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Curve yields to Amex because fintech promised too much, too soon, say insiders

A row between credit card giant American Express Co. and British startup Curve Ltd. is a reminder to financial technology companies of the dangers of promising too much, too soon, according to industry insiders.

Curve, founded in 2015, allows users to bring all of their bank cards, credit cards and rewards cards together in a single card, eliminating the need to carry around a bulging wallet. Curve said Jan. 28 that it was launching a functionality, in beta, to allow Curve customers to add Amex, enabling them to use Amex via Curve where Mastercard Inc. is accepted. As many retailers in the U.K. and continental Europe do not accept Amex due to its comparatively high fees, the tie-up solved a common problem for customers.

But just 36 hours after the feature launched, American Express pulled its cards from Curve, to the confusion of the latter's customers.

"I was using Curve [on the night of Jan. 29] and it just stopped. It became apparent that Amex had just pulled down the shutters," Ben Smith, a Curve customer and independent technology consultant who has worked with several U.K. incumbent banks on their online and mobile offerings, told S&P Global Market Intelligence.

Curve's stance

Curve did not make on official statement until the morning of Jan. 31, when CEO and founder Shachar Bialick said in a company blog post that he intends to challenge Amex's decision.

"On Tuesday 29th January at 4:46 p.m. U.K time, Amex notified us that they were terminating their merchant services agreement with Curve with immediate effect. With that move, and based on legal advice we received, Amex breached their contract with Curve, failed to give appropriate notice, breached payment services regulations and demonstrated clear anticompetitive and anti-innovation behavior. Most importantly, Amex seemed to show a total disregard for its own customers' interests," Bialick said.

Rather than being a partner of American Express, Curve has a merchant agreement with it, under which it provides a wallet that is topped up via Amex. The fee for using this wallet differs according to the card tier that a customer has signed up for, according to a spokesperson for Curve, with "Metal" cardholders getting free and unlimited use and "Blue" cardholders paying a 0.65% fee per top-up.

According to Bialick, Amex executives shared concerns in a Jan. 21 meeting about customer service and integration, but gave no formal notice about ending the merchant agreement. After some deliberation, Bialick and his team decided to go ahead with the scheduled launch of the Amex tie-up Jan. 28 despite unresolved tensions, the statement said.

"Our merchant services agreement was perfectly valid and our top-up mechanism was known and agreed-upon with Amex. Moreover, our legal advice told us we were protected by regulations, and Amex were unable to prevent Curve from accessing its network," Bialick said.

Amex: The test is over

An Amex spokesperson said in an emailed statement that the company had simply decided not to progress the relationship with Curve after the beta test ended, and declined to offer further details.

"American Express participated in a limited Curve beta test where we enabled a small number of card members to load funds onto an e-wallet using their Amex card in the Curve app. Following this beta test we informed Curve that we would not participate in the further rollout of the Curve e-wallet," the spokesperson said.

This is not the first time that Amex and Curve have fallen out. In 2016, Curve offered Amex cards as one of its funding options, along with Visa Inc. However, Amex quickly asked Curve to put a stop to this, because Amex did not like this operating model, said Bialick.

Communication 'not optimal'

For Manu Varghese, an early adopter of Curve and chief product officer of blockchain technology company Greenstream Networks, Curve has overpromised.

"I believe that Curve rushed into rolling out a public release (later clarified as a public beta) without ironing out all regulatory, technical and compliance requirements put forward by Amex. This may have caused Amex to withdraw from the agreement effective immediately," he said in an email.

But as a long-term Curve customer, Varghese said he felt communication with customers was "not optimal" and that the company had taken some "irrational" decisions over the past year that may have been partly due to investor pressure.

While fintech startups will inevitably miss milestones and fail to deliver on certain promises, they must be careful not to alienate customers and investors, Varghese said. "It's a mistake if it happens once, but it becomes a concern if the pattern keeps repeating."

Smith, meanwhile, said he also felt that Curve had erred in its marketing of the Amex tie-up.

"Curve insinuated that the relationship with Amex was more permanent than it actually was. If you look at some of their marketing material, Curve have overstated their case [regarding American Express] and didn't make the caveats obvious," he said.

"I'm not going to say they lied, but they have definitely overpromised. There is a point at which you stop feeling sorry for a company as a start-up and start to feel cross as a customer. I'm at that point."