American Express
2.1 Introduction
The need for hard cash as a medium of exchange has been on the decline thanks
to innovations such as traveler’s check and most importantly the plastic currency of
debit and credit cards which are ubiquitous today. Recent disruptions in the field
like—mobile wallets, Internet banking, and cryptocurrencies—are further bringing
in sweeping changes which are redefining how people use their hard-earned money.
American Express or Amex is a global brand which has been at the forefront
of all these changes throughout history. It has shaped and taken advantage of how
money changes hands, i.e., transfer of value between entities. It popularized the use
of traveler’s checks and brought in the concept of a charge card. It has dramatically
influenced the retail trade business among various segments. It is the only company
to hold “The Record” for 35 years from 1948 to 83, i.e., it showed not only growth
but continuous growth with increasing income year on year. Today, the company
has charge and credit card products, travel service products, network services, stored
value products, and even loans. Its core businesses are issuing cards, merchant acqui-
sition, and global network processing.
This being the case will it continue to be an industry leader with traditional
business models or will it have to redefine itself to the rapidly changing financial
environment to stay relevant?
Electronic supplementary material The online version of this chapter
([Link] contains supplementary material, which is
available to authorized users.
© Springer Nature Singapore Pte Ltd. 2019 25
S. Dhir and Sushil, Cases in Strategic Management, Flexible Systems Management,
[Link]
26 2 American Express
2.2 History
American Express, currently one of the largest financial organizations, did not start
out as a company related to financing and credit business. It was formed on March 18,
1850, by the merger of three transport companies, namely Livingston, Fargo & Co.,
Wells & Co., and Butterfield & Wasson. The way the company transformed itself
from an express transport giant into one of the most influential financial institutions
in the world is a story of 150 years of constant innovation, at all fronts.
Post the merger in 1850; the same founders also started another transport com-
pany, known as Wells Fargo Company in 1852 as the founders were divided on the
geographical expansion plans. With the end of the American Civil War, the transport
business saw a massive boom but landed up both the firms in stiff competition. The
founders realized that it was not sustainable for the two companies and finally the
American Merchants Union Express Company was set up in November 1868, with
Fargo taking over as the president.
Later, when in 1881, Fargo passed away, his younger brother James Congdell
Fargo took charge of the company. It was during his reign that the erstwhile transport
giant transformed and made the transition into a finance- and credit-related com-
pany. During one of his trips to Europe (between 1888 and 1890), JC Fargo had an
awful experience and came back frustrated. Even though he was the president of
American Express and was carrying traditional letters of credit, he had a tough time
to obtain cash in most of the places he visited except some big cities. He realized
that this was a pain point for many travelers across the globe and hence a business
opportunity which had not yet been tapped into. Thus, 1891 saw the introduction
of American Express traveler’s checks, which redefined the way people used funds
while on international travel. Under the 33 years of JC Fargo’s presidency, the com-
pany brought in many innovations like the American Express Money Order (1882)
and the American Express Traveler’s Check (1891). The same period also saw the
company expanding in international territories with offices being set up in England
(1896) and Germany (1898) and extending services in countries like China, Japan,
Egypt, Brazil, Argentina, and India.
Post World War I; the governmental policies forced American Express to shift
its focus from the cargo business to other opportunities. Soon, American Express
found its new found interest in travel services business and started providing luxury
steamship travel across the globe, along with other travel-related services for the pas-
sengers. The traveler’s check business grew in tandem with the new line of business,
and American Express saw its profits soaring throughout the period.
Discussions for a new travel charge card started in American Express’ boardrooms
as early as in 1946, but when Diners Club launched its first card in March 1950, Amer-
ican Express realized that they had lost the first-mover advantage and they needed to
up their game. The rest is history. Over the next 60–70 years, American Express has
brought in various innovations in products, pricing, marketing, communications, and
even their business model to emerge as a leading name in the credit card industry.
2.2 History 27
2.2.1 Evolution of the Finance Industry—“The World as We
Know”
Historical evidence suggests that around the time humans started trade practices,
the very next activity which came into existence was of finance or credit. Earlier
transactions used the barter system which slowly gave way to coin-based economies
of the kingdoms of old. However, coins were difficult to manage, and their safety at
individual levels was a cause for concern. Primitive homes were not the safest places
to keep savings or borrowings of money, and people usually turned to temples to
keep their additional funds.
