The American Express Company has always marketed itself as the most prestigious of all the credit cards. Of course we all know of Visa and Mastercard and everybody has those. But only a select few have an American Express. Let’s take a look what all the fuss is about.
In 2019, there were over 3.3 billion Visa cards out there, over 2 billion MasterCards, and only 114 million American Express cards. That is a big difference considering that there’s just 29 Visa cards and 17 MasterCards for every one American Express. This is because the American Express Company has a different marketing angle where they are not concerned with the volumes of cards they sell. In fact, they do a lot of things differently. For example, Visa and MasterCard are issued by banks whereas American Express handles most of the banking work themselves. Today, you can get one from the bank of America and some other places, but 70 million of those cards were issued by them alone.
Possibly the biggest difference is that they’re not simply offering a charge card, they’re offering something more. So maybe it’s not even fair to compare their number of cards as a premium brand. They’re not as concerned with how many cards are issued but rather how much money they make from each card. I think that might be the more telling number because it’s significantly higher for American Express.
Spend Centric Secret Sauce
Despite having fewer cards, American Express has had higher revenue numbers than Visa or MasterCard. It’s actually higher than both of them combined. So though they’re not as widely used they have their own system in place that’s working in a different way. They call it SpendCentric and I want to talk about it a little. But I also want to talk about the evolution of this company because they didn’t start by providing credit cards.
History of the American Express Company
American Express as a company go back over a hundred years before credit cards even really existed. The name American Express was seen in the 1840s as an express service store and were thought to be a promising new industry at the time. Just so we’re on the same page here, an express service is when you pay someone to transport something for you. Due to pricing and logistics, you would typically use it for smaller more valuable things. The first one in the US was founded in 1839 and by the 1840s there were a bunch of them notably located in higher population areas like New York City.
There were three express service stores in New York and they noticed that competing with each other was becoming harmful. They would all do much better if they simply joint forces. There are some big names here. This is when Henry Wells, William Fargo, and John Butterfield combined their separate express companies into one larger one called American Express. Up until this point, all of the most populous cities in the country were in the east, mostly in the northeast, and logically those were the areas they serve. But they actually formed American Express during the California gold rush. For the first time, people were making their way out west in big numbers and San Francisco would soon become the first big city out there.
American Express Company Risks
Henry Wells and William Fargo who were actually the first president and vice president of American Express saw some opportunity as this was their chance to offer their services in San Francisco before anyone else could. If the city kept growing like it did, they would likely grow with it. The rest of the company wasn’t crazy about the idea and they thought it was too risky and American Express would be better off focusing on the eastern cities. The board of directors basically said that you two can go and do whatever you want but we’re gonna stay right here. And that’s what happened. The two of them went out to San Francisco to start a separate company. We all know how that eventually turned out. I should make it clear that they stayed with American Express as well as simultaneously running both companies.
Through the rest of the 1800s, American Express continued to grow either merging with competitors or making deals with them. As far as what territories they would serve, making deals with the railroads and other transportation services the civil war, was good for business. It meant everything had to be shipped everywhere. As cities were getting bigger, the population was growing and American Express was able to set up a system that allowed them to take advantage of this rapidly growing demand.
Henry Wells remained president until he retired in 1868. That’s when William Fargo took over until he died in 1881. He was then replaced by his younger brother James Fargo which is actually the person thought to have gotten the company first involved in financial services. The year after he took over, American Express introduced their money order. It was intended to be a cheaper, safer, and more accessible version of what the US post office had introduced almost 20 years earlier. They sold quite a bit of these money orders partially because there was a high immigrant population that was buying money orders to send money back to their families. Since it turned out to be so successful, they followed up on it.
Nine years later when they introduced their famous traveler’s checks, the success of those played a part in them getting involved in the travel business. Today we can see how they started by offering a delivery service but then slowly progressed into other somewhat related businesses. It was a good thing that they did too, because during world war one, in 1918 the government took over everyone’s express operations. American Express was thereby reduced to only banking and travel. So had they not made those moves, I’m pretty sure that that would have been the end of them. That’s how they existed for the next few decades: a relatively smaller company mostly known for its money orders and traveler’s checks. However, later in the 1950s, everything changed. This was a time when credit cards were thought to be a promising new industry.
