American Express

American Express () is a diversified global financial services company, headquartered in New York City. The company is best known for its credit card, charge card and traveler's cheque businesses.

The company's common stock trades on the New York Stock Exchange under the ticker symbol AXP. It is one of the 30 stocks that comprise the Dow Jones Industrial Average and is ranked as the 174 largest company by Fortune.

The current CEO is Kenneth Chenault, who took over in 2001 from Harvey Golub, who was CEO from 1993 to 2001. Prior to that it was headed by James D Robinson III from 1977 to 1993.

American Express is commonly abbreviated in speech as "Amex".

History

Early history

American Express was founded in 1850 by Henry Wells, William Fargo, and John Butterfield as an express business. In 1882, American Express launched its money order business to compete with the US Post Office's money orders. This product quickly spread to Europe where no such finacial product existed. Sometime between 1888 and 1890, J. C. Fargo took a trip to Europe and returned frustrated and infuriated. Despite the fact that he was president of American Express and that he carried with him traditional letters of credit, he found it difficult to obtain cash anywhere except in major cities. Mr. Fargo went to Marcellus Flemming Berry and asked him to create a better solution than the traditional letter of credit. Mr. Berry created the American Express Travelers Cheque which was launched in 1891 in denominations of $10, $20, $50, and $100.

The travelers cheque established American Express as a truly international company and in 1915 they announced the establishment of a travel department and soon established its first travel agencies.

During the winter of 1917 the US suffered a severe coal shortage and on December 26 President Woodrow Wilson commandeered the railroads on behalf of the US government to move US troops, their supplies, and coal. Treasury Secretary William Gibbs McAdoo was assigned the task of consolidating the railway lines for the war effort. All contracts between express companies and railroads were nullified and McAdoo proposed that all existing express companies be consolidated into a single company to serve the country's needs. This ended American Express's express business. The result was a new company called the American Railway Express Agency company formed in July 1918. The new entity took custody of all the pooled equipment and property of existing express companies (the largest share of which, 40%, came from American Express who had owned 71,280 miles of railroad lines, 10,000 offices, with over 30,000 employees).

The Great Salad Oil Swindle forced American Express to take a massive loss. On November 19, 1963, De Angelis's company (Allied Crude Vegetable Oil Refining Corporation) was filed for bankruptcy. American Express stocks lost nearly 50 percent of worth (see 'External Links').

Charge Card Services History

American Express executives discussed the possibility of launching a travel charge card as early as 1946, but it was not until Diners Club launched their own card in March 1950 that American Express began to seriously consider the possibility. At the end of 1957 American Express CEO Ralph Reed decided to get into the card business, and by the launch date of October 1, 1958 public interest had become so significant that they actually issued 250,000 cards prior to the official launch date. The card was launched with an annual fee of $6, $1 higher than Diners Club, to be seen as a premium product. The first cards were paper, with the account number and cardmember's name typed. It was not until 1959 that American Express began issuing embossed ISO 7810 plastic cards, an industry first.

In 1966 American Express introduced the Gold Card and in 1984 the Platinum Card, clearly defining different market segments within its own business, a practice that has proliferated across a broad array of industries. The Platinum Card was billed as super-exclusive and had a $250 annual fee. It was offered by invitation only to American Express customers with at least 2 years of tenure, significant spending, and excellent payment history.

In 1987, American Express introduced the Optima card, their first revolving credit product. Previously, all American Express cards had to be paid in full each month, but Optima allowed customers to carry a balance, which is now commonplace among most American Express cards (with the exception of the traditional green, gold, platinum, and Centurion cards, which remain charge cards). Although Optima is no longer heavily promoted, an upgraded Optima Platinum is still available on the American Express website.

In 1999 American Express introduced the Centurion Card or "black card" catering to an even more affluent and elite customer segment. It charged a $1,000 annual fee, with a variety of exclusive benefits. Also, in 1999 the company introduced a marketing triumph, Blue from American Express, a popular card among the young and techno-savvy with its multi-functional onboard chip.

There have always been rumors of a super-exclusive card that gives American Express' richest and most powerful customers special perks. It was this rumor that sparked the launch of Centurion.^* As of 2005, the Centurion card has a $2500 annual fee.

