American Express Tower
Reinvention. For 150 years, American Express has continuously transformed itself to meet changing customer needs. What began as a rough-and-tumble freight forwarding company in 1850, later became a travel company, and today, a leading global financial and travel services company.
What remains constant are the hallmarks of the American Express brand--trust, integrity, security, quality and customer service.
In many ways, the history of our company and the evolution of the American Express brand over 150 years have shaped the actions we take today. Our commitment to providing extraordinary service to our customers around the world is unwavering and now extends to the Internet.
The attributes on which American Express was built are key competitive advantages that we continue to bring to bear with every product and service we offer.
American Express Company, a multibillion-dollar holding company whose subsidiaries provide travel and financial services worldwide, traces its roots to a New York express business founded by Henry Wells in 1841. From the safe transport of valuables it grew naturally into money orders and traveler's checks; from there its travel service operations, including its credit card services, also grew naturally. In the 1980s, American Express expanded into financial planning through Investors Diversified Services, Inc. (IDS) to merger and acquisition advice from Shearson Lehman Hutton. Faced with intensifying competition and poor public relations in the early 1990s, American Express divested itself from many of the businesses it had acquired in the previous decade. Throughout its history, American Express has enjoyed a reputation for innovation, profitability, and integrity.
Westward Expansion in 19th-Century America
Henry Wells began his expressman career as an agent for William Harnden, who had founded the first express company in the United States in 1839. Express companies were in the business of transporting money and other valuables safely. Wells was an ambitious man who repeatedly proposed expanding the business westward&mdashø Buffalo, New York; the Midwest; and the far West. When Harnden refused to leave the East Coast, Wells struck out on his own, organizing Wells & Co. in 1841.
At first Wells and his associate, Crawford Livingston, served only New York City and Buffalo, then an arduous route by five rickety shortline railroads and wagon or stagecoach for the last 65 miles into or out of Buffalo. A few years later, Wells and William G. Fargo launched an express service from Buffalo to major Midwestern cities. Although appreciated by the Midwestern business community, the new express service simply did not pay. In 1846, Wells decided to retrench and focus his energies on the growing routes serving New York City, Buffalo, Boston, and Albany, leaving the express business west of Buffalo to Fargo's company, Livingston, Fargo and Co.
In 1849 John Butterfield, a wealthy and experienced transportation mogul, entered the express business with Butterfield, Wasson & Co., a direct competitor to Wells & Company on New York state routes. Later that year, Butterfield proposed that he, Fargo, and Wells eliminate their wasteful competition by joining forces. On March 18, 1850, the three companies consolidated to form the American Express Company, a joint-stock company with initial capital of $150,000. Wells was elected the new company's first president; Fargo became vice-president.
Under Wells's leadership American Express was immediately and unexpectedly profitable, expanding rapidly and acquiring small competitors in the Midwest, negotiating contracts with the first railroads, and running packet boats on the Illinois Canal to connect Ohio, Illinois, and Iowa with steamship lines on the Illinois River. In 1851, American Express reached an amicable agreement with its major rival, Adams and Co. (reorganized as Adams Express Co. in 1854). American Express was to expand north and west of New York while Adams was free to grow south and east. This agreement was kept and renewed over the next 70 years, buying American Express time to establish its business solidly.
Despite the agreement with Adams and Co., Wells and Fargo still distrusted its rival and feared the company would gain a monopoly in the California gold fields. When Wells proposed his old dream of a transcontinental express service to the American Express board of directors, they rejected his idea. But in 1852 Wells and Fargo got the board's blessing to launch an independent venture, Wells Fargo & Company, to provide express and banking services in California.
In 1854, trouble developed with the New York, Lake Erie & Western Railroad (American Express's link to the Midwest) when Daniel Drew, the railroad's owner, became outraged that American Express had picked off the Erie's most profitable freight business by shipping light, high-rate freight on the Erie under its express contract. Drew was determined to award the express rights to others. In response, American Express created an affiliate and presented it as a bona fide competitor. American Express loaned the funds to start a new company to Danforth Barney, then president of Wells Fargo. Barney's new company, United States Express Co., then acquired the Erie express rights from Drew and split the lucrative Midwestern business with American Express.
