As a fellow attendee, exhibitor and speaker at this year's Credit Card Forum I sensed many card executives considered Harvey's discourse to be as much a concession speech as a plea for help, driven by frustration. VISA has pounded American consumers with the message "and they don't take American Express". (Mr. Golub acknowledged that VISA's aggressive campaign has successfully eroded AmEx's account base and market share.) Banks currently issuing VISA credit cards are forbidden to issue cards from direct competitors, specifically American Express and Dean Witter, Discover & Co.. The charge volume of other bank cards is growing much faster than the volume generated on American Express cards. The relationships bankers have with their customers is deepening with the proliferation of debit cards and stored-value cards. And banks are finally getting their act together on business cards positioning to attack the American Express Corporate Card. Therefore, in my humble opinion, the payment card future of American Express is not all that rosy. The fact is: American Express needs banks to grow.
On the other hand there were some card executives, or should I say a few card executives, who were intrigued by the idea of issuing American Express cards. In today's competitive credit card marketplace any idea, even a crazy one, is considered viable. How crazy is it for banks to issue American Express cards ???
While I have been very supportive of VISA and somewhat critical of American Express in the past I must admit I do not consider the American Express offer to bankers to be that crazy at all.
VISA and MasterCard issuers have tried for years to siphon off American Express' very loyal and highly affluent cardholders. In the late 80's VISA and MasterCard spruced up and standardized their gold card products with many of the perks offered by American Express. Since then VISA Gold and Gold MasterCard have exploded and today their gold products represent more than 40% of total card volume. While some of this growth came at the expense of American Express the majority of the growth has come from upgrading existing cardholders and downgrading the qualifications for new cardholders. While VISA Gold and Gold MasterCard have lost much of their glitter the American Express card has retained its upscale appeal and remains, to some extent, a superior product.
When I say a "superior product" I can see the smoke coming from the ears of my VISA and MasterCard colleagues. However the "no pre-set charge limit", the single 800 number to promptly reach a well- trained service representative round-the-clock, and the flexible airline mileage programs are unarguably advantages for a traveling consumer.
About a year ago I flew from Maryland to California to attend the Monterey Jazz Festival. I landed in San Francisco on a Friday evening and proceeded to check-in at a nearby hotel before driving down to Monterey the next day. Lo and behold my personal VISA card was denied upon check-in. The hotel clerk then manually called in the card for approval and after twenty minutes, discovered I had "no available credit" and I had "used the card too many times" that day. I was handed the phone and told to call the card issuer to clear up the matter. I dialed the customer service number listed on the back of my card but found the credit card department closed until Monday. Would it be fair to say I, nor the guests waiting behind me, were amused. Fortunately I was carrying a second credit card which saved the day. Unfortunately it was my business credit card which naturally produced some later questioning by my firm's bean counters.
When I finally made contact with the card issuer I learned my card was "authorized out". For some unexplained reason my airline charges were authorized twice and another hotel had a pending authorization from a previous trip that had not expired even though the full, final charge was already posted to the account. I also learned for the first time that if my card was used more than six times in one day it automatically, for fraud prevention purposes, shuts down. The bank, a very small issuer, using a very low tech fraud prevention policy, said there is normally no problem resetting the card during customer service hours.
The point is: having a VISA credit "limit" can create a problem and having to deal directly or indirectly with one of 7,000 VISA issuers can be a pain. With American Express you avoid this hassle by dealing directly with one company with no pre-set charge limit. For this American Express gets two thumbs up.
For the past ten years I have broken bread with many card executives, consultants, reporters and various businessmen to discuss the credit card business. It never ceases to amaze me how many times the bill is settled with an American Express card, usually a Corporate American Express card. Although I have not kept detailed records my guess is AmEx was used about 75% of the time by my affluent hosts.
Therefore issuing an American Express card could open up an entirely new segment of cardholders for any bank card issuer or it could provide a small to mid-sized issuer with enough product mix and differentiation to successfully compete against the popular rebate cards or airline mileage cards offered by only the largest players.
Another interesting trend that meshes well with this scenario is shifting demographic preferences. Aging baby boomers are slowing moving away from credit, relying on plastic for convenience use. The American Express card, a charge card, may have more appeal to this group and possibly higher income for card issuers. The average American Express merchant fee is about 75-78 basis points above the average VISA or MasterCard fee thereby generating more revenue per transaction for the card issuer.
Offering VISA, MasterCard, American Express and possibly Discover all from the same bank could enable issuers to fully attract all segments of the market and could stimulate a higher level of inter-system competition based on brand value. This a not the same as permitting American Express and Discover to issue VISA and MasterCards, which in my opinion, would decrease inter-system or brand competition. (An issue I testified on in a major anti-trust trial between Discover and VISA in 1992.)
VISA's by-laws prohibiting its members from issuing cards from American Express or Discover is no longer needed to preserve and grow VISA's market share. VISA is the king (or gorilla) in payment cards today holding a U.S. market share of 51% in charge volume, 54% in card receivables and 50% of all bank credit cards in force. VISA racks up about as much U.S. charge volume in one quarter as American Express processes all year in the U.S.. As a matter of fact Citibank, the largest VISA issuer and an issuer of MasterCard and Diner's Club cards, will probably surpass American Express in charge volume this year. Furthermore the issuing side of the card business is so advanced any gains by American Express would be slow, expensive and probably not significant.
While I believe the concept of banks issuing American Express cards is not farfetched I do believe Harvey's plea is too late and will find few takers among the U.S. banking community. If AmEx really wants to get back in the ring with VISA in the U.S. it should find a way to acquire or merge with the Discover brand . . . . or better yet MasterCard !!!!
Now that's a really crazy idea !!
by Robert B. McKinley, president of CardWeb, Inc.
P.S. For this year's Monterey Jazz Festival I have elected to use a different brand card and hopefully it will get me there without hassle.
