PYMNTS.com asked industry expert and author of Paying with Plastic, David S. Evans to profile industry thought leaders and executives to find out what's next in the world of payments.

In this edition of the Captains of the Industry, David interviewed the Chairman and CEO of American Express, Ken Chenault. Since 2001, Ken has been the CEO of a company that has built a reputation and brand around the three pillars of security, service, and trust since 1850. From freight forwarding to traveler's checks, American Express has been shaping the payments industry. Will the growth of alternative payments, P2P and mobile redefine how we think of American Express? In this two-part interview, Ken shares his thoughts on American Express, and how recent regulations have impacted the payments industry.

To listen to part one of this interview, click here.

Part One: American Express and Innovation - Past, Present and Future

DAVID EVANS: This is David Evans. I have the distinct pleasure of talking with Ken Chenault of American Express today. Ken has been the CEO of AmEx since 2001. We're here to talk about what's next in payments, and what's next for AmEx. Ken, thanks a lot for joining me today.

KEN CHENAULT: Glad to join you.

EVANS: Ken, how did you get into the payments business? Was it serendipity, part of a master plan?

CHENAULT: Not really. I will tell you that – and I talk about this often, to our employees at the company. What I really like about American Express is – and I really do believe this – is that payments allows us to provide and facilitate a range of services, and to enrich your life, to bring you experiences, to make companies more productive. And I like being in the service business.

My interest in coming to the company at first was, we had a joint venture with Warner American Express – it was the cable business. And –

EVANS: Oh, yeah.

CHENAULT: And I sort of date myself when I tell some of our young people coming in, that the cable was like the Internet for me, and I thought it had tremendous possibilities. I was certainly off there. It did have tremendous possibilities, but not in all the ways that people thought.

But what was very, very helpful to me is, one of the first businesses I got involved in was our – was the direct marketing business that sold a range of products and services to customers. And that gave me some very important lessons on addressing customer needs, being very entrepreneurial, because a lot was dependent on the products you selected and you picked how to engage in segmentation, how to position products, which was terrific preparation for the card business.

EVANS: Most of our listeners are familiar with American Express and where it is today, could you spend some time telling us how it has evolved over the years and come to be a true innovator in the payments space?

CHENAULT: Well, I think we have been in existence, American Express, since 1850. We started off in the freight forwarding business, and I think what's important about that is that you build brands and reputations over time. And while we have been a company in constant reinvention, one of the hallmarks for us was security, service, trust, which is critical in the payments business.

And at that time in the history of the United States, to take on the job of forwarding goods and services was pretty heroic and courageous. And we became a company that people could depend on and trust.

The second area that we were focused on, from a reinvention standpoint, was the traveler's cheque business, which was a very innovative product that certainly built on the service reputation and the trust reputation, and actually helped advance commerce.

EVANS: And that's a product AmEx invented?

CHENAULT: That is a product that AmEx invented, and it certainly met customer needs. But it gave them a level of security and trust and access, and I would say, helped facilitate the evolution of not only payments, but commerce in the world.

I think also being in the travel business was important, because what travel really does for people is, it crosses boundaries. It encourages commerce, it encourages an openness and a perspective on different views, and creates, I think, an environment for global business, as well as increased awareness of different cultures.

And then, in 1958, we came out with the Card. And I think the American Express Card was a very creative product, because what we recognized in this case – I was about to say, we were offering a piece of plastic, but we were actually offering a piece of paper shaped like a card – was that it was not just this paper card, or this plastic card, but the card was a vehicle to deliver a range of services to our customers and clients.

So we provided a basic product that could help facilitate payments. But what was important from the beginning of the creation of the Card was that this card was really to facilitate a range of services and access to our customers and clients, and we built off that.

And then obviously, we had the evolution of the Gold Card, our travel management services product where we created products for small business, medium sized companies, large corporations, and to help them not only expedite the travel for their employees, but also to help them manage their overall expenses, particularly their indirect expenses.

EVANS: And then in the last decade, one of the interesting things in my mind is, you transformed yourself also from a closed loop system to a somewhat pretty open loop system.

CHENAULT: Yes. I think that's important there is that the creation of this merchant network, which is a global network, was very important, and the creation of this authorization system that could basically take action at the transaction level was very important for us. And I think what is critical about our company is the fact that we have created a platform that serves the needs of issuers and merchants, but very importantly, back to this notion of facilitating value, as a result of the information that we have, as a result of the services that we provide, we have a mutually reinforcing value proposition that meets the needs of individuals and corporations, but also meets the needs of merchants, because we want to grow their business. But if we grow their business, it also allows us to provide value added offers to our end user customer.

EVANS: It's been an amazing, I guess, century and a half, if I – I guess I don't have the math exactly right, but –

CHENAULT: One hundred and sixty years.

EVANS: One hundred and sixty years. How do you think the American Express of 2019 will differ from the AmEx of 2010?

CHENAULT: Well, I think what's very important is, one, to understand some of the changes that I think are occurring, one, as a result of one of the most serious financial crises in the last hundred years, similar to the impacts of the Depression that we had in the '30s. The consumer behaviors are going to change, and so what we're seeing are, consumers are certainly deleveraging. The savings rate is going to increase. I think that the need for customers to have products that meet a range of their spending and lifestyle needs is going to be increasingly important.

