A Poker Faced Amex Plays A New Card Game

It seems an unlikely offer, coming from charge-card titan American Express Co.: Call a toll-free number and get a free list of low interest-rate or no-fee Visas and MasterCards. A fit of corporate altruism, perhaps? Not precisely. In the ever-escalating card wars, it's just the latest effort by American Express' card division to combat the encroachment of bankcard rivals Visa USA Inc. and MasterCard International Inc.

AmEx' approach may be a bit oblique. Roger H. Ballou, president of AmEx' Travel Services Group USA, says he is convinced that high credit-card interest rates are harmful to the economy. "Clearly, if we can help find ways to spur the economy, it will help our business," he says. But he acknowledges that focusing on high rates could help AmEx' charge card. AmEx hopes that if bankcard issuers are pressured into lowering interest rates, they'll compensate by either charging a higher fee to merchants that accept the card or charging consumers higher fees. Either way, AmEx benefits.

Indeed, AmEx' new campaign comes at a time when its card business is under pressure. The number of AmEx cards in force worldwide is down, the card is losing market share to bankcards, and card profits have been falling. And AmEx' higher merchant fees have riled some merchants and generated negative publicity.

Moreover, competition in the card business is at an all-time high. Many in the industry expect General Electric Co. to launch its own version of a MasterCard later this year. A key feature will be discounts on GE appliances. General Motors Corp. is also expected to come out with a credit card.

AmEx launched the latest salvo in the card wars on May 12 with a report from a subsidiary, Boston Company Economic Advisors Inc. The report concluded that a two-percentage-point drop in credit-card rates during the past two years would have swelled consumer wallets by $7 billion, upped personal savings by $2.9 billion, and increased the sales of goods and services by $4.1 billion.

CARD FORUMS. At about the same time, AmEx began sponsoring a series of forums to educate consumers on how to cut credit-card costs. A number of consumer groups were invited to the forums, but it's the presence of Washington-based Bankcard Holders of America that has surprised industry-watchers. AmEx is advertising a toll-free number to take orders for BHA's list of low-rate credit cards, which it buys at a bulk rate from the group and has BHA send free to callers. BHA, the nonprofit watchdog of the bankcard industry, has participated in the five forums held thus far. AmEx underwrites the group's travel expenses. BHA says that's standard policy for its speakers' bureau. And while it doesn't want to be seen as connected to industry players, BHA says the forums represent a great opportunity to "tell it like it is about credit-card costs."

Visa and MasterCard see the campaign less as a public service than a chance for AmEx to dump on its major competitors. H. Robert Heller, chief executive officer of Visa USA, says AmEx should be the last company to criticize anyone about pricing, citing its own steep annual fee. AmEx' annual fee on its standard card is $55, compared with the $17.62 average for bankcards. Of course, AmEx doesn't charge any interest on its charge card, and its Optima credit card offers a low rate of 12% to its best customers. But AmEx' merchant fees average 3% to 5% vs. 2% to 3% for bankcards.

Bankcard issuers can't deny that credit-card interest rates are still high. Despite some well-publicized cuts, such as Citibank's rate reduction in June, the average bankcard rate remains steep, at 18.45%, and has dropped just half a point in the past two years, while the prime rate fell four percentage points.

There's no doubt that AmEx has latched onto a hot topic. Already, 13,000 consumers have called the toll-free number for the list of low-rate cards. As long as card rates remain high, people will be hungry for information that can save them money--regardless of the source.