American Express's first decade saw two other noteworthy accomplishments. In 1857, American Express launched the Overland Mail Co. as a joint venture with Wells Fargo, Adams Express Co., and United States Express Co. The Overland Mail Co. (later controlled by Wells Fargo) won the first transcontinental mail contract from the United States Postal Service, which led to its involvement with the Pony Express. Also, James C. Fargo, William's younger brother, proposed the establishment of a fast, bulk freight express service for merchants. Merchants Dispatch, created in 1858, proved immediately successful.
The Civil War was enormously profitable for American Express, as it was for the express industry generally. American Express shipped supplies to army depots, took election ballots to soldiers, and delivered parcels to parts of the Confederacy taken by Union forces. During this period, American Express distributed huge dividends to its shareholders.
Competition After the Civil War
After the war, the express industry attracted the attention of financial raiders. The first raid, by National Bankers Express Co. in 1866, was thwarted at relatively low cost. American Express quickly reached an agreement with Adams Express and United States Express to neutralize the threat by giving National Bankers Express shares of the established companies and a seat on the American Express board of directors.
The second raid had much more serious consequences. Late in 1866, a group of New York merchants established Merchants Union Express Co., to both get into the express business and destroy the three largest express lines--Adams, American, and United States. Merchants Union first hired away the older companies' experienced agents and then invaded their territories. American Express suffered such losses in 1867 that for the first and only time in its history it failed to pay a dividend. On December 21, 1868, the four express companies reached a peace agreement, dividing the express and fast-freight business and pooling and distributing net earnings. American Express got the worst of the deal; Merchants Union acquired rights on railways that had been its bread-and-butter lines (the Hudson River and New York Central railroads) and lost its supremacy in the express business. In 1868, American Express was forced to merge with Merchants Union to form the American Merchants Union Express Company (shortened in 1873 back to the American Express Company). Also in 1868 Wells retired and was replaced as president by William G. Fargo.
Fargo's tenure saw the beginning of two trends that would later prove significant. First, Fargo's brother, James, expanded Merchants Dispatch operations to Europe. Soon Merchants Dispatch was transporting more than half the first-class tonnage from New York City to over a dozen European cities, making international operations a lucrative sideline for American Express. Second, high express rates set after the Panic of 1873 created public demand for a government operated parcel post. In 1874, the U.S. Postal Service began to deliver packages at a new, low rate. The following year, Congress set the parcel rate at a half-cent per ounce, far below cost. This cut deeply into express company profits. Express industry lobbying and the post office's substantial operating loss soon persuaded Congress to raise rates to a more reasonable level, but the precedent for governmental involvement in the express business had been established.
Late 19th-Century Innovations
William Fargo's death in 1881 and James's succession to the presidency began a new era for American Express. Although James Fargo was often described as autocratic, aloof, and old-fashioned, he was also remarkably innovative. During his term of office, American Express first diversified into the financial services industry with the introduction of two instruments--the American Express Money Order in 1882 and the American Express Travelers Cheque in 1891.
The post office first introduced the postal money order in 1864. This immediately threatened the express industry because it reduced the demand by banks and merchants for the transport of money and other valuables. The postal money order, however, had a serious flaw: its face value could be altered without detection. Although American Express directors had discussed introducing a money order since the end of the Civil War, it took James Fargo to galvanize the company into action. At his direction Marcellus Berry, an American Express employee, designed a safer money order. American Express's money order was an immediate hit; it could be used to settle charges on express shipments, was more readily available than the postal money order, and was simpler, cheaper, and easier to negotiate. Not only did the money order provide a new source of revenue (over 250,000 were issued the first year), but for the first time American Express had a credit balance (or 'float'--funds from instruments that had been paid for but were not yet cashed) that could be safely invested to bring in additional income.
