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Discovery Driven Strategy:  Options investments enable the right kind of failures (Amex Express Pay)

American Express has just announced that it is discontinuing the “Express Pay” offering that allows contact-less payments by consumers, along the lines of the popular Speedpass payment systems that were successfully implemented by gas stations to facilitate making purchases there.  The payments are linked to a key fob, which users wave at a receiving device to make a payment.  Unlike the Speedpass offer, however, the Express Pay device didn’t seem to get much traction. 

Surprisingly, according to an Amex Executive quoted in today’s Wall Street Journal, “We have actually found that our customers prefer to use the contact-less technology through our traditional cards” rather than the key fob.  What did Amex spend to learn this lesson?  Although the article isn’t specific, it notes that the fobs were only available to customers in a few markets—New York and Phoenix, among them.  Contrast this limited-downside, learning-rich experience with what might have happened had Amex gone after this as a big-bang investment, convinced that this was the Next Big Thing.  They could easily have blanketed the country with promotional materials, spent millions on ads and more millions on give-aways to entice consumers to try to carry the device.  The lesson would have probably been the same, but the tuition would have been much steeper. 

In the contactless payment space, in fact, I would suggest that the conditions are right for what my co-author and I call “scouting options”.  These are limited-downside forays into new markets which help you learn something about customer preferences.  The core idea behind a scouting option is that you keep it limited and specify the hypotheses about customers that you want to test.  In contactless payments, there are a large number of such options being tested right now. 

  • Bank of America is offering a “mini card” that can go on a keychain but be swiped in a traditional reader.
  • Mastercard is testing a wristwatch with an embedded card.
  • Visa is offering a ‘micro tag’ key card that it offers to partner institutions.
  • Citigroup is testing a payment tag that can be used in the New York City subway system.

Many, of course, believe that the future of payments lies in other devices, such as mobile phones.  Today in Japan and Finland, it is commonplace for people to pay for things with their mobiles.  In parts of Africa, the mobile phone network is taking over from banking as the primary vehicle through which individuals get money to one another.  The key point is that at this moment, nobody knows.  So even though there is a technology that works, it doesn’t make sense to make a big bet, because there is just too much uncertainty about the market demand.  So taking out lots of options, at low cost, is a more sensible way to go forward. 

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