American Express Enters Cost Cutting Mode, Where to From Here?

American Express Has Been on a Losing Streak

American Express hasn’t even lost Costco charges yet, and it’s reeling. Here’s the inside story on how Amex lost the Costco deal. Delta is their second largest co-brand, but with Marriott buying Starwood they presumably lose the ability to issue Starwood co-brands at some point when the programs are expected to merge. (With Marriott Buying Starwood, Does the Starwood American Express Card Still Make Sense?)

American Express lost the JetBlue co-brand to Barclays though it’s small and they will actually manage the backend for Barclays through their LoyaltyEdge business.

Their network is no longer used for Fidelity card transactions.

They’ve Sought New Markets Outside Traditional High Spend Older White Male Executives

American Express’ Serve product, which came out of the 2010 acquisition of Revolution Money — together with Walmart (Bluebird) and Target (Redcard) branded cards were supposed to be a huge growth area for the company in light of the damage caused by the Durbin Amendment which didn’t just kill lucrative mileage-earning debit cards, it reduced availability of free checking accounts, led to higher higher checking account fees and minimum balance requirements. In other words, Serve and related products were intended for the additional one million households than became unbanked since the passage of Dodd Frank financial reform.

Even the Amex Everyday product line is focused on non-traditional customers for American Express.

  • It is called ‘Amex’ and not even ‘American Express’
  • It lacks the ‘Centurion’ logo
  • It’s pitched at and incentivizes use for everyday spend.

They’re pitching it at ‘multi-tasker’ females, rather than older male business travelers.

It Doesn’t Seem to Be Working

The prepaid business, it turns out, isn’t doing so well. (HT: Doctor of Credit) Serve, Bluebird, et al were part of its ‘Enterprise Growth Division’ which is become dismantled and folded back into the company.

The lender is dismantling its enterprise growth division, created to develop additional sources of revenue, lure new customers and help fend off Silicon Valley startups. Several top executives have left in recent months, including Neal Sample, its leader, and the unit plans to cut about 170 jobs in New York and Florida. The company canceled a product launch in Mexico, scaled back research efforts, folded parts of the business into other divisions and is closing its office on the edge of Manhattan’s Tribeca neighborhood.

Prepaid reloadable cards, apparently, aren’t making money and American Express “has climbed no higher than sixth place among prepaid-card issuers.”

Green Dot CEO Steve Streit told analysts last month that AmEx’s advertising spree no longer keeps him up at night like it used to, and that Green Dot continues to outsell AmEx at major retailers.

American Express Plenti, a coalition rewards program that lets you earn points for doing business with a variety of merchants, hasn’t picked up many new participants since it launched. I mean, it was actually sort of newsworthy when the program picked up Chili’s this week.

While coalition rewards programs have been largely successful around the world, I don’t see them as a replacement for a retailer running their own program because the rewards aren’t particularly rich but mostly because the biggest value gained by a retailer relying on repeat business (rather than automatic recurring business like the insurance and telecomm providers they’ve signed) is data. And building a program on someone else’s platform doesn’t give you the same data advantage you get building your own.

What’s more, the technology is weak, I understand they don’t currently offer the automatic transaction tracking you’d find from Rewards Network dining or ThanksAgain retail purchases (or that Plink had). You need to link online accounts, and for retail merchants with one-off transactions their solution involves customers taking photos of receipts.

Where to From Here?

American Express revenue declined in the third quarter. They saw a 38% decline in fourth quarter earnings. Since revenue isn’t growing they’re entering cost cutting mode, “moving aggressively to streamline the company and drive efficiencies in order to take out $1 billion from our overall cost base by the end of 2017.”

Long term credit card interchange fees will be competed down by new technologies. Businesses which make their money on high margins processing credit transactions need to innovate, because those income streams will come under pressure.

Yet Visa has been growing, while American Express has not. There’s still huge potential in the payments space and American Express has to get its house in order. Entering cost-cutting mode probably doesn’t get them there.

On the whole American Express has had better products in the prepaid category that surprisingly haven’t taken off. Co-branding with large merchants like Walmart (which itself is closing stores in the US) doesn’t seem to be the way to build its customer base after all, though it seemed like a great strategy at the time. They need to get in front of their target market, which remains a potential growth area.

In their existing premium payments business they need to acquire good customers and that means risking losing money on some of those customers.

And they need to lead the way in new technologies, they need to innovate, they need to be the ones driving down transaction costs because that is where the market is going to be going. They need to be the ones destroying their own business. Shuttering their separate skunkworks, to an outsider, doesn’t seem to be a sign they’re likely to do that.

I love American Express because I’ve always had great experiences with their Starwood co-brand (as a cardholder for nearly 15 years) and I love that they continue to build out the Centurion lounge network.