The traveler's check filled a similar financial niche. Before 1891, tourists and business travelers could transfer funds from the United States to Europe only via a letter of credit, a time-consuming and cumbersome method: only specified correspondents of the issuing United States bank could negotiate letters of credit, and then only during banking hours and after an appreciable delay. Fargo, annoyed by his own experience with the procedure, again directed Marcellus Berry to find a solution. The American Express Travelers Cheque was a marked improvement over the letter of credit in several respects: its simple signature and countersignature provision made the instrument very secure; it could easily be converted into foreign currency at any American Express freight office; and, if lost or stolen, American Express would refund the owner's money. The value and convenience of the traveler's check was recognized at once, and its popularity again provided American Express with additional revenues and float.
After the traveler's check was introduced in 1891, travelers began making American Express freight offices their informal headquarters&mdash+aces to convert funds, to seek information about hotels and travel arrangements, and simply to congregate. American Express officers saw the opportunities offered by the travel industry and urged diversification in that direction. James Fargo, however, was absolutely opposed to the idea. He allowed American Express agents to offer travel information purely as a service to customers, but drew the line there. American Express's official entry into the travel industry, which became one of its best-known and most lucrative businesses, was delayed until after Fargo's retirement in 1914.
After the turn of the century, the express industry came under attack from a number of quarters. The railroads had steadily eroded express profits by raising their rates from 40 percent of gross receipts to more than 55 percent by 1910. Also in 1910, long-overdue government regulation of the express industry began with passage of the Mann-Elkins Act, which made express companies common carriers subject to the scrutiny of the Interstate Commerce Commission (ICC). In 1912, New York express company drivers and their helpers went on strike for higher wages and fewer working hours (they were underpaid and overworked, even in an era of low pay and long hours), exciting highly unfavorable press and public reaction. In 1913, the U.S. Post Office again expanded parcel delivery services at reduced rates, while the ICC set express rates that the industry feared were prohibitively low.
International Growth Between the Wars
When George C. Taylor, a longtime American Express employee, was elected the company's fourth president after Fargo's retirement in 1914, the end of the laissez-faire express industry was in sight. Taylor's first actions, to expand foreign remittance operations and to officially inaugurate travel services by opening a travel department in 1915, saved the company when its domestic express division was nationalized in 1918 and became part of the American Railway Express Co. as a wartime measure. Another of Taylor's accomplishments was to establish the American Express Co. This wholly owned subsidiary was created in 1919 primarily to expand international banking operations (which had been conducted sporadically through foreign remittance offices since 1904). Although American Express was slow to gain a foothold in Europe, its international banking operations flourished in Asia during the 1920s and 1930s, especially in Hong Kong and Shanghai.
In the late 1920s, American Express again changed hands. The express industry was targeted for takeovers during this period because most express companies had been organized prior to antitrust legislation, raising the possibility of their exemption from antitrust regulations. American Express was especially attractive because its net income had more than doubled in the six years ending in 1928. In 1927 Albert H. Wiggin, chairman of the Chase National Bank, started buying American Express stock through dummies. By July, Wiggin had acquired two seats on the board and 42 percent of the stock, at a bargain price. In 1929, Chase Securities Corp., an affiliate of Chase National Bank, acquired control of American Express in a stock exchange and Wiggin was elected first chairman of the American Express board.
In May 1930 Chase National merged with the giant Equitable Trust Co. to become the largest bank in the world. John D. Rockefeller supplanted Wiggin as largest shareholder and Winthrop W. Aldrich, Rockefeller's brother-in-law, became chairman of both the Chase Securities and the American Express boards.
This was a difficult time for American Express management, headed by Frederick P. Small (who became president on Taylor's death in 1923). Not only were the directors preoccupied with their power struggles, but the financial climate was steadily worsening. Then the Great Depression hit. Between 1930 and 1932, roughly a third of all American banks failed. In early 1933, President Franklin D. Roosevelt announced a national bank holiday to allow banks to recover from the panic. The bank holiday brought commerce to a virtual standstill. During this period American Express, since it was not a bank and thus not required to close, enjoyed a tremendous advantage: it remained open and redeemed traveler's checks, providing the only financial services available to individuals and merchants while the nation's assets were frozen. The traveler's check business ultimately allowed American Express to remain profitable throughout the Depression and World War II.
The Card Revolution of the 1950s
In 1944 Ralph T. Reed replaced Small as president. Under Reed's management, the late 1940s and the 1950s were a period of expansion, primarily in the booming travel industry. Within seven years the number of American Express offices increased by 400 percent and international operations surpassed their prewar level.