And one of the things that we feel very strongly about is that in a time of uncertainty, that brands, and particularly brands that consumers and customers have seen navigate through very challenging times, are going to have an increased advantage, if they anticipate what those customers needs are. So I think the growth of alternative payments, the growth of charge cards, and debit and prepaid, are going to be very important. I think the growth of person to person payments, the interrelationship of the growth of mobile with payments, is going to be important. It's one of the reasons why we have a deal with one of the largest mobile providers in China, with a deal with ICBC, and UMPay, I think, is the name of the mobile provider, because we believe that that connection is going to be very, very important.

And frankly, I think some of the so-called emerging markets are going to lead the way in some of the payments and technology advancements, because they're going to skip the existing infrastructures that have been in place. They're going to leapfrog them.

And we believe that we've created a very unique payment model, and we characterize this as the horizontal scale advantage that we bring, because unlike other payment companies, we're a very large issuer. We're the largest issuer in terms of billings. We are a merchant acquirer, we are a network processor, we have a very large rewards and loyalty set of capabilities. And the fact that we can connect those all at once, we think is going to give us a very important set of advantages.

EVANS: Do you see yourselves in 2019 being less of a U.S. company, more international? Are there any projections you are able to share on how much of AmEx is going to be outside of the U.S.?

CHENAULT: Here's what I would say. While I can't publicly share with you what our international growth objectives are, what I can say, if we just look at the GDP growth rates around the world in different markets, that leads you to the need for any business that wants to grow, they in fact are going to have to have very strong growth in a range of international markets.

And if we just look at the brick markets and the growth rates there, we're going to have to have a more substantial presence in international, and we have been growing in international, and I think that will be accelerated. And I think the power of our brand, we in fact find as strong or stronger in a range of markets, combined with the fact that we have a global network. We have global capabilities. I think that is going to give us some very important advantages.

And then the last piece that I would emphasize, both on a global basis, and certainly in the U.S., as I think about 2019, is that American Express is increasingly, and we characterize ourselves this way, is – think of us more broadly as a services company than a financial services company. What we provide is, we've got a network of very broad relationships with end user customers, with companies, with merchants. And we in fact can provide value to all those different segments as a result of the relationships and the value that we perform.

So I think that services related revenues are going to become increasingly important to us, and those services that we provide are in fact going to reinforce the strength and the value and the economic vibrancy of our base businesses.

EVANS: And the payments business.

CHENAULT: And the payments business. So I think we're really created a virtuous circle, and that's why I believe in the future, the payments companies that will do the best will be the payments companies that are focused but diversified, and simply being in one part of payments, I think will be more challenging, going forward.

EVANS: You recently bought Revolution Money. They have a lot of cutting edge Internet-based technologies. Where do they fit in your plans for American Express?

CHENAULT: Yes, we're very excited about Revolution Money. On one level, it's a small acquisition. But it's a small acquisition with big potential, and here are the reasons why.

They have an incredibly flexible platform. And their platform allows us to be involved in prepaid, in debit, in person to person, in mobile, and also has the flexibility and capability to go global. And I think the opportunity to integrate Revolution Money in a range of both service opportunities and payment opportunities – so when you think about the explosion of social networks, Revolution Money provides a range of payment capabilities that in a social community can play a very important role.

And so, we think that the unique capabilities that they bring, combined with the capabilities at AmEx, can provide a substantial set of opportunities to grow. And we also like the fact, and part of the evolution of a company, is that they bring different perspectives in how they look at payments, and how they look at online, and how they look at social networks, that I think will compliment the capabilities and the competencies that we have in the company.

EVANS: What are the biggest obstacles to making innovation happen in the payments business?

CHENAULT: I think if you look at it in one sense, is the biggest obstacle in stifling innovation, I think in any industry and particularly payments, is if you define yourself too narrowly, and you accept the status quo, and you are afraid of, in fact, cannibalizing yourself.

And I tell this story in the history of the company. When I joined American Express in 1981, I remember going into our archives and reading some memos from senior executives, recommending to the then-CEO, Howard Clark at the time, do not enter the credit card business, because it will cannibalize the travel cheque business.

Fortunately, Howard Clark had the foresight to look at the market opportunity and say, at the end of the day, the competition is cashing checks, and what we need is a range of products to, in fact, compete with cashing checks, and we want to stay ahead of the marketplace.

So I think it's important to have the willingness in your organization to take on the status quo, to reinvent, to be very sensitive to what those customer needs are, but more importantly, to anticipate what those customer needs are, because the customers don't necessarily prescribe and identify, here's the new product that I want. Our job, in fact, is to say, based on our understanding of your needs, here's a product you may never have thought of.

For Part Two: How American Express Has Navigated the Financial Crisis and Government Regulation, click here.

Executive Bio: Kenneth I. Chenault, Ken has been Chief Executive Officer of American Express Company since January 2001 and its subsidiary, American Express Travel Related Services Company Inc. since February 1997. Mr. Chenault joined American Express in September 1981 and served as President of the U.S.A division of American Express Travel Related Services Company, Inc. since 1993. He served as President and Chief Operating Officer of American Express Co. from February 1997 to January 2001. He held several senior management positions at Bain & Co. He has been Chairman of American Express Company since April 2001 and American Express Travel Related Services Company Inc., (TRS), since April 2001.

Mr. Chenault is a Member of the board of directors of the New York University School of Medicine, the NYU Hospitals Center and the Partnership for New York City. He serves on the Dean's Advisory Board of Harvard Law School and is a Member of the Council on Foreign Relations. Mr. Chenault holds a JD from Harvard Law School and a BA in History from Bowdoin College.

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