American Express Centurion Lounge Dallas

I love the faster-earning Everyday Preferred card and improved Premier Rewards Gold. I think it’s fantastic earning category bonuses in the Membership Rewards program. So I’m hopeful they find good growth plays. I don’t want the cost-cutting axe (which when it was in full swing at United was ironically called ‘project quality’) to come after those rewards.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. AMEX is slowly becoming an also-ran in the consumer and business credit card world.

    1. Dispute resolution – Chase beats them hands down. Citi is on par.

    2. Design and flexibility for business owners – Chase wins again. AMEX is still better than Citi. Bank of America is awful.

    3. Signup bonuses – Citi and Chase are so far ahead of AMEX. Even with Chase’s 5/24 rule on UR-earning cards, Chase has plenty of co-brand cards that are decent.

    4. Overall the lesson should be to all credit card companies – churners are in the grand mix of things still profitable, MSers are not.

  2. Amex’s reputation may be too exclusive for its own good. The three things that unfamiliar people associate with American Express is that 1) it’s elitist (read: expensive status symbol) 2) it’s not accepted everywhere and 3) they’re more selective in who they approve. None of these three traits appeal to millennials, who are taking market share while the sun sbegins to set on high-spending baby boomers.

  3. I live in Southern California. Haggen, a grocery store chain, came into our area within the past 12-18 months and tried to be the AMEX of supermarkets: higher prices, perhaps marginally better service, all for basically the same product. They are now bankrupt and gone, the quickest failure I’ve ever seen. AMEX best learn the lessons of Haggen and change things FAST. Cutting costs is not enough. Get off your high horse, match or better those merchant fees, and get your credit card division in order on the consumer end by offering competitive signup bonuses and other incentives. You need our spending NOW.

  4. I have to say this is not a surprise. I have posted comments before about how their customer service has deterioriated over the last few years. That decline is even more evident now that I have a Chase card. My experience with the Chase reps so far, has been way above my expectations. And my Chase card benefits are on par with what I had with Amex Plat.

    The fact that they selectively deny Centurion Lounge entry to certain eligible cardholders, and make not apologies for it, is more evidence of the poor decisions they are making. And further, they have lost Costco. By the time my Costco Amex card ends in a few months, I will be down to only one Amex card. Only a two years ago I had 4 and one of them was Platinum. (we now have three Chase cards)

  5. Well surprise surprise. No one takes their product, they only offer one bonus per card per lifetime, and they have a $450 card that gets you into a handful of airport lounges in places where not everybody finds themselves. And you earn points that do exactly the same thing as an equivalent Chase currency that’s a heckuva lot easier to come by. Whoda thunk they might run into issues?

  6. I worked many years ago for American Express. While the company was ok to work for, the waste in both resources and manpower was incredible. Obviously they still haven’t gotten their costs under control. I was always totally unimpressed with Chenault. Thought he was a bad choice in 1997. I have to say that he still doesn’t get it. Amex’s negotiations with Costco will become business school case studies in how to not negotiate. Or how to lose your best customer with an arrogant attitude.

  7. The board of directors of Amex is breaching its fiduciary duties if it does not fire its incompetent ceo NOW. The incompetent chenault (the ceo for those who do not know) had the best customers a financial institution could ever dream of: rich, high spending, hugely profitable, high credit scores, high leverage users… and turns his back on them to go after the low spending, poor credit, high-risk, low credit scores, unbanked??!!! (no value judgment, just the facts) Plus, he willingly lets the incredibly valuable customers of Costco fly away? To say nothing of the absolutely shameful gutting of the plat card (centurion, too). Well, the incompetent ceo must have had the blessing of the incompetent/criminal board members to make these dramatic, incompetent strategic changes. Yet the REAL breaching of fiduciary duties is with the institutional financial “owners” who own the stock on behalf of individual investors (especially in retirement accounts..ERISA, anyone?), who have not voted the criminal board out. Wanna bet they are in bed with the execs and board? Can’t wait for those lawsuits. Oh, btw, just tried to pay my internet bill with one of the largest isps in the US, they no longer take American Express!

    Honest, non-snarkey question to AnonCHI: what do you mean by “Design and Flexibility for business owners”? This business owner has all of those business cards. Great analysis with your post. Aside: one aspect of MSers (like me) which does not seem to be appreciated: amex will lose A LOT of business outside of BB/Serve/etc for their recent actions.

    Yet another great post, Gary.

  8. I have been involved in some detailed customer interviews with AMEX as a large customer. Most of my charges being Starwood. Amex appears to have interest in some big programs involving small business customers. I was not that excited what I saw early last year, but later in the year even me as a skeptic got excited. These were non card programs aimed at small business only. If they are going to roll such products out I think it would be in 2016.
    I think Gary pretty much stated most of the points with some excellent comments above. For me SPG points had huge value. MR points for me are close if not on par with Chase UR. I know others here like Chase as being somewhat more flexible. Losing Costco and SPG is a major blow. Even if they somehow keep the card the SPG points would have to have a similar value to member which I have doubts and so do others. If they could keep the SPG card program going at a similar value to me I hang on. Otherwise they lose probably 80% of my business with them.