Also, in 2005, American Express introduced ExpressPay, a wireless RFID payment method that requires a card to simply be tapped to a special reader and not swiped. This technology replaced the smart chip on the Blue from American Express card. A growing number of merchant and restaurant partners including 7-Eleven, CVS/pharmacy, McDonald's, and Ritz Camera now offer ExpressPay at most or all of their locations.

In 2005 American Express introduced Clear from American Express, touted as the first card that has absolutely no fees of any kind. It also incorporates their Express Pay technology found in Blue from American Express. Also in 2005, American Express introduced One from American Express, a card with a "Savings Accelerator Plan" that contributes 1% of eligible purchases into an FDIC-insured High-Yield Savings Account in your name.

Other cards introduced in 2005, "The Knot" and "The Nest" Credit Cards from American Express. They have also introduced City Reward Cards to earn INSIDE Rewards points to eat, drink, and play at New York, Chicago and LA hot spots.

The "Boston Fee Party"

From the early 1980s until the late 1990s, American Express was known for cutting its merchant fees (also known as a "discount rate") to fine merchants and restaurants if they only accepted American Express and no other credit or charge cards. This prompted competitors such as Visa and MasterCard to cry foul for a while, as the tactics "locked" restaurants into American Express.

However, in 1991, several fine restaurants in Boston started accepting and encouraging the use of Visa and MasterCard due to their far lower fees as compared to American Express's fees at the time (which were about 4% for each transaction versus around 1.2% at the time for Visa and MasterCard). A few even stopped accepting American Express credit and charge cards. The revolt, known as the "Boston Fee Party", quickly spread nationwide to other cities such as New York City, Chicago, and Los Angeles. In response, American Express decided to gradually reduce its discount rate to compete more effectively and add new merchants to its network such as supermarkets and drugstores. Many elements of the exclusive acceptance program were also phased out so American Express could effectively encourage businesses to add American Express cards to their existing list of payment options.

Currently, American Express' average US merchant rate is about 2.3%, while the average Visa/MasterCard credit card US merchant rate is about 1.9% (Visa/MasterCard signature debit cards are at 1.7%). Some merchant sectors, such as quick-service restaurants including McDonald's, have special reduced rates to accommodate business needs and profit margins.

Not all the changes from 1991 have taken wind: A very small amount of restaurants in major cities still exclusively accept American Express due to the fact that the vast majority of their customers primarily use AmEx cards. Likewise, Neiman Marcus only accepts American Express and their store card, however, the current exclusive agreement with American Express is due to expire soon and may not be renewed as an exclusive agreement. Costco also has an exclusivity agreement with American Express; however, Costco's agreement with AmEx was the result of a long negotiation process for exclusive acceptance with multiple parties that also included Visa, MasterCard, and Morgan Stanley-owned Discover.

Financial Services History

During the 1980s, American Express embarked on its dream to become a financial services supercompany. In mid-1981 it purchased Shearson Loeb Rhoades Inc the second largest securities firm in the US. In 1984 it purchased the 90-year old IDS company, bringing with it a fleet of financial advisors and investment products. Also in 1984, American Express acquired the investment banking and trading firm, Lehman Brothers Kuhn Loeb, and added it to the Shearson family, creating Shearson Lehman/American Express. In 1988, the Firm acquired E.F. Hutton, forming Shearson Lehman Hutton until 1990, when the Firm's name became Shearson Lehman Brothers. When Harvey Golub took the reins in 1993 he negotiated the sale of Shearson's retail brokerage and asset management business to Primerica and in following year, spun-off of the remaining investment banking and institutional businesses as Lehman Brothers Holdings Inc.

In April 1992, American Express spun off its subsidiary, First Data Corp., in an IPO. Then, in October 1996, the company distributed the remaining majority of its holdings in First Data Corp., reducing its ownership to less than 5%.

In December 2000, American Express agreed to acquire the credit card portfolio of Bank of Hawaii, then a division of Pacific Century Financial Corp. Bank of Hawaii, along with its sister bank, Pacific Century Bank, became the first U.S. banks to issue American Express cards when the deal was completed the following year. In January 2006, American Express sold its Bank of Hawaii card portfolio to Bank of America (MBNA). Bank of America will issue Visa and American Express cards under the Bank of Hawaii name.

