EVANS: Hello everyone, this is David Evans. I’m talking to Dan Schulman today from American Express, where he’s the Group President for Enterprise Growth. Dan is waist deep in thinking about how innovation can transform AmEx, and I’m sure he’s thinking about how he can transform the industry more generally. He came to AmEx, from Sprint where he was the President of their prepaid group. Dan, thanks a lot for joining me today.
SCHULMAN: Thank you, David. It’s a pleasure to be here.
EVANS: Dan, why did you decide to join AmEx?
SCHULMAN: I spent the last maybe 10, 15 years with technology companies. As you probably know, I ran AT&T’s Internet division. I left to become the CEO of Priceline.com and then founded Virgin Mobile. So, I have quite a bit of experience in the mobile industry.
If you look at the move from physical to digital payments, that background and skill set I’ve been able to develop over the last several years came in quite handy. If you look at American Express, all of the leveragable assets that it has as a company and at kind of where digital payments are going, which is quite exciting because it’s not just digitization of payments, it’s really redefinition of commerce in many ways.
That combination of my background and skill sets, the leveragable assets that American Express has and really all the excitement around digital commerce made it a relatively easy decision for me. I’m really happy about it.
EVANS: Sticking with that, how is American Express now positioned to evolve into a digital payments company?
SCHULMAN: Clearly one of the futures, I don’t think there’s any question that the payments industry is going to be going through a fundamental transformation over the next three to five years. The move from physical to digital will be a prime driver of that. We’re all moving from a physical commerce type of environment to a commence life cycle that really blurs online and offline together. Clearly, that movement will be very important to the entire payments industry.
American Express has a number of benefits and assets that we can leverage as we look at that. Our core business is doing quite nicely right now. We’ve recovered reasonably well from the downturn in the economy. As a result of that, we’ve got very strong assets to leverage, whether that be our cash on our balance sheet to look at ways of acquisitions, whether that be technology tuck-ins or distributions deals we might want to go do.
We’ve got a very strong customer base right now. We have 90 million card members. We have 5, 6 million merchants. That ability to leverage both of those things gives us a running start toward scale.
We’ve got some technology that we’re rapidly putting in place — some platforms that we can utilize — that would be the foundation as we move into this digital world. So, we’ve got a number of assets that American Express has, not the least of is the brand itself. The brand really, for me, stands for trust, security and service. I think as we go into a digital world, which you’re going to be putting extraordinarily valuable information into the cloud and then calling that down into your various devices to create a mobile experience around digital commerce, that trust and security is going to be more important than ever in the future world. If something goes wrong, you absolutely want to be able to call somebody to have the right servicing around that.
So I think the combination of the strength of our current core business, the willingness for us to make the difficult decisions to make this transformation and the brand attributes we have position us very well as we look forward.
EVANS: Dan, let’s move from American Express to the broader industry. What are the key things that you think are going to change the payments landscape, the payments industry in let’s say the next three to five years?
SCHULMAN: I think it’s a great question. I think there are three fundamental things that are trends that in and of themselves are important, and the intersection of them make them even more relevant.
I think once you have an explosion in various forms of technology, especially around mobile and cloud computing, that’s No. 1. No. 2 is the advent of social networking that’s obviously changed the way that the world works, but it also is playing into commerce around social commerce models that are happening. Third, as you look especially outside the United States, is strong government pushes in the electronification of cash. That electronification of cash plays into mobile and technology as well.
So, those are the three big trends I think that are impacting the payments industry. If I can talk briefly about each of them, I think you can get a better idea of what we’re thinking about.
EVANS: That’d be great.
SCHULMAN: Obviously two-thirds of the world today is connected to mobile devices, increasingly through smartphones. Smartphones are exploding in popularity here in the U.S. Half the people in the U.S. will have smartphones by the end of this year. So, you’re already seeing the crossover point, and the pace on the explosion of mobile is only at its tipping point right now. There are 4.5 million people that have mobile phones today. In several years, there will be 10 billion mobile interconnected devices to the Internet.
