American Express Nips at Paypal with New ‘Serve’ Platform

American Express (NYSE:AXP) followed in Visa’s (NYSE:V) steps and announced a digital payment and commerce platform dubbed Serve, which enables the consumers to make purchases and person-to-person payments online via mobile phones and at merchants that accept American Express cards. MasterCard (NYSE:MA) is also planning to launch its own offering for personal payments.

We estimate that American Express derives 73% of our $49.61 price estimate from card transaction & execution fees while Visa derives almost 29% of its $85.03 Trefis price estimate from transaction fees.

Serve at a Glance

American Express’ Serve is a new account that a consumer can fund through bank accounts, credit or debit cards. The money in the Serve account can be used to buy items online, pay other Serve accounts or get cash from ATM via a new Serve card. A customer can set up his or her Serve account online in about 5 minutes and set up sub accounts for spouses or kids making it an attractive option for parents who want an easier way to track their kid’s allowance. Serve works wherever Amex cards are accepted making it easy for existing Amex customers.

Card Companies Taking on Paypal

American Express acquired Revolution Money in 2010 for about $300 million and integrated its technology which resulted in Serve. ^[1] Card companies have long recognized the need to provide a digital payment option to compete with Paypal for personal payments and in order to tap the boom in demand for mobile payment solutions.

Paypal is the current leader in the personal payments market with more than 94 million active accounts. Recent startups such as Venmo and Square have also gained popularity and helped highlight the growth opportunity in this market, which helped motivate Visa and American Express to pursue their own digital initiatives. Serve is similar to Paypal in several ways in that it issues a separate card that is linked to bank or credit card accounts and can be used to make purchases and ATM withdraws.

One small area of difference: Serve allows users to fund their Serve accounts with a credit card for a fee (2.9% plus 30 cents). Paypal allows users to pay for specific items with a linked credit card, but it will not allow users to fund their Paypal accounts with a credit card.

Visa also recently announced that it will venture into the personal payments market and offer the ability to transfer or receive funds directly to a Visa credit, debit or prepaid card accounts in the U.S. Visa’s offering differs from American Express’ Serve as Visa doesn’t require consumers to open a new account and doesn’t issue an additional card which can be used while shopping or to get cash from ATM.

With the launch of Serve and Visa’s personal payments service, the companies are well positioned for the growth in the personal payments and mobile payments markets, and by tapping this growth, they can meaningfully grow the number of transactions processed.

See our full analysis for Visa and American Express.

1. After Visa, American Express Takes On PayPal With Digital Payments Platform, March 28, 2011, TechCrunch [↩]