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Foursquare’s Deal with American Express Comes at a Critical Time for Both Companies

Foursquare, the location-based social network, has shown impressive growth during the past 12 months. Its number of employees has risen from 15 to more than 70, and Foursquare users have increased from less than 1 million to more than 10 million. In a bid to maintain this momentum and strengthen user loyalty, the company recently signed a deal with American Express.

The concept is to link Foursquare accounts with American Express cards. So when American Express card holders use a mobile device to alert Foursquare of their location, they automatically receive discounts and deals, without the need for coupons, special codes or NFC technology. When users see a deal that they’re interested in, they “check in” to the merchant, accept the deal and pay with their American Express card. It’s a great way to combine card payments with location-based social networking.

The scheme was piloted at the South by Southwest Interactive Festival in March 2011. Sixty companies in Austin, Texas, participated in a “spend $5, save $5” promotion. Following this, the service went live across Austin with special deals from retailers H&M and Sports Authority and restaurant chain Union Square Hospitality Group (USHG). Deals included $10 back after spending $75 at H&M and $15 back on spending $100 at the USHG barbecue restaurant, Blue Smoke.

The introduction of American Express marks an important step for Foursquare as it tries to gain some credibility with mainstream users by adding a monetary element to interactions. Until now, Foursquare has probably been best known as the location-based equivalent of Facebook or Twitter — diverting, but without a commercial aspect. By offering a genuinely attractive deal for ordinary American Express card holders, Foursquare hopes to expand beyond its current niche market of technology-savvy users.

For American Express, the deal couldn’t come at a more important time. Recent trials and project proposals for mobile payment schemes in the US have seen companies coming together into various camps. As these alliances begin to attract merchants and retailers, the cross-over market between location-based social networking and mobile payments is likely to become very competitive. So it’s important American Express gets in early.

But how long will it be before rival companies begin to offer similar services? The four largest mobile network operators in the US have come together to form Isis, a single platform for mobile payments. They are calling for an open system of retailers, merchants and credit-card companies. Meanwhile, Google could create its own network of localised deals and promotions. Google Offers provides a similar coupon-based service to Groupon. If it were to combine localised deals with Google Wallet, it could turn into a dangerous adversary. Google Wallet has already attracted major partners such as Sprint and MasterCard.

I do wonder what American Express can necessarily bring to Foursquare outside the US. Although the company has a global reach, it’s strongest in its domestic market and lacks the ubiquity of say, Visa, in terms of users and merchants. Foursquare may need to explore similar partnerships if it wants to raise its profile in other regions. The company secured $50 million in funding following its deal with American Express, and has clearly set its sights on keeping ahead of the pack.