American Express Uses Zynga to Poke PayPal


Don't have a cow? No worries. A new partnership between Zynga (NAS: ZNGA) and American Express (NYS: AXP) can help you populate your virtual farm while shopping in the real world.

Lots of competition in the mobile payments sector
American Express' Serve program is a direct swipe at eBay's (NAS: EBAY) PayPal unit, long the king of online payment systems. As more players enter the online, retail and mobile payments field, PayPal has been on alert to avoid losing its market footing. This has only made it work harder, partnering with Home Depot and other retailers with a new point-of-sale system, and a more recent team effort with VeriFone (NYS: PAY) to invade and take over the retail as well as online payment space. Last year, eBay pushed its way into the mobile payments arena with its purchase of payment technology firm Zong.

PayPal isn't the only rival Amex has its eye on. Google (NAS: GOOG) is doing its own thing, setting up a mobile payments platform with MasterCard and Citigroup. The new venture, announced at just about the same time as Amex's Serve, will enable customers to simply tap their Android-based smartphones on card readers supplied by VeriFone in order to pay for purchases. Google won't make money directly, but it hopes to benefit later through consumer-tailored mobile ads. The service is expected to launch later in the year.

Amex's Serve platform was launched only a few weeks ago, but the company has been marketing it heavily. The service is available through Facebook, and free mobile phone apps were rolled out right away. Fees are waived for the first six months, as well.

The new partnership with Zynga is somewhat convoluted, requiring a customer to sign up for both Serve and a prepaid, co-branded reloadable debit card. The card is loaded via cash, card, or bank account. The rewards part of the program comes in the form of Zynga Farm Cash, which customers apparently pluck from a Serve Money Tree that they plant on their virtual farm. With this Farm Cash, players could then purchase their cow.

Fool's take
The advantages of this new partnership to American Express is obvious. It gets to expand into a youth-oriented market, stuffed with millennials who prefer prepaid debit cards to other types of conventional banking. It stands to make a pretty penny off of fees, once they begin to take effect: The company will take 2.9% of the amount transferred into a Serve account using a credit card, plus a $2 per-transaction fee for each ATM withdrawal after the first one each month.

Whether the alliance helps Zynga is less clear, as the company has been in a virtual free-fall recently and is now suffering from the Facebook fiasco as well as increased competition, with more on the way from the likes of Angry Birds.

Despite a bit of a rocky road over the past year or so, I would keep my eye on VeriFone. This company has a lot going on and is bound to start climbing out of the pits sometime soon.

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At the time thisarticle was published Fool contributorAmanda Alixowns no shares in the companies mentioned above.The Motley Fool owns shares of Google.Motley Fool newsletter serviceshave recommended buying shares of Google and eBay.Motley Fool newsletter serviceshave recommended creating a write covered strangle position in American Express. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

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