Hence, it logically followed that in various civilizations and cultures, temples
started to function as banks to a certain level. The temples landed up becoming
pseudo-financial centers of cities and were usually one of the first targets in case of
empire annexations.
However, as civilizations matured, the finance and credit sectors evolved into a
more structured industry. Experts believe that by the fourteenth century, full-fledged
banks had started to emerge. One such famous bank is the Banca Monte dei Paschi
di Siena (from Italy), which is supposed to be the oldest existing functioning bank.
[Link] Part 1: Growth of the Finance Industry
As technology progressed, the finance industry was one of the earliest adopters of
innovations. The earliest entrants were the courier and telegraph services. The West-
ern Union Telegraph Company pioneered in the field by introducing an interesting
debt instruments system that combined Morse code with couriers delivering cash in
the middle of nineteenth century. Later, in the 1870s, the Gold and Stock Telegraph
Company also started to use Morse code and human clerks for delivering couriers.
By the turn of the twentieth century, information flow started to become more fluidic.
In 1918, the Reserve Banks developed Fedwire Funds Service which connected 12
Reserve Banks, the Treasury Department, and the Board.
The ever-expanding footprint of the finance and credit sectors made it difficult to
manage operations, and it looked for innovations which could streamline its func-
tioning and reduce the dependence on humans for simple clerical jobs. Innovators
did not disappoint the sector, and soon the Wall Street offices were flooded with
thousands of stock ticker machines.
By 1950s, credit cards came into existence which was about to revolutionize how
consumers make purchases. These credit cards brought in the unparalleled conve-
nience of cheap, easy, short-term finance and removed the burden of carrying bills.
As information technology progressed, a new era of processing systems and data
delivery was introduced in the 1960s. Computers started replacing the stock ticker
machines, and automated teller machines (ATMs) began replacing the tellers and
branches. Later, the introduction of Bloomberg terminals for trade execution further
accentuated the role information technology was about to play in the sector.
28 2 American Express
The dawn of the World Wide Web in the 1990s further propelled the shift of the
finance and credit sectors into FinTech. Multiple untraditional players like PayPal
entered the industry and started to exploit the electronic payment space. At the same
time, online banking increased ease for customers, improved efficiency, and reduced
costs for the credit and finance companies. Henceforth, the online space brought in
new business models and business entities like mobile wallets, an area into which
even the traditional players like banks had to forcefully enter, due to the fear of being
left out.
[Link] Part 2: The FinTech Industry
Dedicated systems like Bloomberg terminals combined information with trade exe-
cution. Some of these functionalities were ported to online networks. The dot-com
boom in the 1990s boosted the growth and popularity of companies like PayPal and
other electronic payment options. Online banking brought with it a financial tech
revolution eliminating the need for bank clerks to manually write checks on behalf
of account holders and putting them in the mail. Currently, the role of traditional
banking has reduced significantly by the introduction of mobile wallets and digital
cash.
The latest technology wave has been of block-chain which brings in the function-
ality of transferring money anywhere in the world without the need for any central
authority. Though it is currently in a nascent stage, some experts believe that this
could be the future, redefining the credit and finance sectors, forever. Recently, cryp-
tocurrencies which make use of block-chain technology are gaining a lot of traction
and have given a way to bypass the central banking system. It is still quite new and
has not yet been widely accepted as the standard for money transfers.
2.3 Business Model
Similar to other players in the credit card industry, Amex receives the majority of its
revenues from one of the following sources. First, fees paid by merchants for every
transaction which is done via the Amex network, second the membership fees paid
by the customers, and third the interest paid by customers who pay their dues beyond
the free credit limit period.
Currently, Amex’s overall revenue stream comprises US cards, international cards,
Global Network and Merchant partners and the Global Commercial Services. The
largest income-generating source is the US cards business which brought in net
revenues of 16.995 billion USD in 2013, resulting in a net income of 3.193 billion
USD. The second largest income-generating arm of the business was the Global
Network and Merchant services which provided a net profit of 1.575 billion USD in
2013 (see Exhibits 2.1 and 2.2).
2.3 Business Model 29
The Global Network and Merchant partners division is responsible for on-
boarding of merchants onto the Amex network globally, offering a range of services
from point-of-sale servicing, fraud prevention, settlement to marketing services. The
Global Commercial Services offers expense management services to organizations
across the globe via the Global Commercial Card and Global Business Travel Ser-
vices. This helps Amex to lead in the international markets of commercial cards and
travel management for businesses (see Exhibit 2.3).