When Diners Club introduced the first credit card in the mid-1950s, American Express executives proposed investigating this new line of business. Reed, who thought the company should improve existing business and feared a credit card would threaten its traveler's check business, opposed the proposal. In 1958, Reed reversed himself and the American Express travel-and-entertainment card (the American Express green card) was introduced virtually overnight. The company had 250,000 to 300,000 applications for cards on hand the day the card went on the market, and 500,000 cardmembers within three months. Introduction of the green card began an era of unprecedented growth: earnings rose from $8.4 million in 1959 to $85 million in 1970.
Diversification in the 1960s
A new era of management began when Howard L. Clark was elected president and CEO on April 26, 1960. Clark transformed American Express from a renowned but fairly small company to a corporate giant with diverse interests. Clark's goal was to establish a balanced earnings base dependent on multiple sources and thus more resistant to economic fluctuations. His strategy was to expand American Express's business within its areas of expertise--travel and financial services.
However, before Clark could put his plan in operation, the company had to be streamlined and modernized. Management had long been centralized and the chain of command obscure. Clark gave each division room to innovate and made each directly responsible for its own performance. Also, the company had no uniform identity. The now famous 'blue box' logo was developed at Clark's direction and adopted by all the divisions.
Next, the company's accounting system had to be overhauled, since the system then in place was obsolete and unable to handle the high volume of charge card transactions. Moreover, the travel division (the glue that held the various divisions together and gave the company its identity) had to improve its profitability. By the time the jet airline industry made an impact on commercial travel, American Express was ready.
Also, the charge card had yet to show a profit, in large part because American Express had no experience dealing directly with merchants and consumers or with credit controls. Clark brought in George Waters, formerly of IBM and the Colonial Stores supermarket chain, to put the charge card division on a sounder footing. Waters used two simple strategies: first, he raised the card fee and merchant discount; next, he persuaded merchants to think of American Express as their marketing partner by dedicating .05 percent of gross sales to retail advertising. By the end of 1962 more than 900,000 cards had been issued, and by the end of 1963 the card division had shown a profit.
Finally, marginal operations had to be divested. Ridding the company of one subsidiary, American Express Field Warehousing Co., proved to be a nightmare. When the field warehousing division was sold to Lawrence Warehouse Co. in 1963, Clark withheld the two most profitable accounts, Allied Crude Vegetable Oil Refining Co. and Freezer House (both owned by Anthony 'Tino' De Angelis), pending an investigation of other field warehousing opportunities. Late that year, Clark decided to sell the two accounts to Lawrence Warehouse. An independent audit conducted prior to closing revealed that about 800 million tons of vegetable oil was missing. Holders of some $150 million in security interests and notes (some forged by De Angelis) were understandably upset. The American Express board realized the company's reputation was at stake and quickly issued a statement to the effect that American Express assumed moral responsibility for the losses caused by its subsidiary. American Express's assurances did little to appease those defrauded. The 'salad oil swindle,' as it was dubbed by the press, involved American Express in complex and protracted litigation that was settled in 1965 (although a final case lingered until 1970) at a cost to American Express of $60 million, excluding attorneys' fees.
With the salad oil episode behind it and reorganization of the divisions completed, the late 1960s and early 1970s were good years for American Express. Consolidated net income grew steadily, and Clark concentrated on expanding the company's financial services. In 1966, American Express acquired W.H. Morton & Co., an investment banking house with an excellent reputation for underwriting municipal and government bonds. Two years later, American Express made the most important purchase yet in its diversification strategy: the Fireman's Fund Insurance Company, one of the largest property and casualty insurers in the nation.
Even the international monetary crisis of 1971, culminating in the devaluation of the dollar and the suspension of almost all dollar transactions, did not phase American Express. The company honored its traveler's checks at the exchange rate posted before trading was suspended and its card continued to be accepted internationally. American Express extended emergency funds to thousands of tourists caught short abroad, and its international banking subsidiary advised corporate clients on how to protect their foreign assets and import-export payments during the crisis.
