Why American Express Brand is valuable?

[LongHaul]

I read that Amex has over 3x the spending per card member as Visa/Mastercard.  In addition Amex has higher fees to merchants.

 

I don't understand how Amex attracts the highest charge card spenders. 

 

Anyone have any insight into why Amex attracts such high spenders?

Any help appreciated.

 

[ukvalueinvestment]

I have an Amex that I pay a £120 per year fee for.  It has a great deal with British Airways miles.  That's the only reason I have an Amex.  Other than that, it's not as good as Visa because not everyone takes it.

[Guest wellmont]

I read that Amex has over 3x the spending per card member as Visa/Mastercard.  In addition Amex has higher fees to merchants.

 

I don't understand how Amex attracts the highest charge card spenders. 

 

Anyone have any insight into why Amex attracts such high spenders?

Any help appreciated.

 

very good rewards. extremely good service. and they make their customers feel like they are an exclusive "club". they make them feel special. it's a trusted prestigious brand.

[Liberty]

Exactly, they target the higher-end customers and put barriers up to keep lower-end ones away (one goes with the other -- harder to target higher-end if they see every schmuck with one). Hence, most of their customers are higher-end and spend more, but they have fewer customers than VISA and Mastercard.

[TwoCitiesCapital]

I read that Amex has over 3x the spending per card member as Visa/Mastercard.  In addition Amex has higher fees to merchants.

 

I don't understand how Amex attracts the highest charge card spenders. 

 

Anyone have any insight into why Amex attracts such high spenders?

Any help appreciated.

 

very good rewards. extremely good service. and they make their customers feel like they are an exclusive "club". they make them feel special. it's a trusted prestigious brand.

 

This. I know my below evidence is anecdotal, but I'm positive that this isn't limited to just myself.

 

1) AmEx has a storied brand and a type of allure. I remember hearing about the Centurion card back in high school and thinking it was awesome. Ever since then, I've associated AmEx with wealth, success, and a form of extravagance that we all dream about. I was very pleased to be associated with these mental images when they offered me a card.

 

2) their customer service is phenomenal. I recently had a flight that was delayed by 40 minutes and was going to make catching my connecting flight very difficult. United airlines told me they couldn't hold the plane for 5 minutes so I could get on and they told me there was nothing they could do to get me back to NYC that night. I called AmEx and was immediately moved to the front of the queue because the machine could tell I was traveling right at that moment based on my flight itinerary (brilliant and tons of goodwill for this!). Within 10 minutes they had me rebooked on another flight to NYC that I could make as a connection and there was no charge. The kicker is that it was another United flight....AmEx did what United said they couldn't do and did it in less than 10 minutes. Was very pleased with the experience and this one instance alone is enough to convince me the annual fee is well worth the peace of mind.

 

3) my building doesn't charge me a fee to pay rent by credit card. I literally spend thousands of dollars on my AmEx card a month simply by paying rent in Manhattan. AmEx collects a percentage of my rent every month and I collect air miles simply for changing a method of payment. I'm sure that situations like this are more common with AmEx holders then others since they do target more affluent people in higher cost areas and those individuals are more likely to be financially savvy enough to recognize these kinds of situations.

 

[ukvalueinvestment]

Agree with the point about service.  They are about the only company I know where an intelligent human being answers the phone reasonably quickly (rather than having to presss loads of buttons and wait ages) and you can have a sensible conversation.

 

Seems easy, doesn't it!!

[dolce far niente]

My business accepts Visa, Master & Amex. Somehow Amex is charging me less than V&M. They explained that they have lower rate for businesses in travel categories.

 

From The Economist this week.

Credit-card companies, including Visa, MasterCard and American Express, all sell anonymised data about their cardholders to advertising companies. Bidders for advertising space can go to MasterCard to buy aggregated segments of consumers who are likely to subscribe to particular telecommunications services, for example, or stay at particular hotel chains. American Express has an edge, says someone in the data business who has worked with the company, because it actually issues the card (whereas MasterCard and Visa are in partnership with banks), enabling it to put cookies on users when they log in to check their statements and see where else they go online.

[CorpRaider]

My fidelity rewards amex seems to be issued/serviced by FIA Card Services (BofA).  I don't expect anything like good service from them, but I get 2% cash back on everything.

[HJ]

On the one hand I certainly agree that American Express attracts the most affluent customers by far.  Years ago when Discover was part of Morgan Stanley, Morgan Stanley tried to get some of their employee to use Diners Club as their corporate card.  As you can imagine, the bankers were embarassed to use it.  The experiment was finished before it was fully launched.  The hook up with corporate travel does wonder to drive transaction volumes, Amex also carries a different level of prestege especially in places like China and Russia.  The well to do's carry the black card as proof that they've arrived.

 

But I'm also very leery about the long term implication with something like Apple Pay.  When you insert another intermediary between your customer and you, it alters the relationship and loyalty.  In the Morgan Stanley example above, I'm not sure whether the bankers would have cared as much.  Whipping out an iphone to pay an expensive dinner bill just isn't that disastrous.  I can't help but wonder if Amex business model potentially has the most to lose with mobile payments, mostly because they had established the best brand in the world of plastics.

