One from Amex Tries to Save for Loyalty
By John Hennessy
American Express has launched a new card called One from American Express. The unique feature of the card is that consumers will save automatically with every purchase.
America Express will contribute 1% of the cardmember’s purchases into an FDIC-insured, high yield savings account (currently 3.15%). Cardmembers can also contribute their own funds to this savings account.
According to Peggy Maher, senior vice president and general manager, Consumer Charge Card, American Express, “One from American Express is a new card for consumers focused not only on spending for today but also building savings for their future.”
Ms. Maher continues, “If you think about all the expenses a typical family has today, it’s easy to see how quickly a little savings can add up just by using the card.”
Consumers can select to carry a balance on larger purchases while paying off other purchases monthly to avoid finance charges on those purchases.
Some of the other benefits of One are:
- Online account management,
- Purchase Protection,
- Buyer’s assurance warranty extension,
- Return Protection, and
- Car Rental Loss and Damage Insurance.
In year one, the $35 annual fee is waived and a $25 bonus contribution will be made to the cardholders savings account upon the first purchase.
Moderator’s Comment: Is there any long-term loyalty benefit from a program that entices with favorable year-one terms only to turn the tables on the
benefit possession arrow in subsequent years?
I continue to be surprised, in a sad way, by how many customers are naïve about their finances.
The year-one benefits for those using the One card and who do not carry a balance are attractive. Customers who stick around for year two and subsequent
years, however, are less likely to realize any high yield savings account benefits. The $35 annual fee and interest fees on unpaid balances will eat up any accumulated savings
for many cardholders.
If all One card cardholders charged more than $3,500 per year to cover the annual fee, and paid off their balance every month to retain the savings they
earned on their spending, the card would probably not make a lot of financial sense for American Express. American Express appears to banking on this program being a losing proposition
for cardholders. –
John Hennessy – Moderator
Cards that provide credits for expenditures charged have been available from various providers (including Visa and Discover), and new offers appear regularly. Savvy card users move quickly from one to another when benefit limits expire. I believe that this new Amex offering will most likely be a success, as it provides credits and free membership. I do not see a long-term loyalty benefit. The best “loyalty” device Amex offers is its membership awards program, and that is not mentioned in the article. The biggest benefit I see for Amex is increasing and cleaning its customer lists, gaining additional information for its databases.
This can be very profitable for American Express if they carefully select who gets the offer. For example, if the solicitation goes to Discover card enthusiasts, particularly those who run loan balances, this will take market share from a competitor and make a decent profit, assuming the loan balance interest rate is high enough, and the credit scores are high enough to avoid greater-than-average write-offs. Almost certainly American Express will increase the retailers’ fees to help pay the rebates, and people who run balances won’t be able to dump the cards after a year, so they’ll pay the $35 annual fee for years to come. Visa, MasterCard and American Express all want to give rebates to take market share from Discover, the rebate originator. It will cost the Big 3 nothing, since they’ll get the funds by increasing the retailer service charges.
It’s clearly a win for Amex, and a rather creative one at that. I think many consumers will be too naive to figure that out, and take the bait, perhaps even investing some savings. A nice differentiator for a credit card company would be to not screw the user. Everybody now sees the card companies as guilty of usury (is that still a punishable offense anymore?) and larceny. I had warm fuzzies for American Express until a few months ago. After holding their card for about 23 years, running up charges of $50-$75K annually for personal and business, I was out of town for a spell and a couple days late on a payment. They knocked me up to 29-point-something, as I recall. Trusting idiot that I am, I didn’t even notice until I happened to look at the interest rate one day, several months later. I called to cancel the card in outrage; they put the rate back down again. It’d be nice if you could trust ONE credit card company not to screw you with outrageous fees or interest rates, on whims, when you’ve been a good customer for years. If a company ever promised that, I’d happily cut up all my credit cards and just use that one.
American Express has taken a page out of the philosophy of
truly “Marketing Loyalty to Consumers Through Valuable
Information and Benefits”….consumers are interested in!
