American Express

American Express, also referred to as “AmEx” or “Amex,” is a diversified international financial services company headquartered in New York City. American Express was founded in 1850 and has major branch offices in locations throughout the world. The company is best known for its credit and charge cards, as well as its worldwide traveler’s check business.

American Express’s common stock trades on the New York Stock Exchange under the ticker symbol AXP, and the company is one of the 30 major components of the Dow Jones Industrial Average. Their current Chief Executive Officer is Kenneth Chenault, who took the helm in the early 2000′s. Last year, BusinessWeek magazine and Interbrand both ranked American Express as the 14th most valuable brand in the entire world, with a worth estimated over 20 billion dollars.

A History of Survival

In the late fall of 2008, during the worldwide financial crisis, American Express won government approval to convert to what is known as a bank holding company, making it eligible for government assistance under the Troubled Assets Relief Program (TARP). At that time, American Express had total consolidated assets of nearly 127 billion dollars.

The history of American Express dates back over a century and a half in New York, where founders Henry Wells and William Fargo – who also formed the Wells Fargo & Company delivery business which would later become the famous bank – started an express mail business that carried crucial documents, currency and other valuable articles from the east coast to the midwestern parts of the U.S. Conflicts within the American Express leadership ranks caused the emergence of Wells Fargo & Company, which extended its mail route all the way to the West Coast.

Expansion and Growth

Wells Fargo eventually replaced American Express in the delivery business just before the former expanded into the more lucrative financial industry. American Express created a railroad empire that expanded their express mail business, but it was wrenched from their control by the U.S. government when all such companies were nationalized for the war effort in 1918.

In the late 1880′s, American Express began issuing money orders to compete with the U.S. Postal Service offer of similar items. After setting up offices in Europe, American Express created a solution to letters of credit that would be accepted virtually everywhere, and called them “Traveler’s Checks,” which came in 10, 20, 50 and 100-dollar denominations.
Along with the opening of a travel division of American Express in the early part of the 20th century, the company started developing a payment “charge card” for travelers. It later issued one of the first such cards after Diners Club issued its own card in the early 1950s. A sizeable batch of the first cards was issued a few years later. It became what we presently recognize as the traditional green, embossed plastic card around 1960.

“Charge” vs. “Credit” Cards

For over 25 years, American Express offered only a traditional charge card, the balance of which had to be paid by the account cardholder every single month. Once the American Express Gold Card and Platinum cards were issued over the years to differentiate long-term clientele with excellent credit history, the company issued its very first credit card, called Optima, in the early 1990′s.

American Express has offered several different charge and credit cards over the years. The Optima True Grace card, for example, was introduced shortly after the debut of the Optima card, and it offered a grace period on all purchases whether a balance was carried on the card or not. It was later discontinued.

In 1999, American Express introduced the supremely elite Centurion Card, which is often referred to as the “black card,” catering to an even more affluent customer segment. There is currently an annual fee of $2500 and a $5000 “initiation fee.” American Express took advantage of the rumors that its richest and most powerful customers were provided special perks with a secret card, which launched Centurion amidst great fanfare.

The Art of the Deals

Many other deals and cards followed. American Express created an exclusive deal with the major bulk goods wholesaler-to-the-public store, Costco. A cash back credit card with no fees was offered which offered customers two and three percent rebates on gasoline, food and travel expenses paid for with the card.

In the early 2000′s, American Express introduced the Clear credit card with no fees whatsoever. The card brought into play something called ExpressPay technology, called “the speed pass chip,” whose first use was for instant gasoline purchases. The technology is commonly used today and requires only a wave of the card to pay through special “terminal receivers.” Several major store chains have embraced this system, including Ritz Camera and CVS Pharmacy.

By the 1980′s, American Express bought Shearson Loeb Rhoades, a huge securities company in the U.S.; Investors Diversified Services and their esteemed financial advisors, E.F. Hutton; Pacific Century Financial; and several other companies, to expand their holdings and corporate reach in the financial industries. Some smaller companies held by American express were later sold off, such as the First Data Corporation.

Competitive Card Brands

Competitors MasterCard and Visa enacted rules prohibiting banks to issue their cards if they offered American Express cards in the U.S. Legal action drawn out by the U.S. Department of Justice disrupted this course of action. In the early millennium, American Express achieved a deal that allowed them to issue cards through MBNA America, an American bank. It was thought that the cooperative effort would be endangered by the MBNA merger with Bank of America, the primary Visa developer and a major card issuer. An agreement was made, on the other hand, between Bank of America and American Express in 2005.

As per the accord, Bank of America owns customer loans while American Express instead processes such transactions. In addition, American Express shall release Bank of America from the company’s legal action that it had opposed to MasterCard, Visa and other American banks. American Express and Bank of America also declared that an accessible card issuing joint venture between American Express and MBNA will keep going following the merger between MBNA and Bank of America. The original card from the joint venture was released in 2006. GE, USAA and Citibank have also begun to issue American Express cards since that time.

After spinning off their financial services firm, Ameriprise Financial, Inc., American Express’s revenues dropped to around $5B in 2005. The credit and economic crises in 2007 and 2008 have strongly affected the operations of American Express. In order to stop a substantial loss of a number of big credit card lenders, the U.S. government began a unique program in which the Federal Reserve would buy various bonds to insure a flux of credit would go on for the United States economy.