t the close of the year and within only four days, American Express Co. (AmEx) announced new card-issuing partnerships with three major financial institutions, considerably strengthening its position in the market.

Between Dec. 20 and 23, 2005 AmEx signed deals with Citibank, Bank of America Corp. (BofA) and HSBC - North America Holdings Inc., respectively. Although specifics of each of the three deals differ, Citibank, BofA and HSBC all will issue AmEx cards with their respective brands.

The banks will handle card-issuing duties (until recently, AmEx only issued its own cards), customer service, marketing, billing and authorization. AmEx will process transactions through its merchant network, and the cards will be accepted at millions of locations worldwide. In addition, AmEx's card-issuing deal with MBNA Corp. will continue. (BofA recently completed its acquisition of MBNA.) In January 2004, MBNA became the first U.S. financial institution to partner with AmEx.

AmEx Chairman and Chief Executive Officer Ken Chenault praised the new partnership with BofA and the existing one with MBNA. "Our work with MBNA has delivered compelling new products for high-spending consumers," he said, adding, "it also helped to set the stage for [this] agreement and the terrific opportunity it represents."

An attractive brand

Although somewhat recent, card-issuers' interest in AmEx is largely due to the card brand's dominance of the high-end, wealthy consumer segments. This focus has brought AmEx continued financial growth. Third quarter 2005 net revenue for the card company reached $1 billion, an increase of 17% over the same period in 2004.

AmEx cardholders are traditionally known for paying balances in full each month, but on the whole, these balances are much higher now and continuing to grow. The quarterly average basic AmEx card member spending increased 12% between third quarter 2004 and third quarter 2005, from about $2,300 to $2,600. The brand's individual consumer spending increased 17%, and small business spending grew 23%. (These numbers only reflect proprietary network cards and not those issued under partnership agreements.)

In the world of MasterCard International and Visa U.S.A., though there are many more active cards, the balances tend to be lower. At a Nov. 16, 2005 investor conference, Chenault said the average amount spent on each AmEx card was $11,000, five times above MasterCard-branded cards and four times above those that are Visa-branded.

A May 2005 article in "The New York Times" reported that the average cardholder (independent of brand) spends about $3,400 each year on a card; a far cry from AmEx's quarterly average.

Dismissed from the lawsuit

AmEx also announced its intention to dismiss BofA and HSBC from its antitrust litigation against Visa, MasterCard and a number of major U.S. banks. In November 2004, AmEx filed a lawsuit seeking damages for business it claims it lost as a result of card Association rules.

(For more information about this lawsuit, see "Visa, MasterCard Face AmEx Lawsuit in U.S. and Scrutiny Around the World," The Green Sheet, Dec. 13, 2004, issue 04:12:01.)

The antitrust litigation can be traced back to October 2004 when the U.S. Supreme Court refused to hear Visa and MasterCard appeals in a six-year antitrust lawsuit brought by AmEx and Discover Financial Services.

Previous to the Supreme Court's decision, Visa and MasterCard had stipulated within their rulebooks that any financial institution issuing their brand was not permitted to issue any other card brand, such as AmEx and Discover.

Now that the three-party card is not subject to restrictions from its entirely independent, four-party competitors, Visa and MasterCard, AmEx is blazing ahead in its mission to increase its brand of card in consumer's hands.

Signing deals around the world

It should be noted that AmEx continues to sign deals with banks in other countries. Between the beginning of August and mid-December 2005 it inked alliances with Hong Kong's Standard Chartered Bank; South Korea's Shinhan Card; Argentina's Banco Patagonia; Romania's Bancpost; Russian Standard Bank; and Uruguay's Nuevo Banco Comercial. All hope to share in the wealth generated by AmEx's affluent cardholders.