Is AmEx’s Consumer Checking Move Defense, Offense Or Both?

Many digital banking disruptors are hobbled by a lack of name recognition and customer loyalty. American Express — arguably the original disruptor — already has both and has now expanded its portfolio of banking services to include a digital reward checking account for consumers.

Fintechs and digital banks have been rocking banking’s boat for almost a decade. But one player with a much longer track record may have just become a far bigger threat to legacy institutions.

Around as a company since the mid-19th century, American Express has been both partner and competitor to banks and credit unions. Now, it’s shifting the balance more to “competitor” by taking a deep dive into digital banking with the launch of its rewards consumer checking account in early February 2022.

Called American Express Rewards Checking, the account is all-digital and free, with a high-yield APY and reward points for every eligible debit card dollar spent along with other unique features thrown into the mix.

Many observers believe the new product is a step in the direction toward becoming a megabank with a wide range of banking products. The consumer checking account accompanies the AmEx business checking account, launched in October 2021.

Other banking experts argue there’s less to the move than it may appear. They point to the fact that AmEx had yet to launch a marketing campaign more than a week after publicly announcing the new account, and a prime time ad on Super Bowl Sunday didn’t mention the checking account. Also, the account is also only available to existing AmEx customers until further notice.

So, what exactly does this new service mean for the banking industry?

Read More: How American Express Digital Labs Creates Payments Innovation

Two Views of What AmEx Checking Portends

“I love the product,” raves Bill McCracken, President of Phoenix Synergistics, in an interview with The Financial Brand. “I think it is a product that is being crafted to where banking and younger people are today.”

In the initial press release announcing its consumer checking product, American Express released findings from two surveys it conducted in partnership with Morning Consult that explored what different consumer segments are looking for in a banking experience.

One study found that consumers prefer to use debit cards for smaller purchases — such as cups of coffee and Uber rides. On top of that, more than four out of five (81%) of Gen Z and Millennials say they are using their debit card in place of cash. Although AmEx has a variety of card products, most of the most popular ones are charge cards or credit cards.

Given that, Andrew Davidson, Senior Vice President and Chief Insights Officer at Mintel, concludes that this new digital checking product, by being tailored to younger markets, is in fact a very defensive strategy.

Food for Thought:

Most product launches are an effort to expand into new markets. Some experts say AmEx’s digital checking account could be more defensive.

“The account is currently only available to card members who have had an AmEx credit/charge card for three-plus months, indicating that this is a defensive move to counter any interest that AmEx card members might be showing in fintechs like SoFi that has been expanding its range of services,” Davidson wrote in a blog post.

But as is often said, the best defense is a good offense and Davidson points out that American Express has several competitive advantages over both legacy banks and digital-only challengers, including its potent brand recognition.

“With these fintech challengers, many of them are unknown. Even Goldman Sach’s Marcus is a new brand,” he adds. “So, you have to put some investment dollars in building the brand and raising awareness.”

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American Express doesn’t have an issue getting customers. It reported 121.7 million credit card holders at the end of 2021. Yet, its expansion into a traditional banking space has been slow. (The company became a bank holding company in 2008 and was granted a banking charter well before that, but used it for limited purposes.)

“Inertia is their biggest obstacle,” he explains. “71% of consumers agree that it is ‘too much of a hassle to switch banks’ but AmEx is out to overcome that by not requiring a minimum deposit or balance and not charging monthly maintenance fees. It is clearly comfortable with the idea that American Express Rewards Checking isn’t going to be the primary checking account for everyone.”

Davidson points out that the slow launch could be AmEx’s way of testing the waters.

Reinventing Checking :

The AmEx all-digital checking account may be the strongest evidence yet of major change in this most traditional of banking products.

There is a greater implication in American Express’ announcement. Although it is called rewards checking, the new account could be the start of an broader trend transforming the traditional checking account to better match what younger customers want, McCracken explains. Phoenix Synergistics’ research found over half (53%) of people say checking accounts need a different name while three out of five people would consider opening a checking account with a nonbank provider.

“Individual consumers are saying ‘I don’t know why I need the traditional bank account, but this digital checking account with a mobile interaction and an attached debit card — that’s what fits our lifestyle’,” he says. “AmEx is correctly reading that trend and jumping on the band wagon.”

Additional Details About the New Account

The phrase ‘Don’t put all your eggs in one basket’ is common in finance, especially in investing. But Davidson says Mintel found 64% of consumers really enjoy having all their financial information in one app — 80% of Gen Z and 84% of Millennials feel that way.

The new AmEx digital checking app doesn’t go that far, but has a bevy of features, some of them unusual for a transaction account and clearly borrowed from the company’s charge card domain:

  • 0.50% high-yield APY on the entire checking account balance — AmEx says this is ten times higher than the national rate.
  • Earn reward points for every $2 spent.
  • No monthly maintenance fees or minimum balance fees.
  • Purchase protection on eligible American Express debit card purchases covering accidental damage or theft.
  • Fraud Protection and monitoring.
  • 24/6 customer care providers through both phone and chat.
  • Fee-free ATM withdrawals at 37,000 MoneyPass ATM locations nationwide.

More Checking Innovation Ahead

American Express isn’t the only big brand player pushing into traditional banking. Marcus and SoFi are two being watched very closely.

In fact, Davidson believes that AmEx could be expanding to counter threat from companies who are attracting consumers with high APYs, access to investing and a range of services. “Cryptocurrency is what younger consumers in particular are interested in with some of these additional services,” Davidson adds.

The analyst believes SoFi specifically could become a primary competitor, given their marketing strategies targeting younger populations. The fintech lender — which announced in January 2022 it cleared final hurdles to acquire a national bank — also offers what Davidson calls a “one-stop-shop” app.

“Obviously, that is appealing to a certain segment of consumers, and I think that there’s a defensive play in sort of responding to that,” he adds.

Down the road, Davidson says he wouldn’t be surprised to see American Express shift its strategy to include additional banking products, such as investing and crypto.

“That seems to be where a lot of the battleground is starting to move towards and if American Express wants to compete there,” says the analyst, “they need to broaden their range of services.”

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