Amex’s Ken Chenault on FinTech and Leadership
In late September Wharton FinTech had the honor of bringing to campus Ken Chenault, the CEO of American Express. In front of a packed auditorium of students and faculty, Ken spoke about topics ranging from using data to provide better financial services to the value of diversity in companies. Chenault has had a stellar career, including 15 years at the helm of Amex. We identified two main themes during his talk: FinTech-enabled commerce, and his values-based leadership philosophy.
Disruption and the Future of Commerce
Chenault and his team have thought a great deal about how Amex can position itself to take advantage of the changes FinTech brings in the payments, lending, and banking industries — not to mention changes in commerce overall. The company places a large premium on data-fluency, which Chenault is trying to leverage to be competitive with banks and tech companies big and small.
Evolution of commerce
Chenault pointed out that industries are colliding when it comes to payments, and he prefers to look at commerce overall rather than just payments when thinking about Amex’s role. Amex is competing for “share of mind” more than simply share of wallet, especially because there are so many more methods to pay than plastic. In the $125 trillion global payments marketplace, cards penetrate just 15% of global payments and 30% of US payments.
However, this does not mean Amex is diving into technology for its own sake simply to chase share of mind. Digital wallets were widely touted 3–5 years ago but failed to catch on widely despite sizable technology investments and marketing outlays, essentially because they weren’t solving a point of friction for the consumer. Chenault stressed that he doesn’t care about form factors so much as what is behind the format: which channels consumers are using to engage in commerce, and how they are using them. As Amex explores which form factors customers will be interested in going forward, it has negotiated deals with payment solutions from Apple, Samsung, and Android — but has never disclosed any of its customers’ all-important data in the process.
It makes sense to focus on share of mind and commerce broadly as Amex navigates global changes in how consumers transact for goods and services. One clear pain point not covered by Chenault was online payments with credit cards, and the (widely perceived) agony of entering credit card details into payment portals — say, on a new site, or when a credit card gets reissued after a fraud event. There is clearly a form factor and design aspect as well as a fundamental technology and integration problem to solve here, with massive consequences for card issuers and networks. If it is painless to enter or update a card in a payment portal, that card becomes the default method used to purchase a stream of future products. This would also be a boon for merchants, who face high rates of cart abandonment online (especially on mobile devices).
There are numerous approaches that can be used to address this problem. PayPal is a market leader in easing the online purchase experience but still forces users to jump through hoops to pay with a card vs. bank account. Visa Checkout is a relatively new entrant which tries to solve ease of use and cart abandonment problems, but is still working through integration with major merchants. Some lenders form direct relationships with large merchants — Uber allows riders to pay with Amex Membership Rewards points, and Amazon allows users to pay with Discover cash back (and offers a credit card co-branded with Chase, the details of which are of course stored in their payment portal). Just last month Apple and Android announced their payment services are now fully integrated in mobile web browsers, a potentially game-changing move to provide frictionless payments. The next few years will feature heated battles to capture desktop and mobile payments in the most straightforward and consumer-friendly manner, fought by card issuers, card networks, tech companies, and merchant consortiums.
Mobile payments, and m-commerce generally, provide an enormous opportunity especially in emerging economies. The growth of this sector is not only a great business opportunity, it also raises prospects for financial inclusion and reducing corruption. The combination of mobile payments and social media leads to more and more personal user data, which can be used to develop personalized services — including targeted marketing and credit models.
It’s worth distinguishing the work Amex is doing from FinTech lenders that use novel data to produce credit decisions. For example, Affirm — founded by PayPal co-founder and CTO Max Levchin — provides offers of credit based on many data elements including social network usage, in an effort to “disrupt FICO” by better understanding credit risk. However, the best credit models need to perform throughout the credit cycle and not sustain massive losses, and many of the young lenders using new sources of data have never experienced a consumer recession. Seeing customer behavior through a downturn is incredibly valuable data, and a notable point of difference between Amex and smaller lenders.
Amex’s Indian operations are a testing ground for some of these concepts. India is in many ways a more flexible sandbox for FinTech innovation than the US. Entrenched players in the US like Visa, MasterCard, Amex, and banks provide the fundamental structure of the payments system, but in India there is the opportunity for Amex to leapfrog retail banking entirely by offering banking and lending services through mobile devices. Much as M-PESA has grabbed a remarkable share of East African payments with a pure mobile play, Amex sees similar opportunities across emerging economies.
However, emerging economies also present unique challenges for companies looking to innovate in FinTech. The absence of established systems of engagement in payments or banking often correlates with an absence of regulation, or worse, a patchwork of complex and even conflicting regulations. In P2P lending and payments for instance, Indian states are taking the lead to enact regulations on top of the federal structure even as the central government looks to add new laws, which adds considerable complexity to firms looking to operate across state lines. This complexity can affect existing companies more than startups, as startups move quickly to gain market share before being pulled under regulatory oversight.