[rkbabang]

My fidelity rewards amex seems to be issued/serviced by FIA Card Services (BofA).  I don't expect anything like good service from them, but I get 2% cash back on everything.

 

I have the same card.  We probably don't get the service that other AmEx cardholders get, because we don't pay an annual fee.

 

[DCG]

There's a favorable write-up on American Express in this week's Barrons - which means the stock will likely now tank.

[thepupil]

when i graduated college, i got a nice offer for a platinum card (100,000 points = $1000) so i got one. It costs $450 / year. Every year I call to downgrade to green and they give me $400-$500 in points to stay on. The card is not worth it at my level of spending, but actually offers a compelling value proposition for people who travel and spend a lot of money. Almost everyone on my trading floor had one. 

 

Even though I was not paying the fee, i realized the card was costing me a fair bit of money in opportunity costs because of the low rewards rate on purchases so I've since opened an Amex Blue Cash Preferred ($75/ year = 6% cash back on groceries up to $6000 of purchases, 3% gas, 1% everything else), a Citi Double Cash (Mastercard, $0 annual fee, 2% cash back on all purchases), and will probably open a Capital One Quicksilver ($0 annual fee, 1.5% cash back, no foreign transaction fee).

 

I think if you break down all the benefits of the Amex platinum and similar high customer service, high benefits, high fee cards, you can replicate them with no annual fee cards. Plus they significantly diluted the airport lounge benefit (free drinks!!!!) so it just ain't what it used to be.

 

[thepupil]

when i graduated college, i got a nice offer for a platinum card (100,000 points = $1000) so i got one. It costs $450 / year. Every year I call to downgrade to green and they give me $400-$500 in points to stay on. The card is not worth it at my level of spending, but actually offers a compelling value proposition for people who travel and spend a lot of money. Almost everyone on my trading floor had one. 

 

Even though I was not paying the fee, i realized the card was costing me a fair bit of money in opportunity costs because of the low rewards rate on purchases so I've since opened an Amex Blue Cash Preferred ($75/ year = 6% cash back on groceries up to $6000 of purchases, 3% gas, 1% everything else), a Citi Double Cash (Mastercard, $0 annual fee, 2% cash back on all purchases), and will probably open a Capital One Quicksilver ($0 annual fee, 1.5% cash back, no foreign transaction fee).

 

I think if you break down all the benefits of the Amex platinum and similar high customer service, high benefits, high fee cards, you can replicate them with no annual fee cards. Plus they significantly diluted the airport lounge benefit (free drinks!!!!) so it just ain't what it used to be.

 

But in general I think they cater to a more affluent clientele by offering products with a high fixed costs, where they only make sense if you spend a lot of money, value convenience and benefits like airport lounges and the occasional hotel upgrade over pure costs, travel a lot, etc. plus they have a way of installing anecdotes in people's heads where the customer service really worked out. My roommate broke a recently purchased iPad and Amex replaced it no questions asked. He told all his friends about how the $450/ year payed for itself for a year with that incident. Other cards offer similar services at a lower fee, but when I think of "what credit card company is going to help me out in a jam" I think of Amex.

[bookie71]

My AMEX card is free (with the Costco Executive Membership).  Costco give a rebate and so does AMEX.

[oddballstocks]

I don't have an AmEx card but I had this exact same question and asked a friend who carries one and uses it often.  He said the attraction to the AmEx was that there's no credit limit on the card.  I didn't realize this, he said it's ideal for business because you can charge a ton of stuff quickly when the need arises.  The catch according to him is that it isn't a credit card as much as a charge card, in that it needs to be paid off right away.

 

Is this true, there are no limits on the card?  If so then I'd think it makes perfect sense that they're selective on who they give the cards out to.

[Liberty]

I don't have an AmEx card but I had this exact same question and asked a friend who carries one and uses it often.  He said the attraction to the AmEx was that there's no credit limit on the card.  I didn't realize this, he said it's ideal for business because you can charge a ton of stuff quickly when the need arises.  The catch according to him is that it isn't a credit card as much as a charge card, in that it needs to be paid off right away.

 

Is this true, there are no limits on the card?  If so then I'd think it makes perfect sense that they're selective on who they give the cards out to.

 

It's the first I hear about this no-limit thing. Must be a specific kind of AMEX and not all of them.

 

Couldn't find an answer googling quickly, but this seems to imply that there is a limit:

 

http://about.americanexpress.com/cr/pb5.aspx

 

But my understanding was that AMEX was the one actually lending you the money, while Visa and Mastercard are more payment processors and it's the issuing banks (Bank of America, etc) that take the risk with lending. If that's correct, it makes a lot of sense for AMEX to be a lot more careful about who it lends to.

[thepupil]

Charge Cards = "no limit" which really means "we don't tell you the limit, we give you more flexibility, if you are going to put some giant purchase on the card you may want to call us first to make sure we think that is okay". there is a tool online where you can check before a big purchase.