  9. John B: I was writing my post before I say yours (so didn’t mean to repeat a lot of what you wrote); you are spot on.

  10. @J – I actually do not agree with you that going after the unbanked means turning back on high spend customers. I think that the Platinum card has actually gotten better over the past few years with the addition of Centurion lounges and Hilton Gold. Sure, they lost AA/US lounges, but remember that those were relatively recent additions to the program. Lots of changes in partners over the years, lots of creativity to continue adding value. Indeed, the $200 airfare credit is a relatively recent add.

    Costco is a big blow, but it would have been too expensive to keep too. The fundamental problem that Amex faced with Costco is that they had bidders (with huge tax loss carry forwards) willing to overpay on a huge scale that Amex could not and probably should not have matched. They were damned if they do, damned if they don’t. On the other hand that comes back to being embedded in a business model that’s on the verge of substantial disruption and needed to drive that disruption themselves.

  11. Gary: (quickly, gotta go eat dinner) “going after the unbanked doesn’t mean turning back on high spenders”: No, just yet another indication that they have turned their back on their best, most profitable customers. Incompetent and criminal. Forget AA/US: how about no UA/NW?? No alliance with *A? Incredibly stupid and incompetent (yes, they LET chase get them). Wait until you see what devaluation happens with SPG.

    Costco: Yes, I know Citi had big carryforwards (so did Amex, just not to the same extent). Granted too expensive IN THE SHORT TERM, long term amex could not afford to not have this deal and these incredibly valuable customers.

    As others have mentioned, “one card per lifetime” recently? Yet another stupid, short-sided, incompetent, ultimately criminal (breach of fiduciary duties) decision, so says this amex member of well over 25 years!

    Truly, thanks for your insight. Cheers to you, with this nice glass of wine which will accompany the dinner. Hope your move to Austin is going well.

  12. Thanks @j. Amex partnerships shift largely with mergers, United has been with Chase since they acquired first usa. The United-Continental merger necessarily meant the end of the Continental relationship. Northwest got swallowed up by Delta and of course Amex partners with Delta. They’ve certainly lost partners over the years but that’s how the game works. They lost US as a transfer partner, picked them up as a lounge partner in some sense to replace Continental. They do have Star Alliance transfer partners (SQ, NH, AC) just not lounge partners because there’s only one US Star airline now. I think net net they’ve navigated the premium landscape well and find their Platinum, Premier Rewards Gold, and Everyday Preferred products to be strong though I think they could be stronger (eg Platinum could bonus certain spend categories and PRG could bonus non-US restaurants etc).

    There are benefits I miss, for sure, like the old domestic companion ticket. That was a rich offer, even if customer service on it was awful. 😉

  13. Clearly Amex is in trouble. Let’s not forgot to mention all the DL devaluations, and the many who no longer will spend $50k (PL) or $60k (Reserve) to get the MQMs! I’m one of those people.

  14. @AnonChi From recent experience, Chase business card resolution sucks to the extreme. Chase does not back small businesses when it comes to disputes on business cards while from my experience Amex does. On personal cards, I would agree that Chase does a fair job with disputes.

  15. Thanks for this great post Gary. Avid follower on Twitter these days. Having just signed up for the Plat Card – one worry I have is that they might dismantle the lounges now. If not dismantle – maybe not grow the network. I’ve been anticipating an opening at LAX and maybe a couple other airports. Is either concern realistic?

  16. @DCEsquire – i tend to think that those lounges already in the pipeline are pretty safe though i have no inside knowledge (and certainly don’t know that any cost cutting would hit the lounge program)

  17. I wonder if AmEx’s numbers for Serve, Blue Bird, and “Red Bird” would been better if they had not made these cards mutually exclusive. Is it really that unusual for a customer to shop at both Target and Walmart?

  18. For a number of decades, AMEX has been a great credit card company providing credit services to business and to consumers. Times are changing now. AMEX is no longer changing with the times. People who were born after 1990 or so and own a business are no longer looking at AMEX for their consumer credit card business because of the higher fees AMEX charges with respect to other credit card issuers such as VISA or MC. Thus, for those of us who are business owners, AMEX is going to become yesterdays news. So long AMEX.

  19. Death spiral.

    Maybe people over 60 still think AmEx has cachet, but nobody younger. It’s only a matter of time until the vultures are picking at the entrails.

  20. If you want to show a picture of a Centurion Lounge (though it’s not at all necessary), what a weird picture. It’s basically a dark hallway.

