Wednesday, December 21, 2005

American Express Tarnished, the Brand Leader's Cache Faces Saturation (

In what was anticipated to be a smooth marketing alliance between the banks and American Express’ branded cards, might now be embarking on roaring discord among retailers. Even cardholders are beginning to understand that using new super-high-margin Citigroup, Bank of America or HSBC charge cards with the American Express logo may lead to even higher merchant interchange fees. The new American Express logo on these cards will most likely yield soaring new hidden taxes on consumers.

As reported in the Wall Street Journal (Dec 21 - page, C3), Bank of America chairman and CEO, Kenneth D. Lewis believes that it is difficult to partner with a business they are in litigation against. However, while they settled with American Express, the bank is party to a multi-billion dollar antitrust class-action launched by merchants who accept Visa and MasterCard.

While Kenneth Chenault, chairman and CEO of American Express asserted in the same WSJ article that "the economic opportunity is tremendous," his focus was distracted and myopic. Clearly, the banks and American Express are so entrenched in their orgy of boardroom domination that they truncated the focus group component; if only they involved current cardmembers and retailers. This contentious plan to flood the market with millions of new American Express branded cards, and potentially spike interchange rates will not be supported - even with hundreds-of-millions of dollars certain to be spent advertising this alliance.

For the premium "Platinum" American Express cardholders and the even more exclusive "Black" American Express cards, the appeal and benefits of distinction from these exclusive cards are about to be diminished.

This new alliance with the New York financial-services company is the latest scheme by banks which may outrage retailers and even decimate the venerable American Express brand. Even its cache as the recognized and respected customer-oriented, world leader in quality is at risk. It could be doomed as the strength of its exclusive image will be saturated with millions of new American Express logos popping up everywhere.

Several months ago, The Credit Card Interchange Report - reported on 26 leading issues affecting credit card interchange fees. Two of the primary assertions follow which initially drew attention to what is now about to occur.

* Because banks are now permitted to issue Amex and Discover cards, MBNA and Citibank plan to issue American Express cards, which means, merchants will be flooded with the higher costing premium cards (this translates into a 50% increase in costs from about 140 bp [basis points] to 210 bp. I anticipate they will then convert their classic cards to higher priced "signature" "affinity" and "business" cards.

* The argument by American Express was that their cardholders spend more money. Perhaps this is based on buying diamonds and luxury items, but when you are at a convenience store, the amount charged from a Visa card is typically the same as for American Express. As MBNA and Citibank switch from Visa to American Express, they are appealing to the same group of cardholders with the same spending patterns.