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Defining Real Innovation

There was a very interesting announcement last week by American Express. On the surface, it’s about taking your unused loyalty points to pay for cabs in New York City. Those wonderful, accumulating, reward points that you believed you would use someday for a grand vacation but somehow manage to hang around. This is a simplistic, easy way to use them. But, it’s much more than that. It’s about instant POS rewards redemption – the holy grail.

Instant POS rewards usage is the challenge that all the digital wallets, card issuers, networks and everyone in between have been working on for YEARS and YEARS, perhaps decades. If this solution is as clean and easy as advertised, it solves multiple problems for consumers and American Express, and potentially provides upside to merchants as well. It’s not without hurdles, which I will talk about, but this could be very exciting.

First, I can finally use those points for something practical and in a convenient way. Yes, some consumer segments still like the notion of “saving” points for the aspirational trip to Costa Rica or a weekend stay at the Plaza. But really, since the recession, most, if not all, of us have gotten much more practical and realistic. Cash was, and still is, king of rewards, and by instantly converting your points at the POS, Amex has essentially given you cash.

Second, they can manage the conversion rate for a whole host of purposes. The most obvious is promotional reasons for a specific merchant or category to drive sales and usage. Another alternative is to closely monitor the economics of the entire equation and adjust the conversion rate as needed. Increase the number of points converted to cash for products in high demand; “boost” those conversion rates with special merchant redemptions to stimulate sales for specific time periods, merchandise, whatever. If their platform is highly dynamic, including the partnership with Verifone, this can become a robust engine for cardmember reward program management.

Third, and perhaps most importantly, this could get their broader customer base to use American Express everywhere. At every small coffee shop or corner drug store. At the newsstand or a fast food restaurant. Lots of small- to medium-size ticket locations where it would be easy and convenient to “burn” those points and have yourself a nice freebie. Verifone is a great partner in this solution, with exceptionally large distribution and deployment to many merchants, assuming the merchant buys in to the proposition.

Which brings me to the challenge and perhaps a piece of their broader strategy. Acceptance.

If you are playing this game for the long term, two components would be very helpful in making it come to light. One – ubiquity of merchant acceptance. Amex’s Achilles’ heel. While virtually every high-end retailer, restaurant, hotel, entertainment venue and regional location accepts American Express, there are still millions of mom-and-pop locations that don’t. This is exactly where redemption for smaller cash items would be ideal. Acceptance is also a prime issue for another AmEx business unit – prepaid. So, will they ultimately change their current model and allow full integration with acquirers (much like Discover did)? This is a huge cultural, brand and ultimately economic issue for them, but one that I don’t believe can continue to be ignored. The fact remains that small merchants matter. If you want to replace cash with your own form of currency, it needs to be addressed. I have a sneaking suspicion there will be more to come on this front soon.

Related to this challenge is another one – split tender. While I’d love to use my points to pay for the casual latte, or cab ride, wouldn’t it be great if I could use them to buy some of my Christmas presents? For this to work in the most elegant way, the solution needs to present how much can be paid with points and how much requires another form of payment. This is another complexity that has plagued the industry, particularly prepaid, for years. Merchants can apply discounts, but this occurs before the sale. After the sale, processing a payment becomes an entirely different matter. Not insurmountable, you can do this today with your AmEx card on Amazon, just significantly more difficult to think about pulling it off for millions of merchants – another reason to focus on smaller ticket initially.

However, I still believe that acceptance is the fundamental challenge that will make or break this solution in the long run. Redemption of rewards can be an emotionally trying experience when it’s not something as simple as cash. Turning points into cash is brilliant. Now I need to be able to use that cash.

Finally, to truly be a break-out, this will get broadly applied and attached to digital and mobile solutions as well as physical. Mobile commerce applications have enabled convenient payment options for consumers, but they frequently result in the card issuer becoming invisible. I “set it and forget it” – minimizing , if not eliminating, consumer engagement and brand awareness. By creating a “surprise and delight” experience that easily uses my points, American Express brings the card back to the forefront, reminding me of which card is actually in the digital wallet and most importantly, a key reason why I chose it in the first place. They have created a very slick way to keep the consumer engaged.

Is this truly “innovative”? Sexy? Hip, fun, cool? AmEx has been lagging on the particular brand pillar of innovation and looking to lift their perception in this space. I’m not sure if this will help, but perhaps it doesn’t matter. Some of the best innovations execute on the things that matter most. Solving simple consumer problems in a way that increases engagement, usage and satisfaction to a point where they will never leave you. Based on that criteria, I like the potential of this one.

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Latest Insights: 

Our data and analytics team has developed a number of creative methodologies and frameworks that measure and benchmark the innovation that’s reshaping the payments and commerce ecosystem. The July 2019 Pay Advances: The Gig Economy’s New Normal, a PYMNTS and Mastercard collaboration, examines pay advances – full or partial payments received before an ad hoc job is completed – including how gig workers currently use them and their potential for future adoption.

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