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As the competition heats up and the growth of charge volume slows, issuers of credit cards are trying to stand out from the crowd by offering better service. They began years ago with such offerings as travel discounts and so- called affinity cards, which feature the logos of sports teams or donate a portion of every charge to charity. Some banks offer programs similar to Citibank's Citidollars plan, under which cardholders earn discount points that can be applied to goods in a mail-order catalog. "Trouble is, the product selection is generally limited and the discounts insignificant," says Bankcard Update's McKinley. "The idea of these enhancements is to create marketing value, not real value. The enhancements attract consumers, but most consumers don't use them."
American Express has been a leader in developing new services that customers never knew they needed. After the company introduced free insurance for rental cars nationwide in 1987, the benefit was copied by MasterCard and Visa. Banks also followed American Express in offering such features as extended-warranty protection on products purchased with their cards and access to hot tickets for cultural events.
American Express follows a strategy that is notably different from its bank- - card brethren. Since it issues mostly charge cards (meaning accounts are paid up every month) rather than credit cards, American Express reaps little in profits from interest charges on outstanding balances. The company relies on relatively high annual fees ($55 for the Green Card) and vender payments on purchases (3.5% on most restaurant bills, almost twice what Visa and MasterCard charge). With just 37 million cards in circulation, Amex is a niche player compared with mass marketers Visa (257 million) and MasterCard (163 million).
Nestled in that niche, however, is a big-spending consumer. On average, American Express customers charge $4,266 per card every year, vs. $1,577 among bankcard holders. Three years ago, protecting its flank, American Express introduced the Optima revolving-credit card for established customers, pegging the interest rate at about 16% to keep its flock from straying to higher- priced cards. "We are not interested in having everyone carry our card," says Kenneth Chenault, president of the company's consumer-credit-card division. "My objective is to go after the most profitable charge customers and keep them happy."
To meet that goal, American Express constantly raises the competitive stakes. Example: Global Assist, a free, 24-hour worldwide hot line that helps card members with medical and legal emergencies. Michael Nolan, 29, a salesman from New Jersey, was vacationing on Saint Martin last June, when he collapsed from an unidentified illness. Alerted by his family, Global Assist arranged a long-distance diagnosis by U.S. medical specialists and airlifted the comatose Nolan home just in time for a lifesaving liver transplant.