American Express Internal & External Analysis

American Express Internal & External Analysis 


In February 2014, American Express launched a new credit card called the ‘Amex Every Day Credit Card. This card did not have an annual fee but had a unique rewards program that rewarded frequent users. Unlike the other offerings from American Express which were traditionally targeted at busy executives and entrepreneurs, Amex Every Day was targeted at housewives and students. The card was part of the strategic shift at American Express to target the mass market rather limiting its offerings to premium customers. Since the time it entered the card business, American Express had operated a closed-loop network and focused on a limited number of profitable customers.
In the mid-2000s, American Express started facing new challenges from online payment processing companies and other card companies. The online payment processing companies offered safe and cheaper payment processing services which lured customers from the conventional card companies. Big commercial banks and credit card companies that processed transactions through their open-looped networks too started giving higher competition to American Express by offering super-premium cards. Cards like the Visa Infinite and Sapphire Card from JPMorgan Chase & Co. offered features similar to that of high-end cards from American Express. Faced with the prospect of losing its affluent customers and the growing market for online payment processing, American Express launched new products and services to reach new customer segments which it had traditionally ignored. New products like the ‘Bluebird’ prepaid card, ‘Serve’ digital payment system, and the ‘American Express payback Credit Card’ was launched targeting the mass market. The company also started focusing on offering basic banking services to its customers. American Express converted itself into a banking holding company during the financial crisis of 2008 and started rolling out cheaper banking products like savings accounts with low balance requirements. Most of the newly launched products were received well in the market. Some analysts supported the shift in the business strategy of American Express. But others were skeptical about the success of the new strategy. They opined that American Express might end up losing its premium brand image in the market and thus its premium customers.

  History and Background
American Express Company was founded in the year 1850 as an express mail business. The company was formed with the merger of some leading express companies of the time like Wells & Company, Livingston, Fargo & Company, and Wells, Butterfield & Company. In the initial days of its operation, it enjoyed a monopoly on the movement of all kinds of express shipments like goods, securities, and currency in New York State. In subsequent years, the company started expanding its reach to cover all parts of the country by entering into business agreements with other companies in businesses like express mail, railroads, and shipping. In the year 1882, American Express started expanding into the business of financial services by launching the money order business. The company became a major player in the international financial services business with the launch of American Express Traveler’s Cheques in the year 1891. The Traveler’s Cheques issued by American Express quickly became popular as they were accepted in all the major cities of the world. In the year 1915, American Express entered the travel services business, which went on to become one of its most profitable businesses in the later years. Its travel services business, which later came to be known as ‘American Express Travel  & Lifestyle Services’, offered premium travel services to affluent customers in both the USA and other countries.  In the year 1958, American Express entered into the payments business with the launch of its first charge card. This card proved to be a huge success in the market and was followed by other charge cards like the Gold Card in1966 and the Platinum Card in the year 1984. With the success of its charge card business, American Express launched its first credit card called the ‘Optima Card’ in the year 1987. The Optima Card was an instant success among young customers as it allowed its users to carry over the balance to the subsequent month without having to pay the whole balance. In subsequent years, American Express introduced multiple credit cards to suit the needs of customers from different income segments.  As part of its travel services business launched in the year 1915, American Express started publishing travel guides for its customers who were traveling all over the world. In the year 2014, American Express was concentrating on aggressively expanding its financial services business.

 Vision, Mission, Values, Goals

 The mission of American Express first starts with an overarching vision that provides a   framework for employees at all levels. The American Express Vision is:

”We work hard every day to make American Express the world’s most respected service brand.”

To achieve the vision of being the world’s most respected brand, American Express employees are provided with three Operating Principles which American Express designates as “first priority.” The Operating Principles of American Express are:
·                  Offer superior value propositions to all customers
·                  Operate with best-in-class economics
·                  Support the American Express brand
To remove individual interpretation of those operating principles, American Express employees are provided with a very specific set of “Blue Box Values,” which defines “who the company is are and they stand for as a company.

 The Blue Box Values of American Express are:
·                     Customer Commitment
·                     Quality
·                     Integrity
·                     Teamwork
·                     Respect for People
·                     Good Citizenship
·                     A Will to Win
·                     Personal Accountability

The American Express “What We Do” statement is structured much like a corporate mission statement, in that it provides both inspiration and achievable outcomes.