American Express Company Cards
Up until this point there were no large scale widely accepted cards. In 1950, the Diners Club card practically changed the game. It was accepted by multiple entertainment providers and showed potential. For a product like this, it wasn’t long before various banks across the country started introducing their own regional cards. 1958 is when American Express first entered the market with their purple travel and entertainment card. This thing got popular so quick that nearly 500,000 people possessed it within its first three months. This was the main reason that over the span of the 1960s, their income grew 10 times larger.
Then there was the introduction of their famous green card and corporate cards to help propel them to that next level. American Express transformed into one of the most respected valuable brands on the planet. They had a great slogan too. You’ve probably heard it: “Don’t leave home without it.” It’s nice and simple and it practically became one of the most popular sayings of all time. The credit card business helped them so much that over the next few decades they were able to acquire all a number of other financial businesses. They’ve since sold them, but at one point they bought an insurance company and a brokerage firm.
American Express Company Offerings
Today, they’re mostly focused on their gold and platinum cards. I want to take a look at their platinum card because I think it’s very representative of how they run their business. First off, it’s called the platinum card. Platinum is a metal that’s uncommon and valuable and flashy much like American Express would like to be perceived. But beyond the name this card costs $550 per year just to have it. Most other cards don’t cost anything or if there is a cost it’s typically not this much.
This is reflective of their business because they generate $4B a year from these card fees. It’s a big part of their financial model. Another feature about the platinum card is there is no interest rate because the full balance has to be paid at the end of each month. The idea is unlike other providers. American express actually wants you to pay your bill on time for many of their cards like the platinum one. It’s actually a requirement. If you pay your bills on time, you can earn 60,000 membership reward points. Of course, this is after you use your new card to make five thousand dollars in purchases in your first three months. This is the core of their business.
Generally, any seller who accepts a credit card has to pay for that ability to do it when compared to Visa or Mastercard. American Express generally charges them a much higher rate. If you want to buy something from Walmart using your Visa card that’s typically cheaper for Walmart, than if you were to use your American Express since Walmart has to pay them a comparatively high percentage of the transaction every time you use it. They want you to use it since the more you use your card, the more money American Express makes. So offering deals that motivate you to spend five thousand dollars in three months is reflective of their overall plan. This is where they make most of their money. This is why it’s called SpendCentric.
Features, Benefits, and Rewards
The obvious question here would be why would these sellers even accept American Express since most people don’t have them anyway? So why bother if it’s going to cost more? Well, historically people have had difficulty finding places that will accept it though today I think it’s better than it used to be. Reports in the US show that it’s accepted by just about as many merchants as Visa and the reason that they’re willing to accept it is sort of because of that prestige see the people with American Express cards. It tends to be comparatively wealthier they have higher credit scores. Why else would anyone pay $550 a year to have it if you don’t plan on using it? It’s far cheaper to get an Instagram Autoposting account.
Wealthier people tend to spend more money so the advantage for Walmart or whoever the merchant is, is that it’ll attract bigger spenders to their business. They’ll be giving American Express a higher percentage of a larger bill so it should work out for everybody.
Finally, it’s the benefits that are the biggest reason that people would want to get a platinum card. We already know about the rewards points and there’s a ton of travel benefits like services involving Uber and Delta. It’ll give you access to that airport lounge and the platinum card concierge service. I’m not trying to sell this card so i’m not gonna go through everything but for many people, those benefits outweigh the cost.
Their highest, the most prestigious card is the centurion card, also known as the American Express Black Card. Their entire marketing strategy for this card was built using modern principles of design thinking. If you have one of these you must have a lot of money because they are not easy to get. I think this takes things a little bit far even for American Express. First off they have to offer it to you. You can’t just openly apply for it like almost every other credit card in the world. Nobody knows the exact criteria to get that invite, but I doubt you’ll get it unless you’re spending hundreds of thousands of dollars on one of your other American Express company cards. Then once you get invited, you have to pay a $5000 initiation fee to get it and then a $2500 fee every year to keep it. Obviously, you have to be very wealthy to get this card and I just look at this as an extreme example of how American Express conducts business. It’s been close to 200 years for American Express and it seems like they’re doing everything right.