American Express: The most prestigious of all the credit cards. Visa, MasterCard everybody has those, but only a select few have American Express.
Here I’ll prove it.
In 2019 there were over 3.3 billion visa cards out there, over 2 billion mastercards and only 114 million American Express cards. That is a big difference. How American Express is so successful?
There’s 29 visa cards and 17 mastercards for every one American Express.
And that’s because they’re not as concerned with volume, in fact they do a lot of things differently.
For example, visa and MasterCard are issued by banks, whereas American Express handles most of that themselves.
You can now get one from Bank of America and some other places but 70 million of those cards were issued by them.
Possibly the biggest difference is that they’re not simply offering a charge card they’re offering something more.
So maybe it’s not even fair to compare their number of cards.
As a premium brand they’re not as concerned with how many cards are issued but rather how much money they make from each card.
I think that might be the more telling number, because it’s significantly higher for American Express.
That’s because, despite having fewer cards American Express has higher revenue than visa or MasterCard.
It’s actually higher than both of them combined.
So though they’re not as widely used, they have their own system in place that’s working in a different way, and they call it “spend-centric”.
We will talk about it but I’ll also talk about the evolution of this company.
Evolution of American Express
They didn’t start by providing credit cards they go back over a hundred years before credit cards even really existed.
The name is American Express.
See in the 1840s, express services were thought to be a promising new industry and just so we’re on the same page here an express service is when you pay someone to transport something for you.
Due to the pricing and the logistics, you would typically use it for smaller more valuable things.
Well the first one in the U.S. was founded in 1839 and by the 1840s there were a bunch of them, notably located in higher population areas like New York City.
In 1850, three of these bigger ones in New York decided competing with each other was becoming harmful and they would all do so much better if they simply join forces, there are some big names here.
That’s when Henry Wells, William Fargo, and John Butterfield combine their separate express companies into one larger one called American Express.
Up until this point all, of the most populous cities in the country were in the east, mostly in the northeast and logically those were the areas they serve.
But they actually formed American Express during the California gold rush for the first time.
People were making their way out west in big numbers and San Francisco would soon become the first big city out there.
Henry wells and William Fargo who were actually the first president and vice president of American Express saw some opportunity there.
This was their chance to offer their services in San Francisco before anyone else.
And if the city kept growing like it did they would likely grow with it.
Now the rest of the company wasn’t crazy about the idea, they thought it was too risky and American Express would be better off focusing on the eastern cities.
The board of directors basically said that you two can go and do whatever you want but we’re going to stay right here.
And that’s what happened.
The two of them went out to San Francisco to start a separate company and I think we all know how that eventually turned out.
I think I should make this clear, they stayed with American Express as well simultaneously running both companies.
Through the rest of the 1800s American Express continued to grow, either merging with competitors, or making deals with them as far as what territories that they would serve, making deals with the railroads and other transportation services.
The civil war was good for business, because it meant everything had to be shipped everywhere.
The point is the cities were getting bigger, the population was growing, and American Express was able to set up a system that allowed them to take advantage of this rapidly growing demand.
Henry wells remained president until he retired in 1868, that’s when William Fargo took over until he died in 1881.
He was then replaced by his younger brother James Fargo which is actually the person thought to have gotten the company first involved in financial services.
The year after he took over American Express introduced their money order.
It was intended to be a cheaper, safer, more accessible version of what the U.S. post office had introduced almost 20 years earlier.
They sold quite a bit of them.
Partially because there was a high immigrant population that was buying money orders to send money back to their families.
Since it turned out to be so successful, they followed up on it nine years later when they introduced their famous traveller’s checks.
I think the success of those played a part in them getting involved in the travel business a few years later.
We can see here how they started by delivering stuff, but then slowly progressed into other somewhat related businesses.
It was a good thing that they did too, because during world war one in 1918, the government took over everyone’s Express operations and American Express was reduced to only banking and travel.
So had they not made those moves, I’m pretty sure that that would have been the end of them.
That’s how they existed for the next few decades, a relatively smaller company mostly known for their money orders and traveller’s checks.
But then in the 1950s everything changed.
Now this was a time when credit cards were thought to be a promising new industry.
Up until this point there were no large scale widely accepted cards.
In 1950 the diners’ club card practically changed the game, it was accepted by multiple entertainment providers and showed the potential for a product like this.
It wasn’t long before various banks across the country started introducing their own regional cards.
1958 is when American Express first entered the market with this purple travel and entertainment card, this thing got popular so quick.
