american express co. is game to charge against Visa and MasterCard. Now it needs to convince banks that they can win when they play cards with American Express.
The Supreme Court last week refused to hear an appeal by Visa USA and MasterCard International of a federal antitrust suit, clearing the way for banks and other financial institutions to issue American Express cards. The first such cards, from industry giant MBNA, will appear in the next few weeks.
This marks the first time companies other than American Express will distribute American Express cards in the U.S.-"the most fundamental change in our card business since we launched the first American Express card in 1958," Chairman-CEO Ken Chenault said in an employee memo.
The new model, in the short term, should be a moneymaker for American Express and partners. But it raises long-term issues: Banks that deal with American Express could dilute their own brands, and American Express could find itself competing with its new licensees.
American Express has been preparing for this day since 1996, when it invited U.S. banks to issue its card-a frontal attack on Visa and MasterCard rules that kept the banks from offering other cards. American Express -as well as Morgan Stanley's Discover Card, a smaller factor in the card game-won the key legal fight when Visa and MasterCard lost the Justice Department's antitrust suit.
Both American Express and Discover are free to sign up banks, but major marketing battles are a ways off. Discover said it's in "advanced discussions with potential partners" to issue cards.
American Express is the top U.S. card issuer based on dollar volume, ahead of J.P. Morgan Chase & Co., Citigroup, MBNA and Bank of America, according to The Nilson Report, an industry newsletter.
American Express already issues cards abroad through financial institutions in more than 90 countries. It intends to license rights to distribute cards to "a range of issuers in the U.S.-small, medium and large players" that "are a strategic fit for our brand and can bring in high-spending customers," Mr. Chenault said in the memo.
The partner "owns the card-member relationship," services the account, designs card product features, and does the advertising and marketing, he said. American Express will process transactions.
Industry watchers say American Express, which didn't respond to interview requests, is unlikely to do a major ad campaign focused on bank-issued cards any time soon. An umbrella campaign for bank cards would be difficult, since the cards will have different features and separate rewards programs.
MBNA initially will push American Express cards through direct mail and telemarketing, though it's said to be considering spending as much as $40 million on a national TV campaign next year, which could include promotion of the American Express card. MBNA didn't respond to requests for comment.
Analysts said Capital One, another credit-card purveyor, could sign up for an American Express card. Capital One until last month managed the American Express card franchise in South Africa in a joint venture with an African firm. Capital One did not respond to a request for comment.
It's less likely big banks will sign up since they compete with American Express to sell an array of services including banking, mortgages and investments, said David Robertson, Nilson Report's publisher.
A top marketing executive at a major bank agreed that "whatever positive you get is also taking away from the bank brand." Banks have alternatives: Visa has stepped up marketing of its high-end Signature card.
Longer term, American Express faces another challenge-cannibalization. "It would be crazy for MBNA not to solicit American Express customers and offer them a [better] rewards-card program," said Mr. Robertson. American Express now will find itself competing with new licensees.
In a high-stakes pitch for the rich, American Express no longer will be holding all the cards.
contributing: claire atkinson