During the late 1970s, however, American Express seemed to lose its direction, and its integrity and soundness were challenged on many fronts. In 1975, the Washington Post suggested that American Express was successful only because it was not regulated as banks and other financial institutions were. When Visa and MasterCard started competing in the traveler's check market, Citicorp, a major issuer of bank credit cards, took out a full-page advertisement accusing American Express of false and deceptive advertising of its traveler's checks. American Express also received unfavorable publicity when four acquisition attempts in a row failed.
The last of these attempts, a bid for the McGraw-Hill Publishing Co. in 1979, produced the worst repercussions. Roger Morley (who had replaced James D. Robinson III to become American Express's tenth president when Clark resigned in 1977 and Robinson became chairman and CEO) was a member of the McGraw-Hill board at the time. After American Express bid for the publisher, McGraw-Hill sued the company and Morley, accusing them of breach of trust and corporate immorality.
But in 1981 American Express made the big acquisition it had been looking for when it bought Shearson Loeb Rhoades Inc., one of the nation's leading brokerage houses, which became an independently operated subsidiary. Shearson in short order acquired Robinson-Humphrey, an Atlanta-based brokerage firm; Foster & Marshall, a well-respected securities firm; and Balcor, Inc., the largest real estate syndicator in the United States.
In 1982, American Express was reorganized under a holding company called American Express Corp.; its travel services became a wholly owned subsidiary, American Express Travel Related Services.
Sanford I. Weill, formerly of Shearson Loeb Rhoades Inc., was elected the 12th president of American Express in early 1983. Under Weill, American Express continued to expand. That same year, American Express acquired Ayco Corp., a financial counseling firm, and in 1984 it bought Allegheny Corporation's principal subsidiary, the financial planning company Investors Diversified Services, Inc. (IDS). Also in 1984, Shearson acquired Lehman Bros. Kuhn Loeb, one of the most respected Wall Street brokerage firms, to form Shearson Lehman Brothers Holdings Inc.
In 1985 American Express announced that it would spin off Fireman's Fund Insurance Company, the property and casualty insurer it had purchased in 1968. Stiff competition in the insurance industry during the early 1980s had led to price wars, and the subsidiary's profits had been declining since 1983. In addition, in 1983 and 1984, American Express had to spend $430 million strengthening Fireman's reserves. The first public offering of Fireman's Fund stock was made in October 1985; by December 1987, American Express retained only 31 percent of the company. In 1988 its holding was reduced to 20 percent and American Express formally exited the insurance business.
Also in 1985 the American Express International Banking Corp., established in 1919 to help American Express expand internationally, became simply American Express Bank, Ltd. In the mid-1990s, American Express was a thoroughly international company; its bank, with a presence in more than 40 countries, completed the range of financial services the company offered, focusing on private banking for wealthy individuals.
Credit Card Wars: 1980s-90s
The year 1987 was a dramatic--and difficult--one at most financial companies, and American Express was no exception. The stock market crash in October shook Shearson Lehman, and fears about Third World debt forced American Express Bank to add nearly $1 billion to its loan-loss reserves. But American Express's core business, Travel Related Services, continued to prosper. That year it introduced its Optima Card, American Express's first credit card (regular American Express cards are charge cards; the balance must be paid in full each month). By late 1989, Optima had garnered some 2.5 million members.
In the 1980s, as competition in the card industry intensified, American Express pursued both an increased customer and merchant base. At the beginning of the decade, American Express had ten million cardmembers who had roughly 400,000 places to use their cards. By the end of the decade those numbers had grown to 33 million cardholders around the world whose cards were accepted at 2.7 million places. But sheer size was not the objective: American Express emphatically positioned its services as 'premium'--its card cost much more than credit cards, like Visa and MasterCard, offered by banks, and it charged merchants a higher percentage of the bills charged to the card than its competitors did. These higher fees to merchants were warranted, the company told them, by the business its generally high-income cardmembers generated; the higher card dues bought better services. Nevertheless, American Express ran into heavy competition, especially abroad, where its greatest hopes for expansion lay.
