Fintech is all the rage. And the big accelerant for this has been the pandemic. When people shop at home, mobile payments take off. When people stop visiting banks, they manage their finances online.
We at IMD business school have been tracking how ready financial companies are for a changing future. You can check here for our latest 2021 ranking. Payment companies, like PayPal and Square, are doing very well. So are credit card networks, like Mastercard and Visa. They’ve all been outperforming retail banks and insurers.
But not American Express. Amex may have the best airport lounges and personal concierge services. But that $550 annual fee for a platinum card is a non-starter when we can’t even dine out in a local restaurant.
The trouble is that COVID-19 doesn’t only create a temporary setback for companies. It exposes their long-term readiness. But great companies don’t create dramatic results in one fell swoop. Rather, they do so through cumulative efforts over time that build up an inexorable momentum. You can’t simply point at one defining action, one killer innovation, or one solitary lucky break.
So my research team decided to run an epic analysis. We’ve created an animated infographic, or a short film, that shows how Visa, Mastercard, and American Express have evolved over the last 10 years. They started off at a similar size. Visa was worth about 40 billion in 2010, while Mastercard was worth 30 billion. American Express was the biggest at close to 50 billion in 2010. Today, Visa has grown to over 450 billion and Mastercard 350 billion. Amex has fallen to a distant third at under 120 billion. What happened?
Here is what my team did. We’ve downloaded every report published in the last 10 years by the standard-bearers of business news—the Wall Street Journal, CNBC, and the Financial Times—along with corporate press releases from this period. Data from the last 10 years was all fed to an algorithm. We want to look at how digitally obsessed these companies were and to what extent the business community had come to understand how digitally savvy each of these players was. Such “textual analysis” may not be the perfect measure of their digital relevance. But it should give us a good gauge.
This was where things stood back in 2010.
Notice that there’s a second dimension on the x-axis. We want to see how focused and committed these companies are. Are they being open-minded and exploratory on the right? Or are they focusing on exploiting a few chosen areas on the left?
You can play the short film below. We’ve combined this exploit–explore spectrum with digital relevance on a two-by-two. The size of the bubble represents the valuation of the company.
During the earlier years, Visa and Mastercard maintained a good balance. They both explored new areas and exploited existing opportunities. Meanwhile, American Express focused largely on exploitation in the short term.
As they explored new technologies, Visa and Mastercard became increasingly digitally capable. They went beyond merely being aware of the new areas. But they invested further in data analytics, cybersecurity, and artificial intelligence.
American Express eventually took notice and started to explore. As I wrote here, Amex became bold in its social media marketing. It partnered with BuzzFeed to create the “Epic Everyday” campaign in the summer of 2016. That campaign, which featured Tina Fey, used Facebook to engage the younger generation. Then the company experimented with a Facebook messenger bot. It also let people pay their friends through Facebook.
The problem was that this digital evolution was confined to the marketing side. Just like a better coupon campaign wouldn’t have saved Blockbuster, none of Amex’s new marketing efforts changed the fundamentals of its business model.
Interestingly, during the same period, Visa and Mastercard became very focused. They had built up enough digital capabilities to exploit new opportunities. Mastercard, for instance, made the commitment to grow into cybersecurity and data analytics. No more experimentation. Instead, the company has clarified its vision to make any payment seamless and secure. That includes payments through credit, debit, and prepaid cards or any other system that might evolve, including blockchain.
The end result is that Amex got trapped in its legacy business model. It tries to get customers to spend more and stay loyal. In stark contrast, Mastercard and Visa are forging digital partnerships everywhere. One remains a credit card company. The other two have become IT companies that just happen to be in the payment business.