500000 people possessed it within its first three months.
And I think we can say that this was the main reason that over the span of the 1960s their income grew 10 times larger.
And then the introduction of their famous green card and corporate cards help propel them to that next level.
American Express transformed into one of the most respected valuable brands on the planet, they had a great slogan too, you’ve probably heard it “don’t leave home without it”.
It’s nice and simple and it practically became one of the most popular sayings of all time.
I mean this credit card business helped them so much that over the next few decades they were able to acquire all these other financial businesses.
They’ve since sold them but at one point they bought an insurance company and a brokerage firm.
Today my perception is that they’re mostly focused on their gold and platinum cards.
And I want to take a look at their platinum card, because I think its very representative of how they run their business.
First off, it’s called the platinum card.
Platinum is a metal that’s uncommon and valuable and flashy much like American Express would like to be perceived.
But beyond the name this card costs $550 per year just to have it.
Most cards don’t cost anything or if there is a cost it’s typically not this much, I say this is reflective of their business, because they generate four billion dollars a year from these card fees.
It’s a big part of their model.
Another thing about the platinum card is there is no interest rate, because the full balance has to be paid at the end of each month.
The idea is unlike the other providers American Express actually wants you to pay your bill on time.
For many of their cards like the platinum one it’s actually a requirement.
Looking more into this card you can earn 60000 membership reward points after you use your new card to make $5000 in purchases in your first three months.
This is the core of their business.
See any seller who accepts a credit card has to pay for that ability to do it.
When compared to visa or MasterCard, American Express generally charges them a much higher rate.
If you want to buy something from Walmart using your visa card that’s typically cheaper for Walmart than if you were to use your American Express.
Since Walmart has to pay them a comparatively high percentage of the transaction every time you use it, they want you to use it.
The more you use your card, the more money American Express makes.
So offering deals that motivate you to spend $5000 in three months is reflective of their overall plan.
This is where they make most of their money by the way and that’s why it’s called spend-centric.
The obvious question here would be why would these sellers even accept American Express then?
Most people don’t have them anyway, so why bother if it’s going to cost more?
Well that is happening sometimes.
Historically people have had difficulty finding places that will accept it.
Though today I think it’s better than it used to be.
They say that in the U.S they believe that it’s accepted by just about as many merchants as Visa.
And the reason that they’re willing to accept it is sort of because of their prestige.
See the people with American Express cards tend to be comparatively wealthier, they have higher credit scores I mean why you would pay the $550 a year to have it, if you don’t plan on using it.
Wealthier people tend to spend more money.
So the advantage for Walmart or whoever the merchant is that it’ll attract bigger spenders to their business.
They’ll be giving American Express a higher percentage of a larger bill, so it should work out for everybody.
Benefits
And then finally the benefits.
That’s the big reason that people would want to get this platinum card.
You already saw the rewards points, there’s a ton of travel benefits things involving Uber and Delta.
It’ll give you access to that airport lounge, and then the platinum card concierge.
I’m not trying to sell this card, so I’m not going to go through everything.
But for many people those benefits outweigh that cost.
Are you starting to see the system that’s in place, how the different parts work with each other I have to mention this too.
Their highest most prestigious card is the centurion card also known as the American Express black card.
Just look at that thing, if you have one of these, you must have a lot of money because they are not easy to get.
I think this takes things a little bit far even for American Express.
First off they have to offer it to you, you can’t just openly apply for it like almost every other credit card in the world.
Nobody knows the exact criteria to get that invite, but I doubt you’ll get it.
Unless you’re spending hundreds of thousands of dollars on one of your other American Express cards.
Then once you get invited you have to pay a $5000 initiation fee to get it and then a $2500 fee every year to keep it.
Obviously you have to be very wealthy to get this card.
And just look at this as an extreme example of how American Express conducts their business.
Let me know in the comments do you have one of those black cards? All right you don’t have to tell me that.
Instead, I’ll ask you do you have any American Express card and if you do what has been your experience?
Many of them cost more money and I suspect are still a little less widely accepted but do the benefits make it worth it.
Maybe it’s just that prestige of pulling out the American Express card that makes it all worth it.
And then on the other end for those of you who stick with the more basic visa or MasterCard,
What do you think of American Express?
Is there anything I said in this article to make you want to make that transition?
Or are you perfectly fine with what you have and any other thoughts about American Express and their 170+ year history, leave them in the comments.
I’d like to hear what you have to say.
Thank you so much for reading.