 

Charge Cards are the classic American Express with the centurion logo, high customer service, high annual fees: Green, Gold, Platinum, Centurion Card. You pay in full every month, which is why some believe it has a certain amount of prestige, in addition to the travel benefits and other associated hoopla.

 

Their credit cards are just like any other credit cards and have limits.

[morningstar]

AmEx seems built on its affiliation with high value customers, who it attracts by offering them a better rewards/benefits package than competing cards. If you are a frequent pleasure traveller, the platinum card is a pretty hard to beat value despite the fee - not hard to save thousands of dollars/year with it. Hotels and airlines also want these same self-selected customers, who are high spenders, which helps AmEx negotiate the deals.

 

Amex also solidifies its travel provider relationships by controlling one of the two largest corporate travel agencies.

 

Outside of travel, not sure that AmEx's offering is particularly exceptional but that one core advantage has allowed them to build up their brand as the "prestige" card issuer.

[rkbabang]

Charge Cards = "no limit" which really means "we don't tell you the limit, we give you more flexibility, if you are going to put some giant purchase on the card you may want to call us first to make sure we think that is okay". there is a tool online where you can check before a big purchase.

 

Charge Cards are the classic American Express with the centurion logo, high customer service, high annual fees: Green, Gold, Platinum, Centurion Card. You pay in full every month, which is why some believe it has a certain amount of prestige, in addition to the travel benefits and other associated hoopla.

 

Their credit cards are just like any other credit cards and have limits.

 

I know when I get my 2% cash back on my charge card that I am free-riding off of the people who don't pay their balance every month, but I'm not sure I understand the charge card business. They provide the bonus points and service all for a $300-$500/year annual fee and never collect interest?  How does AmEx make money on the charge cards?  Float?

 

[thepupil]

the merchants who are patronized by all those big spending charge card holders pay AmEx in the form of swipe fees, inclusion in networks and promotions. I bet AmEx breaks even or is even negative on the Platinum card on the annual fees alone, but the swipe fees more than make up for it.

 

If I pay $450 to AmEx and they give me $600 in benefits a year amex is out $150. But what if I charge $50K to the card / year and AmEx gets 2-2.5% of that, then they are in the black.

 

Plus i bet some people who don't get a lot of benefits out of the card have one for the snob appeal and amex makes money on the fees there.

 

[topofeaturellc]

.

 

Is this true, there are no limits on the card?  If so then I'd think it makes perfect sense that they're selective on who they give the cards out to.

I am under the impression that if you charge a significant sum on your card out of character with historic spending you'll get a call.

 

I put my wedding on it and got a phone call.

[Philip Morris IV]

In the context of the card networks, my impression is the Amex brand stands out because their closed-loop scheme forges a singular identity.

 

With Visa/Mastercard, the card identity is split between themselves and the bank issuers, and naturally, people associate their cards more with the issuer.  People call their banks with matters relating to their cards, and change cards based on their feelings and the fees/benefits of the issuer -- not their feelings on V or MC specifically.

 

Regarding why people get Amex's, yes the customer service and benefits are top notch but they've also been successful leveraging their brand to create a "vicious cycle" with merchants and cardholders.  Because Amex holders are of higher credit quality and spend more per purchase, merchants understand they need to accept Amex to gain access to that clientele.  Amex exploits this with higher merchant fees, which then subsidize more benefits to cardholders, and so on.

[bookie71]

On the Costco AMEX there is a limit, but anytime I have been close to it, I call and they double it.  Since I am basically frugal (my kids say cheap) I usually pay ahead so I don't accidentally get a late charge or interest, in other words I basically use it as a debit card with the credit card protections.

In the old days the AMEX was no limits through about the mid 80's when I sent mine back because I was using an airline card and didn't want to pay the yearly fees for something I wasn't using.

Now I prefer the cash refund and will buy my own ticket as the blackout dates make the mileage plans not as useful as they used to be.

An aside, for you young folks out there, flying used to be fun, now it's a drag.

[Ham Hockers]

.

 

Is this true, there are no limits on the card?  If so then I'd think it makes perfect sense that they're selective on who they give the cards out to.

I am under the impression that if you charge a significant sum on your card out of character with historic spending you'll get a call.

 

I put my wedding on it and got a phone call.

 

You can check online. There's a page where you can enter in a dollar amount and it will tell you immediately if you will be approved or if you should call Amex first.

 

Sort of off topic, but I've always wondered if a lot of value investors were into the mileage/rewards points game. So many places to find free dollar bills lying around.

[fareastwarriors]

.

 

Is this true, there are no limits on the card?  If so then I'd think it makes perfect sense that they're selective on who they give the cards out to.

I am under the impression that if you charge a significant sum on your card out of character with historic spending you'll get a call.

 

I put my wedding on it and got a phone call.

 

You can check online. There's a page where you can enter in a dollar amount and it will tell you immediately if you will be approved or if you should call Amex first.

 

Sort of off topic, but I've always wondered if a lot of value investors were into the mileage/rewards points game. So many places to find free dollar bills lying around.

 

You betcha. It's a great game to catch some savings especially since I spend a lot.