American Express's Key Technological Weapons

"We are standing at a crossroads,
a place where plastic is turning into mobile."
-- Ellen Richey, Visa's Chief Enterprise Risk Officer.

While the concept of a credit card has been around since the early 1900s, the credit card as we know it today has been almost unchanged for half a century. Today though, rapidly advancing technology has left credit card companies scrambling to adapt.

That's why I took a closer look into how American Express  is embracing technology in an effort to retain its market position by:

  1. Integrating away from plastic cards
  2. Owning social media platforms
  3. Ramping up online security

Recycle your plastic
Credit cards are living dinosaurs, relics somehow trapped in time, and it won't be long before the only credit card you'll be able to find will be on display in museums.

So, why haven't we seen any changes?

  1. Not enough smartphone users
  2. No one has sold the idea

First, smartphones seem to be the obvious successor of plastic cards. However, according to eMarketer, only half of U.S. cell phone users have a smartphone, and that number plummets to about a third worldwide. However, it's estimated that, by 2017, that number could be as high as 78% in the U.S.

American Express is attempting to get in early, partnering with Jamba Juice to allow customers to pay for items simply by tapping their phones against processors. Google has also thrown its hat in the ring, designing Nexus phones to be compatible with MasterCard's paypass system. And, up until recently, it only supported Citi MasterCards, but the deal has since ended, opening up the space for competitors.

Ultimately, the capabilities are moot unless someone convinces us why we need it, and American Express, with its more affluent and loyal card base, is in a unique position to push going digital. If the company can keep the process simple and, perhaps, give higher reward to mobile users, it may be able to sway customers away from plastic.

Owning social platforms
eMarketer estimates that 1.7 billion people worldwide use social media - that's a darn lot of people -- approximately one-in-four people on Earth. And if eMarketer's predictions are correct, that number will rise to 2.5 billion by 2017.

This is no surprise to American Express; the company believes it "gets" the social Internet, e-payments, and mobile commerce, and with American Express's online spending volume rising 15% in 2012, I'm not about to argue.

The company is, for example, leveraging Twitter -- as the company outlines in this video. The CliffsNotes version, though, is that American Express uploads special store offers, the customer tweets the provided #hashtag, and American Express sends the customer a confirmation tweet. No coupons, no showing your phone to the merchant, just buy -- and American Express will automatically refund your card with the discount.

However, American Expresss isn't the only company embracing social media. Visa  acquired online payment platforms PlaySpan in 2011, and CyberSource in 2010, to help boost e-commerce, while MasterCard  has a blog, and runs occasional promotions on Twitter - don't sleep on the blog, it's pretty cool. As far as interacting directly with customers, though, I think American Express has the most unique angle.

Keeping customers safe
According to the U.S. Census Bureau, nearly 6% of all retail sales in 2013, year to date, have been conducted digitally. This is up approximately 200% percent since 2004.

With that much action happening online, concerns about security are bound to pop up. In response to customer demand for increased online security, American Express, Visa, and MasterCard have joined forces, announcing earlier this month: "Proposed framework for a new global standard to enhance the security of digital payments and simplify the purchasing experience when shopping on a mobile phone, tablet, personal computer or other smart device."

Today, when customers attempt to buy something online, they have to enter in credit card information -- or save credit card information with a digital wallet operator. With the statement above, the companies are proposing using a "payment token," given to customers specifically for online purchases.

This is far from a silver bullet - perhaps, more like adding a second lock to your front door - but still a step in the right direction for controlling worrisome and costly credit card fraud.

To infinity and beyond
In my opinion, I think we're just scratching the surface. The merging of tech and finance is going to bring together some very powerful players and, at this point it's almost impossible to decide who's going to be the leader.

With that said, American Express, Visa, and MasterCard all seem to fully understand the role technology will play in the future, and have taken necessary steps to stay competitive. American Express, though, strikes me as the big credit card player that "gets it" better than the rest.

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The article American Express's Key Technological Weapons originally appeared on

Dave Koppenheffer has no position in any stocks mentioned. The Motley Fool recommends American Express, MasterCard, and Visa. The Motley Fool owns shares of MasterCard and Visa. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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