Basically what that means is that everybody pretty much will always be connected to the information that’s relevant to them. So, you’ll constantly be connected to the Internet. Not only do you have that with better user interfaces, but you’ll be connected at faster and faster speeds, and the cost to connect to the Internet is dropping all the time. So, Moore’s Law applies not only to cost of hardware but also to communications as well.
What that basically means, because you’ll have a mobile device constantly connected, is that this distinction that is very artificial right now between offline commerce, and online commerce will blur. Today, we think of online commerce as being in front of your desktop at home shopping via the Web. When you’re in a bricks-and-mortar, you’re basically going in, and you’re shopping and pulling things off of the shelves, putting them in a shopping cart and checking them out.
In tomorrow’s world, because we all have smartphones or digital devices that are connected constantly, and we’ve got the advent of – and of seeing your compunctions into the retailers, I do believe that some form of that will eventually come into play. Is that basically commerce is going to be redefined? Commerce is going to be what we call digital commerce here, and that’s the blurring of online and offline.
So, the information layer of what you get to do commerce will be done offline the same way it’s done online right now. So when you walk into a store, all of your shopping lists, your loyalty, your couponing, your comparison shopping, your social networks will all basically be contained within data elements within your mobile device, interacting on a real-time basis, in a dynamic way, in a present space way, with that particular retailer. Therefore, you’re going to have this kind of back and forth with data, and that by the way will include attracting consumers, managing customers, retailers will be able to give customized offers to consumers. Consumers will be able to have more tailored information for them.
Basically that mobile device and this NFC technology changes the entire way we think about digital commerce. As a result of that payment, which today is a very sort of static element, you pick out a credit card or you pay with cash or a debit card, it becomes a much more dynamic element of a full ecosystem around digital commerce.
That’s how we’re thinking about payments going forward. Not just the digitization of payments or a form factor change from pulling out your credit card and swiping it in front a point of sale, to swiping your cell phone in front of a point of sale. This is much more about your mobile lifestyle, your social networking lifestyle being combined into a digital commerce experience, and all of that fundamentally changing.
So, we are really thinking about this in the broadest of ways as we think about were payments is going. Social networking obviously is a very important element — 1.5 billion people in the world connected to social networks. It’s changing the way people shop. So, you look at companies like Groupon, you look at gaming companies like Zynga, they’re using the power of social. The power of the collective, the power of a community to basically more effectively curate information and understand information better so that they can have a better shopping experience utilizing crowd sourcing and communities — people they trust — to be able to tailor their shopping experience to them.
So, those two things are combining together into the mobile phone, and we think both of those will make a big difference as we go forward.
In countries outside of the U.S., governments like in India are pushing very hard for the electronification of cash, because cash is so inefficient. There’s a lot of leakage. In India, a tremendous amount of people who need aid, because of the dire financial circumstances that they find themselves in, are sent aid by the government. There’s a lot of leakage in that. What the government is trying to do is push financial inclusion and use of mobile phones to basically electronify cash payments. We think that there isn’t a question that as we look in countries, like India, that mobile payments will come to the forefront as opposed to moving into that market via credit cards or traditional plastic methodologies.
So those are the trends that we see that are shaping how payments will morph as we look into the future.
EVANS: Thanks Dan. Those are really great insights and a real good segue into my next section, which is sort of a pop quiz. I want to run some recent developments on mobile payments and get you reaction to what their importance is. Apple is saying it’s going to include NFC in its phone.
SCHULMAN: Yep, no surprise there. I think NFC is going to be a standard that you’ll increasingly see at retailers. I think it’s critical as we look into the development of digital commerce. So, I think you’re going to see not just Apple, but all the players start to think about how they embed NFC both into your mobile phones, but very importantly also into point of sale, into retailers as well.
