American Express: coming soon to a bank near you

By Ben Woolsey

American Express is a very well known credit card brand but has never enjoyed the same level of market share as Visa and MasterCard. That is because Visa and MasterCard are both associations comprised of member banks. And it is these member bank organizations that actually issue Visa and MasterCard credit cards, rather than the credit card associations. By nature of the way Visa and MasterCard are organized, they have an enormous built-in distribution network.

American Express, by contrast, is a stand-alone organization that issues its own credit cards and has built its own card acceptance network with millions of merchants worldwide. Another key factor that has limited American Express' growth has been the fact that Visa and MasterCard established bylaws in the 1990s that prevented member banks from issuing competing brands of credit cards. Specifically, these loyalty or competitive protection policies were developed to exclude American Express and Discover Card from threatening the market dominance enjoyed by the associations.

In 2004, American Express initiated a lawsuit against Visa, MasterCard and a number of its largest member banks, accusing them of anti-competitive business practices that had caused economic harm to American Express. American Express prevailed in this lawsuit, with the Department of Justice ordering both Visa and MasterCard to rescind their loyalty bylaw provisions that prevented banks from issuing other types of cards.

In early 2005, American Express began issuing cards through one of the largest credit card issuing banks in the country and is expected to expand their product offerings through an ever expanding network of banks with which it plans to partner. The primary benefit to American Express will be access to a well-funded and motivated marketing distribution network of banks. The banks will benefit by the ability to market more products and brands to its customer base and getting a competitive advantage over banks that do not participate.

Another sign American Express is venturing beyond its own brand is recent efforts to partner with national retailers. A promotion with McDonald's that encourages patrons to use their American Express card to purchase an "Arch" card that can then be used as a gift for future McDonald's restaurant purchases.

While these types of marketing ventures are somewhat incongruent with American Express' upper crust brand positioning, they are probably a sign of the new marketing direction the company is taking in its competition against Visa and MasterCard.

So, it may be a while before your corner bank begins issuing American Express cards along with the ubiquitous Visa and MasterCard products. But, you can be assured that amongst the larger credit card banks that can afford to do national direct mail and print advertising, you will start seeing a choice for an American Express card sooner than later. And, choice is usually a good thing for the American consumer.

Published: January 2, 2006

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