2.4 Market Competition
Amex Visa—crossing the trillion dollar mark in 1997—has used a range of strategies
to stay ahead of the curve. It was the first company to introduce neural networks in
its systems to reduce credit fraud in 1993. It came up with EMV, a standardized chip
card to facilitate interoperability in 1995. It used advanced authorization to calculate
risk score which analyzes credit risk in real time on every transaction. It restructured
itself to form Visa Inc. in 2007 and launched its mobile platform in 2008 to improve
the value-added services offered. It focused on ease of use and came out with Visa
Checkout to pay online through any device in 2014.
MasterCard focused more on their programs and campaigns to counter the ris-
ing competition. New and innovative ideas for making their product appealing by
providing exclusive airport lounge access and indulgence in a host of other leisure
activities were explicitly aimed at attracting the high-spending customers. This, in
turn, created a huge base of people who wanted to become a part of this new club.
Soon MasterCard tried to increase its portfolio and user base by providing offers in
various fields such as shopping and lifestyle, dining, and travel as well. They identi-
fied tourism as one of their key areas of growth and worked toward getting multiple
options to show their exclusivity. They also came up with the easy bill payment
methods to provide an edge over other players.
2.5 Strategic Decisions in Recent Times
2.5.1 Service—Not a Cost Center
Amex for a long time saw after-sale service to customers as a cost center and tried to
minimize it by optimizing efficiency. Under the leadership of Jim Bush starting from
2005, there was a change in perspective. Services began to be seen as opportunities
to improve customer relationships and thus lead to increased revenues. Focus shifted
to the top line instead of the bottom line.
Amex started the change in the traditional call center approach from the USA
and moved outwards. Customer care professionals (CCPs) were expected to focus
30 2 American Express
on whether the customers would recommend the product to others or not instead of
sticking to the predetermined script. CCPs no longer had to keep an eye on the clock,
and the customers decided the duration of the calls.
Amex came up with “Relationship Care,” an initiative focused on the thousands of
CCPs who are in daily touch with customers. Employee-centric changes were brought
in place like flexible scheduling, on-site health screening, and incentive pay tied to
customer feedback. Latest IT technology was also introduced to help CCPs deliver
personalized advice to each customer with customized product recommendations.
All this led to a substantial increase in customer satisfaction and increased spending
of 8–10% on Amex products.1
2.5.2 Change in Marketing Strategy
When we think of American Express, the first thing that comes to our mind is inter-
national credit cards or a large finance company. But Amex is also known for its
content marketing and is doing well since its inception.
During the time of initial 1900s, print media was the only available option for
advertising. When Amex started giving travel agency services in 1915, it positioned
itself as the company which took care of the customers who travel and gave many
taglines like “The world’s largest travel company” and “the company for the people
who travel.” It started publishing many travel guides. These brochures were made
to highlight the purpose of Amex which was to give importance to traveling by
displaying tourist spots, tips, and other marketing content like its local offices in
those places to build the presence of the company in customers’ minds.
In 1967, Amex started producing its own traveler’s guide called American Express
Traveler’s Guide which was made for highway travelers. Its main intention to launch
this guide was to provide information on restaurants, hotels, road maps, tourist sight
for the travelers which Google Map and various other apps are doing digitally today.
Joseph Handleman, Professor of Information Systems and Innovation at the Ross
School of Business, University of Michigan, wrote an Article in Financial Times
titled “Case study: American Express.”
To further expand its magazine business, it purchased US Camera Publishing com-
pany whose camera magazines were quite popular. Amex after this purchase started
selling its magazines like Travel and Camera to rebrand itself and pull customers
to it. It even did a direct mail campaign by sending around 2 million emails to its
customers’ homes who were using its credit card.
It started providing magazines on a subscription basis and used to provide adver-
tising slots for other companies to put their product ads over there. With this, it got the
advantage to attract customers who were buying these magazines not for the travel
purposes but also for the products whose ads were published in those magazines.
1 Forbes Welcome. (2018). [Link].
2.5 Strategic Decisions in Recent Times 31
Just in a year, it became the highest selling magazine in travel space, and after
some years it was rebranded and was renamed to Travel and Leisure to bring in more
customers to this space. With the growing demand for magazines, it started printing
various other magazines like Executive Travel, Food and Wine, and Departures.
