Amex Bets Its Chips on Serve

American Express might have spanked out $30 billion of revenue in 2011, but when it comes to the finance company’s future, it is all about Serve.

That was the central message Amex delivered on Wednesday at its semi-annual Wall Street schmooze-fest. It all boils down to this: Amex is putting all its marketing and operational muscle into embedding Serve, its online and mobile payments platform, into what Amex calls the “payments path” not just in the US, but globally.

Here’s how Kenneth I. Chenault, chairman and CEO of Amex, put it:

During 2011, we focused on ensuring that Serve was ready for growth, that could — that it could appropriately meet the needs of a range of customers, have the necessary capabilities for international rollout and the heavy-duty infrastructure to support substantial scale. In 2012, our objectives moves from development to execution. We’ve set goals for the Serve team that are focused on outcomes, specifically customer acquisition and transactions, and we believe we’re in a strong position to meet these objectives. A strong foundation has been set. Now it’s about activation, revenue generation and accelerating our growth.

Here are the core elements of the Serve strategy:

Serve as International Expansion Vehicle. Amex obviously sees its recent investment in the Lianlian group as a major coup for Serve and American Express at large. The deal with the mobile top-up company in China will be “a key driver of our international expansion,” Chenault said Wednesday, and Serve is the vehicle Amex will use to do so. Lianlian is no small venture: the company has served over 300 million customers and has a distribution network of over 300,000 agents across 14 provinces in China.

Serve as Vehicle for Amex Enterprise Growth. What is fascinating about Serve compared to many other mobile and online payments ventures is how Amex is so locked in its monetization. While other payments ventures are trying to figure out customer usage cases (Google Wallet, cough cough), Serve is doing deals. Just last August, Serve was still in its roll-out phase. By the end of 2011, Amex signed 15 distribution partnerships for the Serve platform, including with major companies such as Ticketmaster, Verizon, Sprint and AOL. This means that 2012 is about “implementing our partnerships and adding to our customer base” — or, put another way, making money off Serve.

Serve as Agent for Demographic Change at Amex. When you think “American Express Card,” you think EVP in a Hickey Freeman suit and a Brooks Brothers tie. That’s not exactly the demographic of choice for a company looking for long-term financial performance. But luckily Amex has Serve, which, in the end, is really a prepaid payment service. And prepaid payments skews younger. According to Amex, 40% of its prepaid customers are under the age of 35; 60% of our vente-privee customers (vente-privee is an online retail venture in which Amex is a partner) are women; and 55% of Serve enrollees are 35 and under. Here’s how Chenault explains it:

[I]nitial analysis shows that cardmembers who have synced their Amex cards with Foursquare and Facebook skew significantly younger than our overall base while also having income levels consistent with our overall average. Our digital transformation is already having a positive impact on our demographics, and I believe our progress will continue.

Serve as Driver of Fee Income. The secret sauce to online and mobile payments is not interest income, but fee income, and Amex knows it. That is why Serve is taking the lead in Amex’s campaign to increase its fee income. This fee-income effort at Amex is not just about Serve, however. Amex has a whole category of internal businesses called New Business Initiatives that are largely aimed at increasing Amex’s fee income. Ventures in that business group in addition to Serve include Business Insights, LoyaltyEdge, Accertify, and Loyalty Partner.

If I had to vote for one online/mobile payments venture to be written up as a Harvard Business School case study, I’d vote for Serve. In Serve, you see the rudiments of ruthlessly efficient business in the way Amex uniquely identified a valuable business opportunity that completely synchronizes with all — not some — of Amex’s existing competencies. In one word, wow.