Data and analytics
Chenault made it clear that data is the lifeblood of Amex, and that it is absolutely necessary that people at the company understand how to work with data and analytics. These are clearly drivers of success at Amex, widely used to develop and refine real-time fraud, authorizations, and credit-scoring models, which drive the business forward and mitigate risk. Throughout the customer experience, Amex collects highly textured user data and leverages it to build relationships and provide better service at a direct, one-on-one level.
This ability to collect data on customers — which can then be used to develop a better service experience — is certainly not foreign to tech firms. This is how Facebook and Amazon thrive. But many financial firms have a ways to go before offering data-driven services at the level of big tech firms. Earlier this year, we saw Plaid raise $44 million in order to better connect smaller FinTech firms with their customers’ data at large banks — e.g., allowing a Betterment or Mint user to access data from their Bank of America account. The customer demand is there — but if larger players don’t advance their product offering, data-savvy firms will fill the gap, even while using the large banks’ data.
Many FinTech companies advertise how cutting-edge analytics differentiate their business model and consumer products. Lending companies talk up their credit risk modeling, asset managers tout their algorithmic robo-adviser capabilities, and payments companies mine customer behavior for monetizable insights. Using data science is by now established practice in FinTech, and others have written about how established and emerging players are leveraging this technology. What is perhaps most revealing is how willing these companies are to proclaim their statistical know-how and the value it brings to customers. Established companies like Amex or Capital One have depended on analytics for decades, but have not always discussed this part of their business. And it’s worth noting that in the case of larger companies like Amex, willingness to evangelize analytical capabilities with a room of business school students (a potential recruiting source) is different from marketing it to potential or existing customers, which smaller FinTech firms are more likely to do.
Most consumers are aware of how large tech firms use troves of data to provide personalized services, but for many that awareness leads to negative perceptions and raises privacy concerns. A likelier reason for the marketing of analytical strength is that emerging FinTech players are competing over early adopters, who are comfortable with the net benefits provided by data analytics. However, this positioning could present complications as these firms grow to a mass-market audience; a strategy that wins over digital natives with fewer privacy scruples could easily alienate the millions of consumers who are willing to pay for less intrusion into their personal data. Many FinTech companies have a competitive advantage in customer acquisition through data-intensive (digital) marketing — what remains to be seen is whether this can be scaled to a mass audience with an analytics-centered brand.
Chenault’s Approach to Leadership
Over the course of his conversation with us, Chenault talked about his leadership philosophy, what he thinks about diversity in the organization, and the attributes of great leaders. Here are three themes that made an impression on us. If you’re interested in learning more, check out this blog for additional details on Ken’s philosophy.
Berkshire Hathaway owns $10 billion worth of Amex shares, and one of the reasons is that Warren Buffett respects Chenault greatly, even giving him proxy for voting his shares. This respect is not just due to business acumen, but stems from Buffett’s insistence on strong moral character when judging business leaders. Chenault shares this approach and places considerable emphasis on character and values. We heard a lot about Chenault’s approach to leadership, but if there were one takeaway it would be that integrity is non-negotiable as a leadership trait.
Overall, the CEO is a role model for the organization he or she leads, but the position of role model is not determined by CEOs themselves. Charles Barkley once declared that he is not a role model, a position Chenault strongly disagrees with. He takes a more customer-centric view, stressing that neither he nor Barkley have a choice — it’s the consumer who decides to make either of them a role model, just like a consumer decides what a company’s brand stands for. Being in a position of leadership is a privilege, and you are responsible to those you lead to use the privilege wisely.
Diversity in the organization
Chenault dedicated some time to discuss the responsibility, challenges, and opportunities that he encounters as a black CEO of a Fortune 500 company. He mentioned that he has refused to work in organizations where he would “just be tolerated,” and made sure to bring up issues of diversity with senior leaders as he rose in his career.
While he doesn’t think that you need to prove a bottom-line impact from having a diverse organization, he certainly believes there is an impact. At Amex the goal is to create an environment where people are engaged, have trust, and have space to have constructive disagreement. If leaders have integrity, they can better capture hearts and minds of employees, and this allows people to feel comfortable with differences in the workplace. He considers having an open, inclusive environment where people are engaged to be a competitive advantage, which allows the company to both be responsive to customers and do well for shareholders.
Attributes of great leaders
As our session with Chenault drew to a close, he was asked what attributes he looked for in other leaders. Chenault pointed to four specific elements of people he wants around him, and we thought these were great takeaways for anyone trying to lead a dynamic organization:
1. Be a catalytic agent of change.
2. Have a core set of values. In particular, value serving other people.
3. Balance decisiveness with compassion. Be comfortable making tough calls, but do so thoughtfully and empathetically.
4. Have a global, inclusive mindset. Foster a diverse environment that allows everyone to engage at their best.
Thanks again to Ken, Amex, and Wharton for a wonderful learning experience!