In January 2004, American Express reached a deal to have its cards issued by a U.S. bank, MBNA America. Initially decried by MasterCard executives as nothing but an "experiment", these cards were released in October of 2004. Some said that the relationship was going to be threatened by MBNA's merger with Bank of America, a major Visa issuer. However, an agreement was reached between American Express and Bank of America on December 21, 2005. Under the terms of the agreement, Bank of America will own the customer loans and American Express will process the transactions. Also, American Express will dismiss Bank of America from its antitrust litigation against Visa, MasterCard and a number of U.S. banks. Finally, both Bank of America and American Express also said an existing card-issuing partnership between MBNA and American Express will continue after the Bank of America-MBNA merger. The first card from the partnership, the no-annual-fee Bank of America Rewards American Express card, was released on June 30, 2006.

Since then, Citigroup and GE Consumer Finance have also started issuing American Express cards. Citibank currently issues several American Express cards including an American Airlines AAdvantage co-branded card, while GE is currently issuing a co-branded card for Dillard's. HSBC Bank USA will also introduce co-branded American Express cards later this year for several of its private-label retail partners; however, those partners have yet to be announced at this time. Also, UBS launched its Resource Card program for US Wealth Management clients issuing Visa Signature credit cards and American Express charge cards linked to their customers accounts and employing a single rewards program for the two cards.

On 30 September, 2005, American Express spun off its American Express Financial Advisors unit as a publicly traded company, Ameriprise Financial. Due to this, American Express revenues for 2005 are down around $5 billion, however, like-for-like they are up 10.5% in 2005.

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Credit Card Advertising

In 1975, David Ogilvy of Ogilvy & Mather developed the highly successful "Don't Leave Home Without It" ad campaign for the American Express card. A typical ad showed a celebrity saying "Do you know me?", giving some hints, but the person's name was never mentioned except as imprinted on an American Express card. The ad campaign ended in the early 1990s; however, the "Don't Leave Home Without It" slogan was revived in 2005 for the prepaid American Express Travelers Cheque Card.

To this day, American Express continues to use celebrities in their ads. Some notable examples include a late 1990s ad campaign with comedian Jerry Seinfeld, including the two 2004 webisodes in a series entitled "The Adventures of Seinfeld and Superman." In late 2004, American Express launched the "My life. My card." brand campaign (also by Ogilvy & Mather) featuring famous American Express cardmembers talking about their life. The ads have featured actors Kate Winslet, Robert De Niro, and Ken Watanabe, Duke University basketball coach Mike Krzyzewski, Comedian and talk show hostess Ellen Degeneres, US Open tennis pro Andy Roddick, Chelsea Football Club manager José Mourinho and film director M. Night Shyamalan, among others.

Many American Express credit card ads feature a sample American Express card with the name "C F Frost" on the front. This is not a fabricated name, as Charles F. Frost was an advertising executive. ^*

Workplace

Offices

In April 1986 American Express moved its headquarters to the American Express Tower, the center of the World Financial Center in New York City. The 51-story building was an architectural triumph and noted as a significant and important addition to the city. After the terrorist attacks of September 11, 2001, American Express had to leave its headquarters temporarily as the building was damaged during the attacks since it's located directly across the street from the World Trade Center. The American Express tower became the backdrop to efforts in rescue, recovery, and reconstruction at Ground Zero. The company began gradually moving back into its rehabilitated building in 2002.

American Express has its European Headquarters in London at Belgrave House on Buckingham Palace Road, SW1, other important UK offices are based in Sussex at Burgess Hill and Brighton. The Asian Headquarters are located in Singapore.

Diversity

American Express was named one of the 100 Best Companies for Working Mothers living in the U.S. in 2006 by U.S. based Working Mothers magazine. It is a member of the Stonewall Diversity Champions scheme and has active Gay and Lesbian, ethnic minority, and women's networking groups.

Corporate Governance

Current members of the board of directors of American Express include:

Daniel Akerson Managing Director of The Carlyle Group
Charlene Barshefsky Former United States Trade Representative
William Bowen Former President of Princeton University
Ursula Burns President of operations at Xerox Corporation
Kenneth Chenault CEO of American Express Co.
Peter Dolan CEO of Bristol-Myers Squibb Co.
Vernon Jordan Senior Managing Director with Lazard Freres & Co. LLC
Jan Leschly CEO of Care Capital LLC
Richard McGinn Former CEO of Lucent Technologies
Edward D. Miller Former President and CEO of AXA SA
Frank Popoff Chairman Chemical Financial Corp
Robert D. Walter Chairman Cardinal Health

External links

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