In 1983, Amex wanted to position itself as a company which cares about social
places and environment. So, it invented the term cause-related marketing when it
raised around $ 1.7 million for the preservation of the Statue of Liberty and Ellis
Island. This benefited Amex in two ways. By doing this marketing, it created aware-
ness of these historical monuments among the people as to how precious they are and
showed that it cares about these precious spots. And second, it brought awareness
about these geographical places by marketing it as must-see tourist places and to use
Amex services to visit these places.
During 1990s, focus of the company shifted from travel to credit card and financial
service space. So, it started expanding its credit card business and sold its magazines
rights and division to TIME Inc. But that did not mean Amex would stop doing
content marketing. It started an open forum platform where readers from around
the world could ask questions related to the marketing strategies they need for their
businesses and experts provided a solution to it. With this, they also started a campaign
called “Small Business Saturday” where they called for marketing ideas for its small
business partners. These became very popular and are used as a successful case study
in content marketing at various institutions.
During the time of 1997 till 2002, Amex roped in various celebrities like Tiger
Woods and Seinfeld to position itself as a company whose cards are exclusively for
elite people. But with changing times, it also had to change its marketing strategy.
Since it had to expand its business while maintaining its initial position of exclusivity,
it started a campaign called “Do More” and designed its ads specific to different
groups like women, entrepreneurs, and small businessman. Many experts believed
that this marketing campaign would be a colossal failure. But Amex posted a growth
of 17% from 16.4% with 15% increase in its card volume purchase.
Currently, Amex is using Instagram more than any other social media platforms for
its social content marketing. Amex cards are very impressive in design, so travelers
post their cards images on Instagram and the company is tapping into this free
publicity. It hires artists to design its cards which it has named as “Card Art” to build
more presence in this space and also among customers. Facebook is still an important
media which is used for “couponless deal” through which it gave coupons based on
the feeds they like and comment on and provide credits on every hashtag of Amex
they post on Twitter. This type of marketing created a considerable impact on social
media and marked its presence in the mind of the customers.
32 2 American Express
2.5.3 Competitive Advantages of Marketing Strategies
[Link] Premium Positioning
Since Amex is known for its high-quality care services and offers, it is positioned
as a company whose goal is to provide quality services to wealthy individuals with
state-of-the-art technology.
[Link] Closed-Loop Network
In a closed-loop network, Amex tries to analyze customer information and data and
builds specific algorithms to identify pattern and profile of the customers. These help
it to customize its products according to the customers and make it more attractive
and personalized.
[Link] Broad Product Portfolio
Since Amex has linkages with a large number of traders and different customers, it
helps them to create new products and services which results in customer spending
more on Amex and less on others.
[Link] International Brand
Amex has positioned itself as a company which provides services globally and is
trusted among customers worldwide as it does not offer its cards or services to any
individual. First, they have to qualify to use Amex cards. These types of segments
have created a clear position and have differentiated its products accurately according
to the consumers it wants to target.
2.5.4 Moving Down the Pyramid
Having wholly saturated the premium segment of the market with a sizeable market
share, the only way to increase revenues was to target a broader consumer base.
So in February 2014, Amex introduced the “Amex Every Day Credit Card” (Amex
every day) which did not have the traditional subscription model and did not charge
an annual fee. It was meant for students and homemakers who were enticed with a
rewards program for frequent use. Clear focus was on getting more people to use
the cards and increase the volume of transactions. An apparent shift from quality
2.5 Strategic Decisions in Recent Times 33
to quantity, as the premium segments, became cluttered with competitors offering
similar products. Online payment processing companies also posed a problem as
they were eating away their customer base with cheaper alternatives. But they made
sure to keep their super premium customers satisfied as the sheer volume spends of
these customers was very large and could not be neglected.2
2.6 The Threat of Fraud and Security
With the increasing digitization of the credit services, the credit card industry had
threats of increased frauds and treachery, as it provided more avenues for hackers to
crack into the network. However, one leader from American Express decided to use
technology to company’s benefit and landed up establishing industry standards in the
field of data-driven risk analysis. The leader was a fresh MBA—Finance graduate
from Columbia University, Ash Gupta, who joined American Express in 1976.
