According to a Bloomberg news report, Chenault spoke on Tuesday (Dec. 5) about the decision made by some of America’s largest lenders- — including JPMorgan Chase, Citigroup, Bank of America and HSBC – to cash out their joint ownership of Visa and Mastercard through initial public offerings.
That move “was one of the biggest strategic blunders of the last 20 years,” said Chenault. “They didn’t understand what they were giving up, and they lost sight of where the puck was going. Along with yielding pricing power to the network, the banks also limited their access to data and merchant relationships at a critical time.”
Chenault pointed to the rapid shift of payments in China from cash to apps and mobile devices as a sign that these American banks will have a difficult time competing for customers against entrants offering more innovative ways to spend money.
In China, for example, Alipay and WeChat Pay are processing 90 percent of transactions, blending finance with commerce. That link is a “major advantage,” said Chenault, who will step down as chairman and chief executive officer of American Express in February.
Since the American lenders chose to break off their jointly owned card networks through initial public offerings –Mastercard conducted an IPO in 2006, Visa in 2008 – both stocks have soared.
“They gave it up on the cheap, and now the roles are totally reversed,” Chenault said. “An industry literally transferred wealth over to two associations. They were nonprofits. That’s unbelievable.”
American Express, however, uses a “closed-loop model,” where it issues cards as a bank and operates the network that handles transactions. Combining those functions helps to attract new customers while also setting the company apart from its competitors.
“We can’t be reduced to simply facilitating a payment,” said Chenault.