  Industry Competition

The global payment card industry was highly competitive and was dominated by a few big companies. The higher entry barriers of the industry in the form of high investments needed to build the network and time taken to build reliable brands prevented new players from entering and succeeding in the industry.
Despite the presence of a number of smaller players supported by local governments, the payment card industry was mostly concentrated in the USA. Two American companies, Visa and Master Card, had a significant market share in terms of the total cards in circulation. However, in terms of the total value of transactions made by customers, American Express led the industry. The global payments industry was expected to grow at a healthy rate with an annual increase of total payments at 5 percent till the year 2016. Noncash payment products were mostly preferred in the USA, Europe, and some big Asian economies. With the higher preference for non-cash payment instruments in North America, people used cards to make their payments. Going forward, the industry’s growth in the developed markets was expected to be modest as the market was already well penetrated by the major card issuing companies. Most of the future growth was expected to come from emerging economies like China and India. The increasing prosperity of consumers in the emerging markets coupled with the spread of financial services were the main reasons for the high growth projections of payment cards industry in these markets.

AMEX External Analysis

·         PESTEL Analysis

Political Forces

American Express in May 2010 expanded to North Carolina, due to the lower tax rates offered by the state government. The state is looking for employment growth as well as productive economic activity.

Economic Forces

Due to the weak economic conditions in the U.S. in 2008, the credit market froze causing high credit losses for financial service providers. The economy is still in its recovery stage at a slow pace producing a massive amount of uncertainty for the future. Consumers are leaned towards saving more money than borrowing.
In 2009, due to the economic slump in the credit card industry, American Express announced cutting down of seven thousand managerial level jobs to slash costs of $1.8 billion. Consumers that have been previously struggling to pay off big debts in 2009 are now paying off their old debts. By the third quarter of 2010 consumer spending has increased pushing sales through large transaction volumes for American Express cards through lending volumes are still down as consumers are reluctant to borrow more money.

Social Forces

Urban consumers, like rural ones, are looking for more personalized, localized and community-tailored relationships with sellers as they yearn for more sustainable rather than cheap products. This implies that the future is of small and self-sufficient vendors and community shops that are tailored to the requirements of the local consumers. According to a consumer research conducted in the U.S. in 2009, 26% of the Americans are looking for creative elements in brands they purchase, 16% expect creativity in the retail environment and 23% seek customization in which their own contributions and ideas are given importance in product design.

Technological Forces

The birth of online social networking websites has created a new trend of shopping in groups and communities where selling through online social channels has become an effective medium. According to a survey of U.S consumers, 41% of consumers have adopted online shopping through the influence of their online social groups. Interaction with consumers through mobile devices and websites has allowed companies to identify a new means of offering services and developing loyalty schemes with 'on the go' consumers based on locations facilitated through the GPS applications available in smartphones.

Environmental Forces

With the rise in concerns towards social responsibility by companies, organizations, and individuals, consumers are seeking products and survive that allow them to fulfill their requirements at the same time portray a responsible behavior towards the society, thus, they are seeking companies that are also associated with philanthropic activities.

Legal Forces

U.S Justice Department has accused credit card companies of charging anti-competitive prices with higher fees charged for services. Investors are now eager to find out how the credit card companies will adapt to the new restrictions.

·        Porter's 5 Forces Analysis

Industry Rivalry

The financial services industry is highly competitive even in times of the economic fall. There are two major players in the U.S financial services sector, specifically in the credit card sector: American Express and Discover Financial Services. Discover Financial Services acquired a net income of $261 million by September 2010 whereas American Express recorded net income of $2.1 billion which suffered a decline from $2.7 billion from 2009. The competitive edge that American Express has that is primary revenue is generated from card spending and secondary revenue is generated from the fee charges on services. For other financial service providers, like Visa and Master card fees charged for services is the main profits driver. Considering the existing restriction on the fees charges, American Express has, therefore, less to lose compared with its competitors. The share price for Visa has dropped to 14 percent in November 2010 whereas for Master Card the decline is 9 percent. American Express saw an increase in the share value by 3.5 percent in the last quarter of 2010.

Threat of Substitutes

The threat of substitutes is there but not so high as the element of customization and innovation allows financial service providers to meet local needs of consumers who are increasingly becoming aware of the various options of finance open to them. New and emerging channels for reaching out to customers are becoming available as well as new forms of customers, such as the recent identification of 'on the go' customers, referring to mobile customers who use mobile phones to transact and interact with service providers.

Threat of New Entrants

In the prevailing conditions in the market, threat of new entrants is low as the industry is still recovering from a massive economic blow. As the industry is growing at a slow pace right now it is not a highly attractive industry to tap into for new firms.

Bargaining Power of Suppliers

Suppliers exist in the form of providers of human capital which on a forefront do not pose a big threat but can influence the expertise in management and innovation in services provided by the companies.