A case study from ICMR, IBS Centre for Management Research titled “American
Express Redefines Its Strategy.3 ”
As of today, Ash retires in March 2018 as President for Global Credit Risk and
Information Management, completing a stint of 41 years at American Express, leav-
ing behind a company which has evolved itself into a data-driven company.4
Four decades ago, when Ash joined American Express, traveler’s checks were a
dominant product for the organization and the card services were a part of its emerging
business. However, as the card business picked up steam, the company increased its
focus on credit and fraud risk management, converting it from an “apprentice based”
to a “data and decision science-based” task.5
In the next decade, American Express created a Center of Excellence in India,
further reinforcing its focus on data science and the humongous possibilities it could
bring in a fast-changing dynamic global market. The center was bestowed upon with
the responsibility for the entire global operations of American Express. In the past
decade, American Express worked upon creating Big Data and machine learning-
based decision science capabilities and teams, which transformed the entire customer
experience, right from product design, marketing, risk control, and servicing. Gupta
reflects, “My greatest accomplishment has been winning the hearts and minds of my
colleagues that investments in data and decision science will bring lasting benefits to
2 Interview with Ash Gupta, President, Risk and Information Management Group, Chief Risk Officer,
American Express—Duke Corporate Education. (2018). Duke Corporate Education.
3 See Footnote 2.
4 See Footnote 1.
5 See footnote 2.
34 2 American Express
our brand, our customers, our people, and forever accelerate our mode to a listening
and learning organization.” He continues, “I hope my legacy will leave a lasting
effect—a commitment to collaboration, learning, and innovation among my Ameri-
can Express colleagues who I’ve had the privilege of serving over the past 41 years”.
2.7 The Future
Even with sweeping changes in technology which increased exponentially since the
dawn of the twenty-first century, American Express has remained true to its tagline
of “Don’t Leave Home Without It” by concentrating on its brand image of a card
issuing financial services company. With e-payments gaining traction and mobile
wallets here to stay, not to mention potential disruptors like cryptocurrencies right
around the corner it remains to be seen if this approach is sustainable or a complete
overhaul would be required for survival.
Exhibits
300
American Express
250
200 S&P 500 Index
150
S&P Financial Index
100
2011 2012 2013 2014 2015 2016
Exhibit 2.1 Benchmarking Amex with the top 500 companies of USA using S&P Index. Source
[Link] (2018). AXP American Express Co Stock AXP chart. Note The values on
the y-axis represent the market value of 100$ invested in Amex in comparison with the growth of
the US economy over different years
Exhibits 35
American Express Co (AXP)
Year 2013 2014 2015 2016 2017
Revenue 32974 34292 32818 32119 33471
Selling, General and Administrative Expenses 16405 17499 16445 17135 17797
Compensation and benefits 6191 6095 4976 5259 5258
Advertising and promotion 10267 11073 3109 3650 3217
Nonrecurring expense 6518 6089 6793 439 1411
Provision for income taxes 2529 3106 2775 2688 4678
Net income 5359 5885 5163 5408 2736
Preferred dividend NA 46 62 80 81
Net income available to common shareholders 5359 5839 5101 5328 2655
Operating Income 7,888 8,991 7,938 8,096 7,414
Operating Margin (%) 24 26.3 24.2 25.2 22.2
Net Income 5,359 5,885 5,163 5,408 2,736
Earnings Per Share (USD) 4.88 5.56 5.05 5.65 2.97
Dividends Per Share (USD) 0.66 1.24 1.13 1.22 1.34
Number of Shares (Mil) 1,089 1,051 1,003 935 886
Operating Cash Flow 8,547 10,990 10,972 8,224 13,540
Tax Rate (%) 32.06 34.55 34.96 33.2 63.1
Net Margin (%) 16.25 17.03 15.43 16.45 7.87
Debt/Equity Ratio 2.84 2.8 2.32 2.29 3.06
Exhibit 2.2 Selected financial information, 2013–17. Source [Link]
(2018). AXP American Express Co Stock AXP chart. Note The values on the y-axis repre-
sent the market value of 100$ invested in Amex in comparison with the growth of the US economy
over different years
Exhibit 2.3 Share prices of Amex since it went public in Jan 1978 to Feb 2018 along with
the volume of trade. Source [Link] (2018). AXP American Express Co Stock
AXP chart [online]. Available at [Link]
region=usa&culture=en-US (Accessed 8 Mar 2018). Note A view of the share prices of Amex in
the NYSE since it became public in January 1978 till February 2018 with values mentioned for
local maxima and minima
36 2 American Express
References
Annual Report (2015) [Link]
&D=&FID=1500081626&
[Link]