EVANS: Second development is ISIS — the AT&T, Verizon and T-Mobile joint venture with Barclays and Discover. Is it big news, little news, maybe news?
SCHULMAN: I think all of it is contextual news in this move towards figuring out how we start to create standards and create a large enough scale and communities to actually start to drive toward this vision of digital commerce. So I think ISIS, Google, Apple, you name it, all of this is within the context of people trying to figure out how do we start to try and form ecosystems to create real benefit for consumers and merchants to facilitate commerce in the digital era that we rapidly approaching.
I know we’re in a digital era right now, but truthfully, commerce is separated right now on an offline and online. I do think as we go forward that distinction goes away. What I think people are trying to figure out how do we start to think about that as we go forward, control both access to data and to customers. Each party is beginning to think about the chess moves as we think about the digital economy that’s about to unfold.
EVANS: Third one, and I’ll leave it at that for this part of the pop quiz. The fact that Android has overtaken iPhone, what’s the importance of that? Is there any? When I say overtaken iPhone, in terms of quarterly sales Android is doing very, very well.
SCHULMAN: Yeah. I mean obviously Android is exploding in popularity. I think there is a difference between what Google is trying to do with Android, and what Apple is trying to do with their operating system in terms of curation and openness.
The truth of the matter is both the explosion of the iPhone, and the fact that latest status that I saw was that there are 300,000 mobile phones a day being activated with Android. That is all within the context of the explosion of smartphones. The more smartphones that can be out there, especially NFC enabled that move towards digital commerce, I think create the opportunity for people to think very innovatively about how the future might unfold, and how each of us might deploy our various assets and strengths against that vision.
I think all of us are thinking about the future. We may be thinking about it in different ways, and how it might unfold. But each of us are thinking about the chess board right now and what pieces we might deploy, who might we partner with in order to create an end state that facilitates the value between sellers and buyers in a digital world.
EVANS: What’s it going to take to get merchants into the equation so that they actually make the transformation at the point of sale to make this wonderful world possible where people can pay with their mobile phones? What’s going to ignite it at the merchant end?
SCHULMAN: I think it isn’t going to be what you just said. I don’t think it’s going to be this wonderful world where you can pay with your mobile phone. Frankly, that is thinking about a form factor change as opposed to a value proposition. Just putting your plastic into your mobile phone and being able to swipe it does not give the advantage either to a consumer or to merchants that really makes this compelling going forward.
I think a lot of people think about NFC in that way. They think about NFC being a form factor change, and I don’t think that actually is compelling enough for merchants to make all the changes in their environment, in their point of sale terminology.
I think what makes something compelling for merchants is when you can talk about the data exchange that can go on with an NFC implementation between what consumer’s commerce preferences are, and what you can then dynamically offer them. And enhancing their return on investment of a marketing dollar for a retailer. And then for a consumer saying, look instead of being bombarded with all of this information what you can have now is customized offers tailored to you.
That sort of symbiotic relationship where you can increase the ROI of a retailer and the satisfaction of a consumer is when I think this begins to take off in the U.S.
EVANS: So it’s a whole set of value added services that is being provided to the merchant and to the consumer where payments is one element of that?
SCHULMAN: Yeah, exactly, exactly. It’s not even value added, it’s almost – well it is value added, but it’s also taking what are static elements like shopping lists and loyalty and couponing and creating them and making them real time and dynamic based on presence.
EVANS: Anything you can tell us on what AmEx is doing on the mobile front? Obviously you’re not going to tell us what the crown jewels are, but if there’s anything that’s not too much of a secret we’d love to know.
SCHULMAN: Well, I will say to you we are seriously at work, and I think we’ve developed a kind of strategy and an end state towards which we’re driving. We are doing quite a number of things behinds the scenes from a technology perspective to be able to go into the market with a robust platform that enable us to move into digital payments, and then into other services around that.
We’re talking to quite a number of people out there in terms of how we might partner together what companies might we form an ecosystem with. So quite a number of things underway right now, but we’ll keep all those things to ourselves until we’re ready to announce.
