on top of their services.
Where do you expect AmEx will deploy Revolution Money first?
It looks to me as if Revolution will continue to attack online and mobile channels as if it were an independent entity, but leveraging the AmEx brand and weight in the market. Beyond that, I expect AmEx to work to bring Revolution’s alternative tender types to Amex’ installed base.
There is no denying that innovation is coming to payments. That innovation is happening at the edge of the network through new payment instruments and through the opening up of the core industry infrastructure to software developers. As a result, highly-connected software-based platforms and their associated APIs will play a key role in the industry’s evolution. Such platforms enable low cost service delivery and massive and unpredictable innovation at the edge of the network.