The payments industry had quite a decade. In a few days we will be saying goodbye to the first decade of the 21st century. What better time to take a look at the events that have shaken up the payments industry since 2000. Back at the turn of the century MasterCard and Visa were bank-owned associations, knee deep in litigation. Debit cards were growing rapidly and online was still a scary frontier with security concerns and fraud. People weren’t paying for anything with a mobile phone and contactless payment was still something only used in exotic locales like Hong Kong.
For the twelve days of Christmas (purists — we won’t get the timing of this exactly right) I’m going to blog on what I think the greatest developments in the payments business were over the last decade. Everyone should feel free to chime in with your own picks. Mine will be I’m sure a bit too US-centric, though I’ll try to cover the globe, and perhaps too card-focused since that’s what I’ve been deepest into.
The most significant development is number 1. Today I’m going to start with number 12 and work my way up the list. This will be a little bit confusing since for the first day of Christmas we will start with the 12th most significant development.
Drum roll …
#12 AmEx Goes Global
American Express transformed itself from a largely American go-it-alone card company into a global network with 128 bank partners in 127 countries (based on its 2008 10-k) including the United States.
For many years Amex was single business that issued cards, signed up the merchants, and did everything in between. That’s the model that Diners Club adopted in 1950 and Carte Blanche and Bank of America in 1958. It wasn’t until the mid 1960s when MasterCard entered with the association model and Visa followed suit a few years later after an ugly dalliance with as a Bank of America franchise. Remember, American Express was the gorilla back when these bank associations started. It took at least the next decade for the association model to demonstrate its power at creating vast scale. While it watched MasterCard and Visa grow explosively in the United States and then around the world, American Express remained an American-centric issuer sitting on its own bottom.
It started changing that in the 1990s when it entered into partnership deals in Israel and Puerto Rico. This evolved into Amex’s Global Network Services division which had 128 partners in 2008. Amex basically gives the banks a piece of the merchant discount (the economic equivalent of an interchange fee that MasterCard and Visa issuers get paid) and pockets the rest. That gave Amex some of the scalability benefits that MasterCard and Visa and the ability to become a global brand.
American Express had some legal challenges that it conquered. MasterCard and Visa weren’t thrilled about their partners getting into bed with American Express. But the card networks backed down in Europe when the Commission threatened legal action and then were forced to relent when a Justice Department antitrust lawsuit went against them. (I was on Visa’s side in that one — it is a complicated antitrust question but no business is excited about having its partners moonlighting with a rival.)
Amex’s network took off this past decade, piling up partners around the world, and growing card spend at an annual compounded rate of 27 percent from 1999 to 2008. While American Express faces significant challenges competing with the Visa and MasterCard giants, with their global card penetration, it is in a far better position to do so as a network provider than as the closed shop that it once was.
Check back tomorrow for the decade’s next great development in payments: #11 The Global Move to Regulate and Cap Interchange Fees