At the beginning of 1988, Shearson made another dramatic acquisition when it bought E.F. Hutton and became Shearson Lehman Hutton. Such growth in so short a time added up to a second year of decreased earnings--a five percent drop on top of 1987's 70 percent drop. At the end of 1989 Shearson was still struggling to cut costs and raise profits. American Express announced plans, in December 1989, to pump an additional $900 million into its ailing subsidiary. The recapitalization included $350 million of American Express's own money. The rest was to come from notes.
American Express toppled from its perch as the preeminent charge card due to a number of serious problems in the early 1990s. The flagship charge card suffered fading customer loyalty, intense competition from lower-priced bank cards, and loss of service establishments accepting the card because of high fees to the merchants. Some observers blamed advertising for a public relations fiasco that damaged the company's image. But the company's 1991 revelation that its Optima revolving credit card--which analysts and investors had previously regarded as one of American Express's biggest successes--lost $300 million in write-offs, also eroded its credibility. At the same time, the Travel Related Services unit was battered by competition from no-fee bank cards and debit cards. As a recession deepened, merchants dropped the high-fee American Express card in droves. Profits plummeted from $1.16 billion in 1989 to $461 million in 1992.
In 1993, Harvey Golub advanced to American Express's chief executive office upon the resignation of Robinson, who had served in that capacity since 1977. He instituted several recovery strategies at the firm, including retrenchment to core businesses, new product launches, cost-cutting, and brand-building.
Part of American Express's recovery strategy involved aggressive brand promotion, launching what were derisively called 'guerrilla' or 'ambush' marketing campaigns. In response to a Visa advertising campaign tied to the 1988 Olympic Games, American Express engaged in a campaign in which it ran television and space ads featuring those cities where the Olympics were held, trying to affiliate itself with the games without directly sponsoring them. American Express also launched a legal battle with Visa, claiming that the rival's 'But they don't take American Express' commercials implied broader exclusivity than existed. Visa retorted that its ad claims were valid, and that American Express was simply using legal maneuvers, public relations, and newspaper ads to blunt its advertising effectiveness. Early in 1994, Gary Levin, of Advertising Age, declared that 'neither is entirely blameless, and both are unlikely to surrender.' In 1994, American Express's promotional efforts were extended internationally, with a global advertising campaign targeting Italy, Germany, Japan, and the United Kingdom. The company planned to take 60 new ads to 30 countries around the world.
American Express's new products included Cheques for Two, introduced in 1992; a Senior Member card featuring special services and benefits; and a corporate purchasing card. American Express hoped to capture a significant share of the prospective $300 billion market segment, only one percent of which had been put on plastic by 1994. In 1993, American Express won the federal government's travel and transportation payment system contract--the largest corporate card account in the world. Some industry analysts interpreted the introduction of these new products as a sign of 'renewed vigor' at American Express.
Golub aimed to cut $1 billion in costs by 1995, and planned to use those savings to finance the rate cutting necessary to attract the nearly 200,000 new merchant locations he expected to sign up. He also made several divestments that brought funds to the company and helped refocus on core businesses. Early in 1993, American Express sold its Shearson brokerage operations to Primerica Corp.'s Smith Barney, Inc. for $859 million in cash and about $275 million in Primerica stock. American Express netted $1.1 billion on the 1993 sale of 32 million shares of First Data Corp. to the public. In January 1994, American Express announced that it would contribute over $1 billion to Lehman Brothers, then spin the subsidiary off to shareholders. The capital injection enabled Lehman Brothers to sustain an 'A' credit rating as an independent venture.
Credit Card Management magazine named American Express its '1993 Turnaround of the Year,' praising Golub's recovery plan. That year, American Express's worldwide charge volume increased 5.5 percent to $117.5 billion, discount revenues from merchants increased 3.2 percent, and merchant locations grew 4.5 percent. American Express's net income made a dramatic comeback as well, tripling from $461 million to $1.48 billion.
One of Golub's main objectives was to expand American Express's foreign operations, to the point where international revenues accounted for 50 percent of the company's total earnings. In 1997 American Express signed ten new agreements with overseas partners and introduced 20 new card products into foreign markets, including cobranded corporate cards with France's Credit Lyonnais and Qantas Airlines in Australia. Although disturbances in the Asian economy during this period caused American Express to fall far short of its desired annual international growth rate of 25--30 percent, the company continued to carve a niche in developing foreign markets. In early 1999 it formed a branch of American Express Financial Advisors in Japan, and in 2000 it established a strategic position in the burgeoning Chinese economy by opening a headquarters in Beijing.
