AMERICAN EXPRESS reacting to my posts on flyertalk
I little while back I posted on flyertalk on how I wish American Express was just like the good old days when Amex just had the plain old green amex you paid in full every month. It is evident you have more than just a couple lukers like MaryBethFromAmex reading flyertalk.
USA TODAY NOVEMBER 6, 2009 PAGE 6 AMERICAN EXPRESS FULL PAGE ADVERTISEMENT
<<A LESSON FROMTEH PAST THAT'S GOOD FOR YOUR FINACIAL FUTURE.
Were things really simpler "back then" or did they just seem to be? The truth is, one thing hasn't changed. The simplicity that comes tieh the American Express Charge Card. In 1958 the Chage card was dieal for people who wanted not just to spend, but to spend wisely. For those who wanted to spend in full each month, and enjoy the fruits of spending responsdiblibly...
I believe Amex is trying to get away and/or minimize their "credit" card business as it contradicts their primary business model.
Testimony of Susan Sobbott
President, American Express OPEN
Before the U.S. Senate Committee
On Small Business and Entrepreneurship
May 13, 2009
"we rely on what we call our “spend-centric” business model. That means we focus primarily on facilitating the spending of our Cardmembers, not on increasing our lending balances. Our company derives a greater proportion of our revenue from transacting customers who pay their balances in full each month, compared to customers who choose to revolve a balance."
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Quote:
Originally Posted by pannhead51
Testimony of Susan Sobbott
President, American Express OPEN
"we rely on what we call our “spend-centric” business model. That means we focus primarily on facilitating the spending of our Cardmembers, not on increasing our lending balances. Our company derives a greater proportion of our revenue from transacting customers who pay their balances in full each month, compared to customers who choose to revolve a balance."
What a marvelous example of a statement that is both true and amazingly disingenuous at the same time. Ms. Sobbott, in the interest of full disclosure, might have added. . .
"In fact, if we'd stuck exclusively to the charge card business instead of branching out into credit cards, we'd be one hell of a lot better off right now. You see, a big reason "transactors" represent more revenue is that they bring almost no risk to their relationship with us. When we foolishly got into the credit card business, greed overcame prudence, and we extended credit far beyond many of our customers' ability to pay us back. In other words, the marketing department won out over the risk management department. In fact, I'm not sure we even had a risk management department at the time.
"In any event it all unraveled when the financial crisis took hold, and our revolving customers defaulted by the trainload. Our recent history of coveting and collecting high interest rates from our credit customers came back to bite us in the butt, and we almost paid the ultimate price. Thank God for the government. But even with their help we had to engage in a draconian program of cutting credit lines and tightening terms for our credit customers--many of whom had actually paid in accordance with our contracts with them.
"All of which has made us appreciate the wisdom of our old "spend-centric" model. If we'd stuck with it all along, we'd be a much stronger company right now, with happier customers, a stronger balance sheet and far fewer PR problems."
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Quote:
Originally Posted by allga
...if we'd stuck exclusively to the charge card business instead of branching out into credit cards, we'd be...
...owned by one of the international banks and probably much worse off than American Express is today. Citi acquired the two other general purpose charge card issuers decades ago: Carte Blanche in 1979 and Diners Club in 1981. American Express started to issue co-branded cards with banks in 1982, these were charge cards with a linked revolving line of credit from the bank, but Mastercard and VISA (illegally) agreed to prohibit their member banks from issuing other card brands and the program died.
To counter the growth of bankcards, American Express introduced Optima credit cards in 1987, and this became the platform for the Delta and Hilton affinity cards launched a decade later, as well as the current JetBlue and Starwood cards. Issuing credit cards, which generate interest revenue, allowed American Express to reduce merchant fees. If American Express had not entered the credit card business I think they would have faced shrinking merchant acceptance in the US, and would have been ill-equipped to compete for these affinity card contracts.
After winning the antitrust judgment against Mastercard and VISA, American Express shrewdly offered to waive the money judgment against those banks which agreed to issue Amex network cards. Bank of America, Citi, and GE agreed. This has generated additional fee revenue for American Express with zero credit risk, and they have eliminated some credit cards (Optima, The Nest and The Knot).
