American Express And Developers Sizzle; Apple Pay And Paper Checks Feel The Fizzle

American Express has spent its fair share of time on the fizzle side of the column. Since the dissolution of its long-term relationship with Costco nearly a year ago, American Express has been the card network that had a really hard time getting its groove back.

In early 2015, Amex’s market cap was $90 billion. Flash forward a year to Feb. 2016, and it had nearly been halved. Costco wasn’t the only thing that gave investors anxiety. Other corporate relationships, like its partnership with JetBlue, also fizzled out.

But narratives have a way of shifting.

There is a now famous — though possibly apocryphal — story about the final conversation between American Express CEO Ken Chenault and Costco CEO Craig Jelinek, where things went irreversibly south between the two firms. Jelenik reportedly told Chenault that Amex was just another vendor as far as Costco is concerned — no different from the firms that supplied its ketchup.

“If I can get cheaper ketchup somewhere else, I will,” Jelenik reportedly told Chenault.

Flash forward to the rollout of the Costco/Citigroup Visa card — and the accompanying comedy of errors where customers didn’t have their cards or cards didn’t work appropriately — and it is easy to imagine Ken Chenault smiling somewhere as Craig Jelenik learned publicly that payments are actually a good deal more complicated than buying ketchup.

Costco definitely got a better price out of Citigroup/Visa, but given how angry its customers were with the rollout, it remains to be seen if it got a better deal.

And Amex’s antitrust loss flipped over into the “W” column, as a three-judge panel of the Second Circuit Court of Appeals tossed the District Court ruling against Amex and offered a stern rebuke of both the lower court and the DoJ for what it called a highly unorthodox antitrust case. Our founder, David Evans, was cited prominently in the decision since the decision turned on the understanding of how matchmakers really work and make money.

“Though merchants may desire lower fees, those fees are necessary to maintaining cardholder satisfaction, and if a particular merchant finds that the cost of Amex fees outweighs the benefit it gains by accepting Amex cards, then the merchant can choose to not accept Amex cards. Indeed, many merchants have already made and continue to make this choice,” the decision read.

And American Express’ streak continued this week, as Q3 earnings hit the wires and American Express managed to notch better-than-expected results and managed to stoke investor enthusiasm in after-hours trading, with the stock price surging up 9 percent.

Earnings were posted at $1.20 per share on revenue of $7.77 billion, as opposed to the expected $0.97 a share on about $7.7 billion in revenue, according to a consensus estimate from Thomson Reuters.

“[American Express] continues to work its way through company-specific challenges, but its high-return business model still benefits from the attractive relative growth of the payments/card industry,” wrote Piper Jaffray Analyst Jason Deleeuw, who has a “neutral” rating on the stock.

And American Express is projecting some good news into the future with earnings between $5.90 and $6 a share, up from the previous projected range of $5.40 to $5.70 a share.

Shares rose to trade above $65 on Thursday morning (Oct. 20).

There were some more sober assessments, with some noting that American Express didn’t actually do better than it should have but rather that analysts just got overly panicked by Costco.

“We believe the majority of the upside this quarter was more due to overestimating the financial impact of Costco rather than any real fundamental improvement in the business,” wrote Stifel Analyst Christopher Brendler, who has a “hold” rating on the stock.

Others have noted that American Express is dealing with increasingly aggressive and popular competition from competitor products, like the Chase Sapphire Card, which attempts to snatch up the same high-value card user that American Express cards historically have gone after. This doesn’t mean Amex can’t succeed — or isn’t — but demonstrates that the firm remains under strong pressure.

But American Express is ready to keep the competition intense. And it’s certainly earned its sizzle this week as investors are flocking back to the stock.

As for the other Sizzles & Fizzles…

 

SIZZLE

Lawyers

Hard cases make bad law. Hard cases make lawyers rich. The recent news that Samsung is now looking down the barrel of some class-action suits stemming from its combustible phones means that more suits are certain to follow. Whether or not the firm will be held liable for damages from the phones, or for investor ire, has yet to play out and will indeed take awhile. But that probably means a lot more suits are likely to come from Samsung users. And Samsung stockholders. And, well, a galaxy of others (pun intended).

Developers

Payments innovation moves pretty fast. If you don’t stop and look around once in a while, you might miss it (apologies, Ferris Bueller). For developers, getting arms around the context of payments — as in, just how consumers and businesses can use new payments technology to get business done — can be tough. But even tougher is making sure that innovation doesn’t hit a brick wall because the nuances of payments have been left unchecked. Welcome to Payology, where Visa Developer and PYMNTS have teamed up to give developers a crash course in what makes payments really tick, how payments makes money, how to use new technologies to really solve the frictions that exist in payments and how to stay out of the regulators’ crosshairs while doing it.

 

FIZZLE

Apple Pay

No champagne corks a-popping here — at least, not for the latest, and second, anniversary of Apple Pay. That may have been different if, for example, folks were buying champagne (or really, much of anything) with Apple Pay in the store. But the latest stats show a stubbornness among consumers to really get the iPhone out to pay for things, and that is because there simply is not enough differentiation, in terms of speed or ease of use, from using cards themselves. Nineteen out of every 20 times a person with an iPhone is capable of using Apple Pay at a merchant that accepts it, well, they just don’t. And that hasn’t really changed much over the last year.

Pay By Group

Everyone likes to hear about money — and especially when startups and young firms get money. Then again, hot money may not always be smart money. Take Pay By Group’s recent $3.4 million raised in a seed round. Pay By Group allows people to split the cost of a purchase. Yes, I know what you are saying. Doesn’t that sound like Venmo, which has scale and top of mind working in its favor? It should be noted, however, that Pay By Group says that its differentiation comes as people can split costs directly, whereas, in Venmo and other apps, someone has to pay up and then divvy up what has been paid. Probably not.

Paper Checks

Like a zombie apocalypse or The Rolling Stones, it seems some things never die. Count paper checks in that pantheon. But maybe not for long. At least if Ingo Money has anything to say about it. Its Instant Payments network is making instant payments to a debit card downright ubiquitous. Its deal with Visa Direct will mean that they work together to take Instant to big players, like insurance companies, that would rather do anything than put a check in the mail, and we hope it’s the beginning of the end of that friction-filled paper tender.