American Express: Branding Financial Services

American Express: Branding Financial Services

Introduction

American Express is known worldwide for its charge cards, travelers' services, and financial services. It is one of the best-known and most-respected global brands. As it grew from a nineteenth-express company into a travel services expert by the mid-1900s, American Express (AMEX) became associated in the minds of consumers with prestige, security, service, international acceptability, and leisure. Advertising for the company, which began in earnest in the 1960s, reinforced these associations. For example, the now-famous tag line "Don't leave home without it" was created to convey the essentiality of owning an American Express Card. As the company grew, it expanded into a variety of financial categories, including brokerages, banking, and insurance, and by the late 1980s, American Express was the largest diversified financial services firm in the world.

The difficulty the company encountered integrating these broad financial services, combined with increased competition from Visa and MasterCard, compelled AMEX to divest many of its financial holdings in the early 1990s and focus on its core competencies of travel and cards. The company weathered a decrease in cardholders at this time by greatly increasing the number of merchants that accepted American Express Cards and developing new card offerings, including co-branded cards and a genuine credit card that allowed customers to carry over the monthly balance. By the end of the 1990s, American Express was again seeking to broaden its brand to include select financial services in order to achieve growth. Beyond the challenge of integrating these services, American Express faced a number of issues in the 2000s, including a highly competitive credit card industry, a slowing economy, and a subdued travel industry.

AMERICAN EXPRESS BUILDS A FINANCIAL EMPIRE

Early History of American Express

The American Express Company was formed in 1850 when two competing express companies merged. The express business, which was less than two decades old, specialized in shipping packages that were smaller than the bulk freight that railroads handled but were over the U.S. Postal Service size limits. Before express companies began operating, stagecoach drivers and even civilian travelers were recruited to deliver packages. Express companies also carried packages that required special handling or were particularly valuable. Bank transactions involving cash, securities, and Gold gave express companies much of their business.

In response to losing business to express companies, the U.S. Postal Service created the money order, which allowed people to send a cash equivalent through the mail that could be cashed only by a specified recipient. The cash delivery service was traditionally the domain of express companies, because postal workers would often steal cash sent through regular mail. To counter the Postal Service's move into financial services, American Express created its own money order in 1881. The American Express money orders were easier to use than the Post Office money orders, and AMEX extended the line to include orders in foreign currency that could be cashed internationally. The money order was a great success, selling 250,000 in its first year and more than half a million the next.

In the late 1880s, AMEX president J.C. Fargo returned from a trip complaining about how difficult it was to use his letter of credit, used to obtain cash abroad, at foreign banks. To solve the problem of obtaining credit abroad, in 1890 American Express employee Marcellus F. Berry designed the "Travelers Cheque," intentionally using the British spelling of check to give it an international flair. The Travelers Cheque used the same signature security system still in use today and had exchange rates guaranteed by AMEX printed on the front. AMEX also gave foreign merchants commissions to encourage them to accept the check. Aided by the network of international financial relationships established for support of the AMEX money order, sales of the Travelers Cheque quickly took off. From 1882 to 1896, Travelers Cheque sales quadrupled as travelers all over the world were using AMEX products more and more to make their journeys easier. In the meantime, AMEX's express business was growing overseas.

Federal antitrust regulation led to the separation American Express's express business from its financial services and tourism businesses. By that time, however, AMEX was already booking tours, hotel stays, and steamship and railway tickets. Money orders were still popular and Travelers Cheque sales were constantly increasing. AMEX had also been investing the float--the money that remains in the company's account during the interval between when Travelers Cheques are bought and when they are cashed--and earning millions of dollars in interest. The Travelers Cheque was AMEX's flagship product. The Travelers Cheque fees and its float investments were responsible for most of AMEX's earnings and almost all of their profits.

History of the Charge Card

In 1914, Western Union, another express company, issued the first "charge card" in the form of a metal plate given to preferred customers that enabled them to defer payment for services. Charge cards required that the balance be paid in full at regular intervals but did not charge interest on the balance. Soon, many different companies from department stores to oil companies issued charge cards that customers could use to purchase goods and services from the issuing company. In the 1940s, several U.S. banks began issuing a paper document--similar to a letter of credit--that customers could use like cash in local stores. Diner's Club introduced the first modern charge card in 1950, when it issued a "Travel and Entertainment" card designed for use by business travelers. The card was accepted by a large variety of merchants, who paid a fee to Diner's Club in compensation for the added business. The first bank card was issued by Franklin National Bank in Long Island, New York. The bank-issued card was accepted by local merchants only, unlike the Diner's Club card. Shortly after Franklin National Bank debuted its credit card, several other banks across the United States issued credit cards to their customers.

"The Card"

AMEX actually had considered issuing a charge card on several occasions before Diner's Club unveiled its card in 1950. AMEX management discussed issuing a charge card as early as 1947, but then-president Ralph T. Reed refused