It is clear that American Express, in common with other issuers, extended credit unwisely, but I don't think it is a "charge" vs "credit" distinction. Most of the stories I have read here are about charge card holders who have had their accounts frozen unexpectedly.
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Let's see, spend is higher on charge cards (than their revolving counterparts), clients who hold them have higher FICO scores (so the default rate is lower), and all their charge products have nice annual fees. Net 30 day products are also a viable alternative to debit.
But I'm sure their ad campaign is based upon posts in this forum.
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Quote:
Originally Posted by mia
Citi acquired the two other general purpose charge card issuers decades ago: Carte Blanche in 1979 and Diners Club in 1981.
So you're saying that because Diners and CB couldn't make it on their own in the charge card business, it automatically follows that AMEX couldn't have either? Isn't it true that in the late 70's, AMEX was the clear leader in the charge card business and the other two were also-rans?
Quote:
Originally Posted by mia
Issuing credit cards, which generate interest revenue, allowed American Express to reduce merchant fees.
But somehow they're still higher than MC and VISA, and along with slow-pay, this forms the prime reason that a signficant number of merchants won't accept them.
By arguing essentially that AMEX had to get into credit cards to survive, you seem to be contradicting Ms. Sobett's testimony that the core of their income is and has always been from merchant fees and not from credit.
You scour these boards much more than I do, but my impression is that both charge and credit customers have been the objects of AMEX's little surprises over the last few months. Plus, there are a great many (myself included) who use their credit card but treat it like a charge card (i.e. we're devout transactors). Seems to me a fair number of those folks have been hassled too, although you never know how many people are telling the whole truth about their situations.
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There are two kinds of "hassle". The Financial Review (FR) and the Credit Limit Decrease (CLDs).
Both seem to have heavy computer involment. The FR seems to be more transaction based, the CLD seems to be more "I don't like what I see on your credit report" based.
Both can have positive outcomes. If you agree to share your financials with Amex, the F/R can be won.
The CLD is a tougher nut to crack, but again, if you have strong financials, and can find an empowered human Amexer, you can get your limits back.
But make no mistake, the hassle in both cases is pretty severe, and very off putting.
I'm going to stand by my opinion that Amex is not going to extend themselves any farther into the "credit" card business ie: don't expect CLI and expect more F/R for these cardholders. My personal experience with my F/R back in April was that just my "credit" card was frozen, I was free to charge away on my 4 charge-cards while the F/R process was taking its course. Some points of interest below.
WSJ
Kenneth Chenault, AmEx chairman and chief executive, acknowledges that the company flooded customers with too much credit, and that taking some of it away now could anger people. Once the current crisis passes, though, the company's return to its traditional strategy of focusing on charge cards for the wealthy will pay off, Mr. Chenault predicts.
From an interview with AmEx CEO, Kenneth Chenault, in the current issue of Fortune Magazine:
We’re doing a “back to the future” on the charge card. That’s our pay-in-full product at the end of 30 days. Consumers want discipline, and if we can bring that discipline of paying in full at the end of the month along with the service levels that we provide, plus the rewards and other programs we have, we think that’s a tremendous opportunity for us to grow.
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Quote:
Originally Posted by allga
... because Diners and CB couldn't make it on their own in the charge card business, it automatically follows that AMEX couldn't have either
My attempt was to explain that American Express tried to remain exclusively a charge card issuer, it didn't work because Mastercard/VISA locked them out of bank partnerships, but the reluctant move into credit cards proved beneficial in the long run because lower merchant fees widened their merchant acceptance in the US, and put them in position to issue mass market affinity cards. There is no contradiction between issuing both charge and credit cards yet deriving most of the income from merchant fees. Nor is there a contradiction between reducing merchant fees and still having the highest fees. It's a matter of proportion, the mix.
Missing from this discussion is the recognition that card issuers securitize accounts. Our accounts are sold into a pool which shares the revenue and risks between the card issuer and investors who buy the securities. Much of the recent trouble reported here seem to be symptoms of the collapse of the market for these securities. I think this is why we become unable to transfer credit from one card to another (different pools), and why new cards are issued with $2,000 limits (few new pools).
