American Express has embarked on a new strategy to put its credit cards into the hands of VISA and MasterCard credit card holders in the USA. The strategy is to buy a block or portfolio of existing VISA and MasterCard accounts from a bank, and then swap out those cards with American Express cards. Last July, American Express purchased a co-branded MasterCard portfolio from New Jersey-based Valley National Bank. In late December, Bank of Hawaii agreed to sell its VISA card portfolio to American Express. This month AmEx began the task of swapping the co-branded ShopRite MasterCard with the American Express Platinum ShopRite Credit Card. By summer, AmEx will begin the task in Hawaii of swapping Bank of Hawaii VISA cards with American Express credit cards.

There is now widespread speculation that American Express is gearing up to bid on a much larger portfolio of VISA and MasterCards to swap out with AmEx cards.

Will this strategy be successful for American Express ?

Maybe not. In fact, there could be trouble for AmEx in the "Land of Paradise".

VISA says it conducted a poll early this month that shows just 27% of Bank of Hawaii VISA cardholders are likely to keep and use their new American Express cards when they come in the mail. VISA says the general reaction to the American Express-Bank of Hawaii deal among Hawaiians is negative, the most intensely negative group toward it are Bank of Hawaii credit cardholders themselves. VISA found that 69% of Bank of Hawaii cardholders think Bank of Hawaii is making a mistake by turning over their credit card accounts to AmEx.

Furthermore the economics of the deal point to a potential disaster for the American Express-Bank of Hawaii deal.

It is widely believed that American Express paid dearly to acquire the VISA card portfolio. The average amount paid to acquire a credit card account last year was about $170. Considering the inflated premium that AmEx paid, the cost per credit card account for the Bank of Hawaii may be as high as $300 per account. Unless AmEx can successfully convert every single Bank of Hawaii VISA account with an American Express card, the acquisition will never reach profitability.

If, by miracle, American Express can pull some coconuts out of the Hawaiian card conversion, it will have a profound impact on the U.S. credit card industry. Otherwise this deal is simply nuts!

DOWN THE THROAT

Retailers across the USA are hopping mad about being forced to take VISA and MasterCard debit cards for purchases if they accept VISA and MasterCard credit cards. The debit cards issued by banks with the VISA and MasterCard brand are called "off-line" debit cards. These "off-line" debit cards walk and talk like credit cards, but they debit your banking account for each transaction. They are unlike "on-line" debit cards that require a PIN to use. Merchants pay a very small per transaction fee to accept on-line debit cards, while off-line debit cards require merchant fees slightly lower than the average 2% fee that merchants pay to accept credit cards. Most ATM cards can be used off-line as a VISA or MasterCard or on-line with a PIN. Merchants say these higher priced off-line debit cards are being jammed down their throats. Rather than accept all VISA and MasterCards, retailers want to jam PINs down the throats of consumers. Retailers, including the retailing giant Wal-Mart, have gone to court to take on VISA's and MasterCard's "Honor All Cards" rule. Part of the lawsuit contends that VISA and MasterCard conspired to monopolize the debit card market and suppress the growth of competing regional ATM payment networks. VISA and MasterCard insist their "Honor All Cards" rule is both pro-competitive and pro-consumer. VISA and MasterCard also contend there is no comparison between their off-line debit payment systems and regional ATM online payment systems.

For consumers the bottom line is: Do you want to be told how to use your payment card?

JAZZING IT UP

Sleepy Diners Club has launched a new, image-driven ad campaign to target leisure travelers as well as business travelers. The "Travel in Good Company" campaign marks a dramatic strategy shift in the normally boring Diners Club ad campaigns. This new campaign showcases famous travel companions: Batman and Robin, the Apollo XI Astronauts, and Dorothy and friends from "Wizard of Oz", among others. The folk song "Will You Travel Down The Road With Me" backs the TV ads. Diners Club, which is owned by Citigroup, is seeking to reinvent and reinvigorate itself this year. The new Diners Club/Carte Blanche cards, launched last year, are poised to make a statement this year among the affluent card segment.

ESCALATING REBATES

The Discover Card has discovered a new credit card twist. Discover is now offering a CashBack Bonus award that increases with each new visit to the Houlihan's restaurant chain. The Appetizing Awards program will run for a full year at Houlihan's 104 locations nationwide. The first time a customer buys a meal at Houlihan's with their Discover Card, they will receive a 5% Cashback Bonus award, which will appear on their monthly statement. After that, the award amount increases to 6% for the second visit, 7% for the third visit, 8% for the fourth visit, 9% for the fifth visit, and 10% for each visit thereafter. Discover will send out details to its 50 million+ cardholders this month.

NAVY-CASH

The U.S. Navy is riding the smart card wave. The Navy is launching a pilot program that provides for smart cards, terminal readers and software to be installed onboard ships as a replacement for most crewmember cash transactions. The NavyCash smart card will be a MasterCard issued by Chase Manhattan. The new card will also contain a magnetic stripe for use at all MasterCard acceptance locations worldwide. The pilot program will include both an aircraft carrier and a fast frigate.

PRISON SMARTCARD

Exchanging cigarettes for items in prison will soon be a thing of the past as the U.S. Federal Bureau of Prisons introduces smart cards. The new inmate payment solution offers an electronic cash exchange system and an automatic voucher machine, which allows inmates to purchase a printed voucher with a stored value card to redeem that voucher for special services (such as a family photo on visitation day, or sporting events). Correctional facilities that have integrated a Debitek smart card system into their daily operations have found that an electronic cash solution reduces gambling, theft, purchases of illegal substances and banned items. The new solution has successfully replaced cash with electronic cash in the inmate vending and dining areas, officer and staff vending and dining areas, visitor rooms, copier rooms and laundry rooms.

HAND CARDS

Forget fingerprints, iris scans and voice prints. A new start-up company is seeking to merge hand scan technology with on-line transaction technology. Washington-based DigiKnox Inc. is a new company that maps the substructure of a person's hand and matches it against pre-scanned images for secure on-line and selected off-line transactions. The company is utilizing the LiveGrip biometric security technology. LiveGrip technology uses infrared light to illuminate and measure subcutaneous tissue and blood vessel patterns of a hand presented while resting on a mouse, trackball or other scanning device.