EVANS: That seems perfectly fair. Here’s the last question for you. We talked about the movement away from cash to electronification outside of the U.S., and don’t take anything from that introduction. But how is the regulatory environment in the U.S. affected how you think about innovation? Obviously, we’ve had a lot of changes in a couple of years between the CARD Act. We have the Interchange Fee Regulations that are potentially going to go into effect midyear. And then we have the Consumer Financial Protection Bureau being erected almost Pentagon scale in Washington, D.C. at the moment. How does all that affect how you think about innovation?
SCHULMAN: I thnk as long as innovation is about creating consumer benefit, real consumer benefit, things that make life more efficient and easier for consumers creates real value for merchants and the facilitation of commerce. I think regulation is trying not to get into the way of that innovation.
I think what regulation is trying to do is trying to protect consumers and protect the integrity of the financial system. I think both of those things are laudable and the right things to go and do.
What I want to make sure is that regulatory issues and constraints don’t slow the pace of innovation, because I think what is very important for regulators to realize and for us to realize is that payments is morphing. It is moving into a digital world. There are a lot of companies that are thinking about that right now in the form of payments, and how it plays within commerce will change going forward.
So I think having the pace of change, to be able to innovate rapidly around that is extremely important. However, we’re not at odds in terms of what we’re trying to create from regulators. This is supposed to create real value for both consumers and for merchants. In general, if we can do that and facilitate commerce, that’s good for the economy overall. I think in many ways we’re quite aligned with what regulators are trying to do. We just need to be sure that it doesn’t slow down the pace of change.
EVANS: Dan, this is your first full year in your new job, and we’re right at the beginning of the year. So, we wish you lots of luck in what you’re doing and lots of success for you and American Express. Thanks a lot for spending time with us today on PYMNTS.com. I’m sure our listeners will really appreciate hearing what you had to say today.
SCHULMAN: It’s my pleasure. I look forward to future talks as well.
Dan Schulman
Group President, Enterprise Growth
American Express Company
Dan Schulman joined American Express as group president, Enterprise Growth, in August 2010. Dan is responsible for the company’s global strategy to expand alternative mobile and online payment services, form new partnerships and build revenue streams beyond the traditional card and travel businesses. He is also responsible for the company’s Business Development, Mergers and Acquisitions unit, as well as Revolution Money, the online payments business acquired last year, and the Global Prepaid business.
Prior to joining American Express, Dan was the CEO of Virgin Mobile USA, which he founded in September 2001. With a record of high performance in the consumer-marketing arena and almost two decades of experience in the telecommunications industry, he led the company from concept and nationwide launch in 2002 to become one of the nation’s top wireless carriers, with more than five million customers and $1.3 billion in annual sales. Virgin Mobile USA was first listed on the New York Stock Exchange in October 2007. In November 2009, Virgin Mobile was acquired by Sprint for approximately $800 million.
Previously, Dan served as the chief executive officer of priceline.com, where he established one of the most popular and recognized brands on the Internet, and was a primary architect in driving the company to profitability and more than $1 billion in revenues. Before that, Dan worked for more than 18 years at AT&T, becoming the youngest member of the company’s senior executive team, the AT&T Operations Group, and was president of its $22 billion long distance division.
Dan was recently named a winner of the New Jersey Ernst & Young Entrepreneur of the Year award, saluting executives’ efforts in business excellence and community improvement, and was selected by Fierce Wireless as one of the Top 25 most powerful people in the global wireless industry. He currently serves on the board of governors of Rutgers University. He is a member of the board of directors of Symantec and Flextronics, and he chairs the compensation committee on each board. He also serves on the board of Autism Speaks, and the advisory committee of Greycroft Partners, a private equity company.
Dan earned his Bachelor of Arts in Economics from Middlebury College and a Masters in Business Administration from New York University, majoring in Finance.
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