Press today on WFC/Amex plans for WFC to Issue Amex Cards (also see WSJ Blog, CNBC Clip with WFC Exec on deal overview). Key items:
- WFC to issue credit cards accepted on Amex Network
- New and existing WFC customers
- New loyalty platform
Why is this big new for INVESTORS? 2015 will see reissue of EMV compliant cards (blog). Issuers are therefore assessing what brand/plastic to reissue. Top analyst question for Amex/WFC is will WFC reissue on Amex plastic/brand? If WFC moves this direction, will other banks as well? Is Visa’s golden goose on the menu? Will EU regulatory developments (suggested 30bp rate for credit supported last week in US by Dick Durbin) prompt additional banks to move to 3 party network?
There is tremendous history around this transaction, as well as the business drivers for it. Amex has been seeking mass market opportunity for almost 15 yrs. For example, within Amex, few know that back in 2002, American Express was contemplating an acquisition of Wachovia, then the #3 US retail bank, now part of WFC.
Within the large retail banks, there is broad recognition that:
- #1 three party networks have substantial advantages (blog),
- Durbin has killed the profitability of a vast segment of mass market retail (40%). Durbin’s impact was on Debit, and the PR on the WFC/Amex deal focuses on credit… so view this as attempt to generate fee revenue from mass market (only 30% of WFC retail consumers have credit card). See Barron’s article on latest Durbin bank EPS Impact
- Pre-paid cards are proving to be real option, and banks face prospect of loosing core relationships (Blog, and Future of Banking)
- Three Party networks (Amex/DFS) have no Durbin or EU constraints
- Future of “payments” is about data, and enabling value added orchestration, Amex is the clear innovation, and business model, leader,
- Chase has constructed unique Visa deal in attempt to create 3 party,
- Visa and Mastercard are ineffective at “change” and have alienated both Retailers AND Banks. I asked one CEO about EMV and he said he found out about it same way I did, in a press release (and he was top 3 issuer)… Gives you idea of partnership “health”.
- Retailers are working to establish their own payment network (see Battle of Cloud, MCX Blog)
- Apple, Google and others are investing billions in this space
Top banks are working on a new token scheme to build a new “Visa” from within (see Tokenization). It now seems, BAC, WFC and JPM have separate plans from this centrally led TCH initiative… but all are consistent with disintermediating V/MA
WFC is brilliant here. By leveraging their primary asset (customer relationships) they have jumped to the top of the line in a new ability to deliver services, and capture unregulated payment revenue. Think they need to work quickly to ensure retailers see an upside to expanded Amex transaction volume (see payment enabled CRM).
I also believe this is a tremendous win for Amex, not only in their efforts to grow transactions riding on their rails, gain broader acceptance, grow in mass market but primarily as a way to unlock new value in mass consumer payment “data”. This is yet another “Cluster”…
The street should watch for M&A activity around DFS…. The only subscale 3 party network left standing.
Take a look at new Amex service, working as a back door to get line item detail from retailers.