Yes, membership had its privileges. For as little as $55 a year, consumers could twinkle in fellowship with such glitterati as Mikhail Baryshnikov, Ella Fitzgerald and Meryl Streep. All one had to do was wave one's little piece of green, gold or platinum plastic, and waiters and clerks would fawn prettily. Such potent snob appeal once seemed irresistible -- until American Express "cardmembers" began weighing the costs of privilege against the benefits of more plebeian credit cards. While the AmEx elite shelled out annual fees, Discover clients were issued free cards. Amex users had to pay their bills in full each month; savvy bank-card customers enjoyed revolving credit at modest interest rates. AmEx clients could brandish their cards in 3.7 million upscale establishments worldwide; Visa cards opened 11 million doors, MasterCard 12.3 million. Feeling decidedly underprivileged, 2 million AmEx users cut up their cards between 1991 and 1993 and went in search of better bargains.
Now American Express is staking its future on a new set of credit cards with an accent on lowbrow utility and coupon-clipping value. This week it will begin to roll out some dozen cards, each one pitched at a different segment of the consumer market. Some cards will bear the exclusive imprimatur of AmEx and will boast waived fees; others will share billing with other companies that offer a range of enticements, like frequent-flyer miles and car discounts. All will offer revolving credit at rates expected to rival AmEx's less tony rivals. And where business travelers were once AmEx's preferred clientele, every creditworthy American will now be wooed. "There were four major areas where we were not up with the competition: fees, coverage, revolving accounts and rewards," Frank Skillern, president of AmEx's U.S. consumer-card group, admits with eat-plastic humility. "We're a little late in recognizing marketplace change, but here we are, recognizing it and making changes."
If it sounds like brutal, elemental capitalism, it is. But American Express's friendlier, market-dictated face won't appeal to consumers if they can't use the new cards when and where they want. In recent years, AmEx has been chucked out of establishments by owners who were no longer willing to pay an average fee of 3.2% per purchase (as compared with 2% for Visa and MasterCard). A chastened Amex has now chopped its vendor fee to 2.8%, and the ploy seems to be working. Since 1992, the company has moved boldly into / establishments regarded by consumers as plastic-essential, including -- choke on this, yuppie scum! -- Sears and K Mart. This year alone, AmEx expects to sign more than 200,000 new businesses.
The wholesale leap into revolving credit is a gutsy move for American Express, whose recent ads have featured Jerry Seinfeld musing adenoidally about what the company has referred to in less lighthearted moments as the "evils of debt trap." AmEx's own maiden voyage into revolving credit -- with the launch of the Optima card in 1987 -- resulted in a plastic meltdown. The program quickly racked up $1.5 billion in unpaid charges, a figure twice the industry average, according to Robert McKinley, president of RAM Research Corp. Since March 1992, when the loss rate peaked at 12%, AmEx has wrestled bum credit to less than 6%, well in line with the industry average of 5%.