American Express (NYSE:AXP) has launched a centralized electronic payments service named PAYVE to facilitate the processing of various payment methods including check, Automated Clearing House (ACH), international wire and American Express’s web-based payment solution, Buyer Initiated Payments (BIP).  The platform will allow companies to streamline business-to-business payments and accounts payable processes, and provide an alternative to the cumbersome and inefficient paper checks that are prevalent throughout the business world.
The potential market for the platform is vast. Paper checks are processed though multiple financial institutions before a transaction is completed and hence cost 40-50% more than card and electronic payments. Despite this extra cost, the lack of an alternative secure option has so far forced companies to rely on the outdated method for payments. Research by the American Express revealed that more than half of the business-to-business transactions processed in the U.S. are through paper checks. The PAYVE platform will help large and mid-sized companies migrate from paper checks to a centralized electronic payments system while improving cash flow and reconciliation. The platform can be integrated with a company’s enterprise resource planning (ERP) system and will reduce check fraud.
Brave New World
American Express might hit the jackpot with the PAYVE offering as most American companies have been looking for a change from the decentralized, time-intensive and often frustrating payment and cash flow management systems that are currently in place. From the initial days in 2002, when companies were first allowed to use a magnetic ink character recognition (MICR) line at the bottom of a consumer check to process information, electronic payments have rapidly been replacing paper checks as the preferred payment mechanism in all walks of life. Business will look to Amex, which currently serves more than 70% of Fortune 500 companies as a reliable partner as they seek to improve their payment efficiency.
American Express has a strong analytics department to support its spend-centric business strategy, which helps the company capitalize on various trends observed though the market without focusing too much on volumes like competitors MasterCard (NYSE:MA) and Visa (NYSE:V).
We expect an increase in transaction volumes processed by American Express through the Trefis forecast period. For more details on American Express’s monetization strategy, please see our article: American Express Is Good For $60 Despite The Macro Uncertainty.
We currently estimate a price of $59.65, concurrent with the current market price. You can gauge the impact of a change in our forecast by modifying the charts above.Notes:
- American Express Launches PAYVE®: A New Digital Service that Streamlines Corporate Payment Processes, BusinessWire, 25th June, 2012 [↩]