American Express Co. has begun licensing its digital wallet, Serve, in China.
Amex is expected to announce Jan. 18 that it is licensing its digital wallet to Lianlian Group to expand its reach into the coveted Chinese market. Lianlian operates its own mobile-payment business, Lianlian Pay, in China.
Serve is a digital wallet the New York-based card network designed to reach consumers who normally might not qualify for a high-end Amex credit card (see story). Lianlian is licensing Amex's technology, but it may not use the Serve brand.
Amex considers the Lianlian partnership "the next step in the evolution of the Serve platform," says Dan Schulman, Amex group president for enterprise growth. "It's really our first global expansion."
Serve was formerly Revolution Money, which Amex bought in 2009 (see story). From early on, analysts viewed Serve as a product Amex could use to expand overseas.
"China … has proved to be a difficult market to enter for many Western payments players," says Zil Bareisis, a senior analyst for the research firm Celent. "The market has a huge potential for growth."
As a part of the partnership with the Lianlian Group, Amex has made a $125 million equity investment in Lianlian Pay. Amex also plans to open an office in Hangzhou, China, to support Lianlian Group.
Schulman says that Serve eventually will roll out into other markets.
"We are not discussing what's on the road map, obviously," he says. "But I think it's a huge world out there. … This can go anywhere from Latin America to the Middle East, to various countries within Asia."
The Lianlian deal follows other groundwork Amex has been building in China. In 2010, China Merchants Bank announced it was issuing a dual-currency Amex card aimed at international travelers (see story). And last year Amex inked a deal with online payment provider Tenpay, a unit of Tencent Holdings Ltd., that allows users to access websites based outside China and make online payments using their Amex cards (see story).
The Lianlian deal is nevertheless a departure for Amex, which has a typically focused on issuing cards and acquiring merchants.
Lianlian Pay is primarily used by the underbanked to pay bills and buy airline tickets. An agent takes cash from a consumer to pay a bill using the agent's mobile phone on the customer's behalf. After that, Lianlian sends a text message to the user to confirm the payment. Lianlian operates over a network of about 300,000 agents.
Serve will expand Lianlian's range of services, Schulman says. Lianlian users will be able to fund the digital wallet through an agent. The mobile wallet can then be used to top up mobile-phone minutes, pay bills and make purchases, he says.
"We have to think beyond plastic cards," says Schulman. "We think that a lot of places are going to go straight from cash to mobile payments and skip right over the checks and plastic that we are so familiar with."
The Chinese mobile-payment market appears to be making good progress in mobile payments. Still, there is an opportunity for Amex.
"I would hesitate to call any aspect of the Chinese payments market mature, especially mobile, so I think the opportunity is still there for the right mix of customer value proposition, technology and delivery model," says Bareisis.
But there are risks in doing business in China, as evidenced by Yahoo Inc.'s recent troubles. Last year, Alibaba Group Holding Ltd., an Asian e-commerce company in which Yahoo owns a stake, transferred the ownership of its payments unit Alipay to a different company. Yahoo claimed not to know about the transfer, which was done to satisfy payments rules in China (see story).
"Hopefully they will have more luck than Yahoo did," says Brian Riley, a research director in the bank cards practice at TowerGroup. "It will be a test of American Express' mettle."
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