Data Dive – The Unexpected Outcomes Edition: Amex, Walmart, Amazon

Despite the best work of fortune tellers and algorithm writers, the future is a hard thing to predict – because unusual and unexpected things insist upon happening.

Sometimes, the unexpected is good. After all, Boston managed to have a St. Patrick’s Day parade in 2018 – despite fears that three consecutive weeks of being decked by snows, winds and flooding might hamper the city’s ability to get out there and really enjoy their green beer.

And other times, the unexpected is not so good – like when #1 seed UVA gets bounced from the NCAA tournament in the first round by #16 seed UMBC and busts millions of brackets nationwide. (Sorry, former President Obama, better luck next year.)

But whether one is watching the weather, the game, or payments and commerce, that old adage “expect the unexpected” remains in effect, since the unexpected had a way of continually cropping up last week.

So where was the interesting action?

Amex’s Big Fee Cut

American Express turned some heads this week with its latest bid for greater merchant acceptance: what could turn out to be its biggest fee cut in over two decades.

According to reports early last week, Amex has confirmed its intention to drop the fee it charges to merchants (also known as the discount rate) by five or six basis points this year, to a total rate of 2.37 percent. If that cut goes to the full six points, it would be the biggest decline the company has offered since 1998.

Each basis point shaves off roughly 11 cents of earnings per share, said Don Fandetti of Wells Fargo Securities.

The move comes as American Express is accepted at 1.3 million fewer locations than rivals Mastercard and Visa. The hope, according to new CEO Stephen Squeri, is that the lowered fee will bring more merchants into the American Express family. Squeri has publicly noted that he is willing to make “conscious trade-offs” to get more businesses on the Amex platform.

However, despite the fact that Amex brings in more affluent consumers, smaller merchants remain especially reluctant to accept the card, said Doug Kantor, partner at the law firm Steptoe & Johnson, who represents the Merchants Payments Coalition – particularly due to the perception that American Express is a high-fee card.

“Any reduction in the fees helps – but American Express, and all the major networks, have a long way to go,” he said.

Squeri has suggested that more declines are coming.

“Is five to six the new norm? Or is it two to three? That may go year to year, depending on the opportunities that present themselves,” he said.

Consensus among the experts is that those opportunities will continue to present themselves, because merchants will make sure of it.

According to John Hecht, consumer finance analyst at the investment bank Jefferies, retailers “have become really aggressive at pushing back” and looking for better rates from the card networks. This behavior, he noted, is even observable among Amex’s corporate partners Delta and Hilton, who are looking for more favorable terms in the cards they are jointly rolling out.

Plus, American Express is currently facing an ongoing legal battle over the fees it charges to retailers, a fight that as of now is going to the Supreme Court. That suit is specifically to determine whether Amex can forbid merchants that accept its cards from steering consumers to other lower-fee cards – but some legal experts believe the lowering of its fees will be useful as it actually goes to argue its case before the Supremes.

Will Walmart Flip Big Into Flipkart?

Every week needs a good cliffhanger, and Walmart managed one with an open question as to whether it’s about to buy-up a big stake in Indian eCommerce mega player Flipkart.

Reports in  Bloomberg last week indicated that Walmart is looking to become Flipkart’s biggest shareholder with an investment of $7 billion. That’s a little more than double what Walmart paid to buy Jet.com outright – and a little more than half of what Amazon paid for Whole Foods.

According to those familiar with the matter, Walmart will be the proud owner of one-third of Flipkart Online Services, partly via stake purchases from Tiger Global Management and SoftBank. According to Bloomberg, the investment could drive Flipkart’s value to around $20 billion. That’s up from a roughly $12 billion valuation just a year ago.

The timeline remains unspecified, though most think it will span the rest of March. During that time, specifics – such as stake size – could change.

If the deal does forge ahead, it would give Walmart a majority stake in a market of 1.3 billion people where eCommerce is just starting. After the U.S. market, India and China are seen as the next big opportunities for online sales – and it has drawn interest from the world’s biggest names in commerce, specifically Amazon and Alibaba.

Flipkart would be a very useful tool in helping Walmart push back on Amazon. But Amazon will not make that easy, as it has vowed to invest $5.5 billion in India, noted Bloomberg.

There is also Alibaba to contend with, as it has recently backed Paytm eCommerce, which has become the third largest online retailer in India. SoftBank is rumored to be nearing an investment in that eCommerce play as well.

Walmart will also face some complex negotiations, as both SoftBank and Tiger Global have made it clear they wish to hold on to at least some of their Flipkart investment once the Walmart deal is complete. Tiger and SoftBank are currently Flipkart’s biggest shareholders.

Amazon, meanwhile, has said it will do what it takes to become a leader in the Indian market.

And speaking of Amazon…

Amazon’s Debit Debut in Mexico

Amazon is expanding its financial services ambitions again, with the announcement of intentions to roll out a debit card this week in Mexico.

The world’s largest eCommerce player is attempting to build a bridge to Mexican consumers, who have heretofore been reluctant to shop online.

Banking on the idea that where there is a payment method, there is a way, the new product, called Amazon Rechargeable, is aimed at providing a new way to shop online.

“Clients that don’t have a credit or debit card will find Amazon Rechargeable an easy and practical way to convert cash into a payment method,” said Fernando Ramirez, Amazon’s product manager in Mexico, in a statement to Reuters.

The card is backed by Mastercard and Grupo Financiero Banorte, a Mexican bank. Users can put cash on the card in convenience stores located around Mexico.

The card comes two years after the launch of Amazon’s Mexico-based site. Two years later, Amazon is Mexico’s third largest online retailer.

The debit offering follows the launch of Amazon’s cash service late last year, which allowed shoppers to deposit between 100 pesos ($5.20) and 5,000 pesos per transaction at several convenience store chains throughout the country, including 7-Eleven, placing up to 10,000 pesos a day into Amazon accounts online.

According to Ramirez, Amazon is continually working to expand that network, as Mexican consumers show a great fondness for cash – though he offered no specifics on what that expansion might look like.

Many have called for Amazon cash services to be on offer at OXXO convenience stores, which compete with 7-Eleven in Mexico and accept cash for MercadoLibre shoppers. MercadoLibre is an Argentina-based e-Commerce marketplace that leads Amazon for market share among Mexican consumers.

Amazon has declined to comment on whether OXXO would be included in its cash locations any time soon.

So what did we learn this week? Keep an eye out – the unexpected can happen at any time.

It is March Madness, after all.

Have a good week.