Bargaining Power of Customers

Bargaining power of customers is high as the level of consumer spending is directly linked with the company's profitability. With the recent economic downturn which forced consumers to save more and borrow less, the financial services sector suffered tremendously. Thus, the company had to reduce fees and surcharges under the pressure of the government.

AMEX Internal Analysis

·         SWOT Analysis


American Express has a 'spend-centric business model' which focuses on generating revenue from encouraging card spending rather than reliance on fees. American Express in 2010 has launched new pay-in-full charge cards which highly offer customers with discounts and other membership benefits that are tailored to their interests and lifestyle. Cooperative activities with China Union Pay allow American Express to avail a stronger network in China and benefit from the growing economy.


The recent downsizing of employees has caused negativity among the employees and reduction of human capital encompassing management expertise and sources of innovation in the company. American Express has been rather slow to identify major opportunities and tap into new markets such as in the mobile service offering segment.


Engaging in mobile transactions facility provision for customers is a viable option for future. Higher customer involvement in product designing to increase customer loyalty is another option. American Express can link its services to social networking websites and provide news feeds and updates regarding its services to its customers via the social groups and communities present online.


Discover Financial Services has entered in a contract with Verizon to provide a service called "Isis" which is a mobile commerce network that would allow consumers to transact 'contactless' to pay off their bills by just waving their smartphones.

  Business Model

Since the time it entered the card business, American Express had followed a very unique business model when compared with other credit card companies. It maintained its own closed-loop network that did not process the card transactions of other credit card companies. It directly issued its own cards to the customers and extended the required credit for the purchases made. Instead of focusing on transaction volumes, American Express always focused on the spend volumes of its customers. A few premium customers of the company gave it higher revenues than a large number of small customers for other credit card companies. For the year 2013, Visa processed a total of 60 billion transactions with 2 billion cards. During the same period, American Express processed 6 billion transactions with just 107 million cards in use. A limited number of transactions helped it in controlling its costs, leading to higher profitability.


Since the mid-2000s, the major card companies in the world including American Express had been facing new competition from online payment processing companies like PayPal. Many Silicon Valley-based technology companies too entered the payments business and introduced online, mobile, and cloud-based services that directly competed with the services provided by the conventional card companies. The difference between the conventional card issuing companies and online payment processing companies became blurred as these companies made it possible for payments to be made at physical merchant points of sale (POS) units through mobile phones. Unlike the conventional charge and credit cards which had fixed annual fees, the services of online payment processing companies were cheap or totally free for the customers.

American Express also started facing higher competition from banks and credit card companies.  As the default rates in the subprime market increased due to the global financial crisis of 2008, many big banks started targeting affluent customers. Credit card companies and banks started launching premium and super premium cards targeted at their rich clients. 

  Business Strategy

The changing payments business worldwide forced American Express to consider changing its business strategy. The prospect of losing its affluent customers could limit the future growth of the company. At the same time, there was no way for the company to introduce more premium products as it had already served the top end of the market with its premium and super-premium products like the American Express Platinum and Centurion Cards. The explosive growth of e-commerce made it difficult for American Express to ignore the business of digital payments. In view of the changing market conditions, American Express changed its business strategy to focus on both the premium and mass markets with new products.


American Express has four key strengths: managerial expertise, quality services, strong customer relationship management and innovation using which it has surpassed the tough challenges that the economic crunch brought. Though profitability was hurt badly but it maintained its customer loyalty through innovative and customized products that it timely launched in the market. 2009-2010 was a crucial period for the company where many new decisions and strategies came to the forefront which groomed the company towards a more profitable trend. The strategy of product development, market development and cost leadership was met with an effective execution through the launch of four packs charge card service in 2010, operational cost reduction via downsizing and networking and channeling in China, Japan and in Australia to cover a broader network of customers.


1- Hilary      Stout,  “With   New   Rewards  Card,   Amex   Focuses  on    Busy-Mom Market,”, March 2, 2014.
2- Jacqueline  Nelson,  “American  Express  Shake-up  to  Rely  on  Trusted  Brand,    Customer  Service,”, November 3, 2014.
3- “99  Years  of  Content  Marketing:  How  American  Express  Became  a  Major  American  Publisher,”
4- “It’s Official: Time Inc. Buys AmEx’s Food & Wine, Travel & Leisure   Magazines,”, September 10, 2013.
5- “Global Trends in the Payment Card Industry 2012:  Issuers,” access/resource/pdf/global_trends_in_the_payment_card_industry_2012_issuers_0.pdf,  2012.
6- “Delinquency       Rate      on       Credit     Card      Loans,     All       Commercial    Banks,”

7- “How has Visa Achieved Double Digit Growth and is it Sustainable?”,    March 6, 2014.