American Express Company was founded in 1850 as a joint stock association and
was incorporated under the laws of the State of New York in 1965. The Company
is a leading global payments, network and travel company that offers its products
and services throughout the world.
Products and Services
We provide a variety of products and services worldwide, including, among others:
global card network services;
charge card and credit cards for consumers and businesses worldwide;
consumer and small business lending products;
American Express® Travelers Cheques and Gift Cards;
business expense management products and services;
business travel and travel management services;
consumer travel services;
merchant acquiring and transaction processing;
point-of-sale and back-office products and services for merchants;
banking services to individuals and financial institutions outside the United
States; and
magazine publishing.
In certain countries we have granted licenses to partially-owned affiliates
and unaffiliated entities to offer some of these products and services.
Our general purpose card network and card issuing businesses are global in
scope. We are a world leader in providing charge and credit cards to consumers,
small businesses and corporations. These cards, which include cards issued by
American Express as well as cards issued by third-party banks and other institutions
that are accepted on the American Express network (collectively, “Cards”), are
currently issued in over 45 currencies. In 2005, our worldwide billed business
(spending on American Express® cards, including Cards issued by third parties)
was $484.4 billion. Our Cards permit Cardmembers to charge purchases of goods
and services in most countries around the world at the millions of merchants
that accept cards bearing our logo. We added a net total of 5.6 million cards
in 2005, bringing total worldwide Cards-in-force to 71.0 million (including
Cards issued by third parties).
Spend-Centric Model is Competitive Advantage
We believe that our “spend-centric” business model (in which we focus primarily
on generating revenues by driving spending on our Cards and secondarily by finance
charges and fees) has significant competitive advantages. Card issuers generate
the majority of their income through some combination of customer spending (which
generates payments from merchants for card transactions), lending (which generates
finance charges on revolving credit balances) and customer fees. We have strength
in all three revenue streams, and we have a competitive edge in spending. On
average, U.S. Cardmembers spend close to four times as much on their American
Express Cards as they do on MasterCard and VISA cards. For merchants, our Cardmembers’
higher spending represents greater value to them in the form of higher sales
and loyal customers, which gives us the ability to earn a premium discount rate.
As a result, we can generate higher revenues from spending and have the flexibility
to offer more attractive rewards and other incentives to keep customers spending
more on their Cards and offer marketing programs to merchants to enable them
to attract high-spending Cardmember customers. This, in turn, drives more business
to merchants that accept our Card products. This business model, along with
our closed loop network, in which we are both the card issuer and the merchant
acquirer, gives us a competitive advantage that we seek to leverage to provide
more value to Cardmembers, merchants and Card-issuing partners.
Competition
Our network competes with other charge and credit card networks, including,
among others, VISA, MasterCard, Diners Club (which, in the United States, has
been folded into the network operated by MasterCard), Discover, a business unit
of Morgan Stanley (primarily in the United States), and JCB Co., Ltd. (primarily
in Asia). The principal competitive factors that affect the network business
include:
the number of cards-in-force and amount of spending on these Cards;
the quantity and quality of the establishments where the Cards can be used;
the economic attractiveness to card issuers and merchant acquirers of participating
in the network;
the success of marketing and promotional campaigns;
reputation and brand recognition;
innovation in systems, technology and product offerings;
the quality of customer service; and
the security of Cardmember and merchant information.
Our proprietary Card business encounters substantial and intense competition.
As a card issuer, we compete in the United States with financial institutions
(such as Citibank, Bank of America, JPMorgan Chase, MBNA and Capital One Financial)
that are members of the VISA and/or MasterCard associations and that issue general
purpose credit cards, primarily under revolving credit plans, on one or both
of those systems, and the Morgan Stanley affiliate that issues the Discover
Card on the Discover Business Services network. We also encounter limited competition
from businesses that issue their own cards or otherwise extend credit to their
customers, such as retailers and airline associations, although these cards
are not generally substitutes for our Cards because of their limited acceptance.
Because of continuing consolidations among banking and financial services companies
and credit card portfolio acquisitions by major card issuers, there are now
a smaller number of significant issuers and the largest issuers have continued
to grow using their greater resources, economies of scale and brand recognition
to compete.
the number and location of merchants willing to accept the form of payment;
the availability to the consumer of other forms of payment;
the amount of fees charged to the consumer;
the compensation paid to, and frequency of settlement by, selling outlets;
the accessibility of sales and refunds for the products;
the success of marketing and promotional campaigns; and
the ability to service the customer satisfactorily, including for lost or stolen
instruments.
Our prepaid cards (cards that can be used at many different unaffiliated locations)
compete with all of the same payment methods; however, gift cards compete primarily
with cash, checks and store-specific gift cards.
Competition in the commercial card (Corporate Card and CPS) business is increasingly
intense at both the card network and card issuer levels. At the network level,
Diners Club (which, as mentioned above, has been folded into the network operated
by MasterCard in the United States and Canada) remains a significant global
competitor. In addition, both VISA and MasterCard have increased efforts to
support card issuers such as U.S. Bank, JPMorgan Chase, GE Capital Financial
Inc. and Citibank (in the United States and globally), who are willing to build
and support data collection and reporting necessary to satisfy customer requirements.
In the past few years, MasterCard has promoted enhanced web-based support for
its corporate card issuing members, and VISA International supported the creation
of a joint venture by a number of its member banks from around the world to
compete against us and Diners Club for the business of multinational companies.
The key competitive factors in the commercial card business are, in addition
to the factors cited above under “U.S. Card Services – Competition – Card Issuing
Business;
the ability to capture and deliver detailed transaction data and expense management
reports;
the number and types of businesses that accept the cards;
pricing;
the range and innovativeness of products and services to suit business needs;
quality of customer services; and
global presence.