  21. @anonChi: I dispute your assertion that “Overall the lesson should be to all credit card companies – churners are in the grand mix of things still profitable, MSers are not.” MSers generate spending (and transaction fees) regularly and in large quantity, churners (if they’re doing it right) generate $3-10K over a short period of time and then sock-drawer the card. In this regard I think the one bonus (not card) per lifetime policy isn’t crazy (if a bit too draconian). Unless you’re talking about the Serve/Bluebird/Redbird debacle where MSers generated essentially 0 fees for Amex.

    With the notable exception of the DL cards, I find that Amex’s cards are quite competitive when it comes to rewards for spending. I’d pick 1 Starpoint or MR point per dollar over 1 AA, UA, LH, etc. per dollar any day of the week. There’s increasing competition on this front from UR and Thankyou points cards, but Amex still wins on transferablilty. But then, nothing is more transferable than cash, and I find myself reaching for my 2% Fidelity card more and more…

  22. Question:

    I just received two targetted AmEx business Gold offers in the mail for two business entities I own. I’ve already received an AmEx business Gold sign-up bonus but through another entity. Does anyone know if I can still get the signup bonus? I know AmEx personal is once in a lifetime per person but not sure about AmEx business with different EIN’s. Thanks

  23. Aside from the card benefit side, I think many merchants are dropping Amex because of their fees – there’s no reason to pay an extra 1%. Everyone has a visa, and many have card benefits that rival Amex. The fewer merchants that take it, the less people that want it. Total downward spiral all around.

  24. I don’t think Amex necessarily turned their back on profitable customers. But competitors stole those customers so they needed new ones.

  25. Next up are rounds of layoffs and closures of their call centers.

    I don’t know if I want to see a world where Amex is gone and only Visa/MC and Discover remains. Bad, bad, bad for the consumer.

  26. Amex seems to be fantastic in coming with new ideas – Serve, BB, Redbird, Plenti, Everyday, Centurion lounges, etc., but what it lacks is seriously execution and follow through.

  27. I don’t know. I continue to like Amex. Yes, the one bonus per lifetime rule bites, but unlike Chase and Citi, there are a lot of Amex cards that earn Membership Rewards points [Platnium (received 100,000 points from this), Business Platnium (received 75,000 points), Business Gold (received 50,000 points), Premier Gold (received 50,000 points), Regular Gold (25,000 points available through incognito links), Green (25,000 points available), Everyday Preferred (received 30,000 points), Everyday Regular (25,000 points available). If you’re married like I am, multiple all of the above by two. Moreover, the business cards are churnable, so I don’t see any big difference with Chase, where it is now basically impossible to get a UR earning card if you are someone who plays the points game.

    Also, based on every valuation out there, assuming you meet the 30 transactions a month, the Everyday Preferred should be the card of choice for non-bonused spending since you get 1.5 points for every dollar spent.

    I just booked two business class round trip tickets to Hong Kong on Cathay Pacific for 240,000 Membership Rewards points. The tickets retail for a little over $13,000, and I spent about $13,000 to earn the 240,000 points with my sign up bonuses (100,000 Plat + 75,000 Biz Plat + 50,000 PRG + spend). That is a return of $1 for every dollar I spent. Compare that to a 2% cash back card, where you net $.02 a dollar for each dollar spent. Maybe that is part of the reason Amex is struggling as a business. But as far as I am concerned, Amex has made me a happy camper.

  28. Did you transfer the MR points to CX and then book through them? Don’t they charge fuel surcharges? Or did you go through someone else?

  29. it is really a price value issue.

    Amex used to provide superior customer service. Over the last several years, customer service has declined from best to the worst among the major credit card companies. Their credit algorithm is flawed, generating an extraordinary number of false positives and their responsiveness is third rate.

  30. I still see where your readers incorrectly state that the bonus on AMEX personal cards is ” once in a lifetime”. Reports in FT indicate that former cardholders are receiving both email and USPS ANEX card offers that don’t contain any exclusions in the terms and conditions. And some claim to have already received the signup bonus a 2nd time. So maybe AMEX is gradually relaxing its policy due to the business downturn most of you have noted.

  31. For the last year at least, when I call AMEX Customer Service, over half of the time I get a recorded message along the lines of: ‘due to unexpected call volume waiting times are quite long. If your call Is not of an urgent nature, you may prefer to call back tomorrow. If so, you may hang up now. If you still want to talk with a representative, please wait and we will be with you as soon as possible’.

    And if you do hang up and call back the next day, you may quite possibly get the same message again. Suggesting that your customers calls are not important enough to bother with? Seriously?
    🙁

    Which is made even more strange by the fact that I always stay on the line, and my call is typically answered with a minute or so.

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