American Express's range of financial services demonstrated consistent growth throughout the late 1990s. American Express Financial Advisors enjoyed particularly strong performances, with total client assets climbing from $182 billion in 1997, to $212 billion in 1998, to $262.5 billion in 1999. In 1996 the company launched American Express Financial Direct, which offered financial products directly to its customers. American Express Bank also saw gains in its overall client holdings during this period, with an increase from $6 billion in 1997 to $9 billion in 1999.
The Internet revolution provided American Express with the opportunity to explore new avenues for its banking and travel interests. In January 1995 the company launched ExpressNet, a web site dedicated to online cardmember and travel services. In April 1996 it formed American Express Travel on the Web, and later that year it created InvestDirect, an extensive online securities trading service. In 1997, InvestDirect was recognized by Financial Service ONLINE Magazine as the year's most innovative online brokerage. That same year, a new member web site gave American Express cardholders complete access to their accounts online.
With increased electronic traffic came concerns over Internet security and privacy. In July 1995 American Express joined forces with four leading technology firms to develop a means of ensuring secure online business transactions, through sophisticated encryption codes and a digital signature authentication system. In February 1996 American Express signed a licensing agreement with Microsoft to develop a software that employed secure electronic transactions (SET) protocol, and in 1997 the company partnered with Hewlett-Packard to create ExpressVault, which combined Hewlett-Packard's security and computing expertise with the American Express payment processing network.
The battle over the credit and charge card market intensified in 1998, when the federal government filed an antitrust lawsuit against Visa and MasterCard. The Justice Department's findings focused on the competitors' policy of prohibiting member banks from issuing cards of rival companies, most notably American Express and Discover. Charging that this practice was anticompetitive, the Justice Department accused Visa and MasterCard of discouraging product innovation and ultimately hurting consumers.
Another intriguing development in the card wars came in September 1999, when American Express launched Blue, the first 'smart card' offered in the United States. Embedded with a computer chip in addition to the traditional magnetic strip, Blue made it possible for consumers to consolidate their credit and debit information in a single card. As more and more computer manufacturers began including smart card 'readers' as standard features on personal computers by decade's end, Blue's design made it ideal for e-commerce. While it remained to be seen whether smart cards would become the industry standard, by the end of 2000 there were approximately four million Blue cardholders. In addition, Visa launched its own smart card during the 2000 Olympics, ensuring that the new market would be competitive.
By the year 2000 American Express had climbed back into a position of leadership within the industry, with record net earnings throughout the late 1990s and the emergence of an extensive line of new products and services. The company continued its pursuit of a strong e-commerce presence with the introduction of a number of web sites in 1999 and 2000, including American Express Brokerage, Express B@nking, and American Express Mortgage. In 2000 the company joined the Worldwide E-commerce Fraud Protection Network, a coalition dedicated to guaranteeing the security of online transactions, and subsequently building consumer confidence in the Internet as a preferred place to shop. Although Visa and MasterCard still controlled 75 percent of the overall card market in 2000, innovations in the function of the traditional credit card put American Express in a position to remain very competitive in the 21st century.
Principal Subsidiaries: American Express Travel Related Services; American Express Financial Advisors, Inc.; American Express Bank, Ltd.; American Express Bank S.A. (France); American Express Bank International; American Express Centurion Bank; American Express Bank GMBH (Germany); American Express Bank (Luxembourg) S.A.; American Express Bank (Switzerland) S.A.; American Express Bank (Uruguay) S.A.; Banco Inter American Express (Brazil; 49%); Amex International Trust (Cayman) Ltd. (Cayman Islands); Egyptian American Bank (Egypt; 40%).
Principal Operating Units: Global Corporate Services; Global Financial Services; Global Establishment Services and Traveler's Cheques; U.S. Consumer and Small Business Services.
Principal Competitors: Carlson Wagonlit Travel; Japan Travel Bureau, Inc.; Visa International.
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