Some other cards have offered a variation of this new Amex
effort; but not a total package like Amex.
The importance of giving and building value in the information stated – like buyer protection on bought items, warranty
policy and extended program, and offering car insurance on
rental programs – is what consumers will cling to, and await
more valuable programs… while using the Amex card.
Amex doesn’t mention price savings, or dollar discounts,
like our grocery industry shouts about and relies on. Grocers should understand it is more than just price that
builds loyalty!!!!
Interestingly, there is no case study or research that supports the notion that price builds loyalty….ever!!!
Are you listening supermarket executives? Hmmmmmmmmm.
Gallup tells us that 80% of B2C customers will drop their suppliers like a rock at the slightest excuse. 88% of B2B customers will look for a new supplier at the slightest provocation too. Most products and services are already seen as commodities. Price is the competitive weapon of choice, even though it has a tendency to blow up in one’s face.
We are in The Age of Disengagement and it is little wonder. How did we get into such a state? Largely through thinking like American Express and so many others. The mind-set seems to be, “Let’s create a ‘we’re on your side’ facade and then stick it to them once we’ve won them over.” Sounds like a political campaign, doesn’t it? Will anyone think Amex’s tear-stained empathy for the poor consumer is genuine? As our moderator said, unfortunately “yes.”
Will Amex make retailers pay for the program? Of course. But for years, when I’ve handed a merchant an Amex card they’ve asked if I could use another card. Now that I’m a merchant as well, I sure know why. This is a lose/lose plan all around – except for Amex.
The consumer mind must regularly deal with one policeman: Irony. AMEX is now offering its selected users the opportunity to build savings for their future in return for spending more in the present … and still be exposed to slickly-disguised fees and interest charges. That’s ironic.
Doesn’t sound really that great to me. Why not just get a card that pays 2% back and bully your bank into paying you 3% on your savings? Discover has been doing the same thing for years. American Express does occasionally offer some genuine deals. On one card, they are giving me $15 every time I spend $150 or more at one time. Certain stores, I get 10% off immediately. I usually use American Express when renting a car because they provide free car insurance. I recall, back in the 1980s, I would by-pass the corporate travel department and use Discover Card’s travel service. They rebated me 5% on airfare, hotels, and car rentals. That turned out to be a nice chunk of change over a year until they discontinued the service. This summer, Discover was rebating 5% on gas. I have a Mastercard that will let me have $38,000 at zero percent interest for 6 months for a flat fee of $75. I’ve milked that many times and just put the money in a CD until it was time to pay if off. I think consumers will take advantage of the give-a-ways but will drop the cards like a hot rock when the free lunch ends.
It’s almost humorous to think that one can save money by spending money. Now THAT is a marketing plan. (My wife has told me for years how much she saves us by spending money….she’ll love this card.)
Seriously, I think we’ll continue to see these types of different offers come out as credit card companies try to differentiate. I do have to plug the Open card by American Express which I find gives nice rebates at places like Fed-Ex and Staples as well as an outstanding online tracking system.
Obviously, who pays the most are ultimately the retailers and the consumers themselves. The retailers get hit by the credit card companies on the discount rate and, eventually, that has to be passed on to the consumer in some small way.
For years now I have delightedly been what is called here a “rate tart”. I took out new cards and transferred balances from one to the other to take advantage of 0% interest and kept careful track of the dates on which each offer expired. Time consuming and not the sort of thing everyone is likely to do but it amused me to challenge the card companies back and find ways of using them rather than vice versa. Happily, I no longer need to keep balances or pay interest and now use one card only that gives me a cash rebate and gets settled each month. This also helps cash flow as my mortgage interest is calculated each month based on the amount in my bank account on a day prior to settling the credit card bill when I appear to have money even though I know it has been spent. Who says I have no sense of humour?
Similarly, those who carefully control their finances and take pleasure in beating the finance companies can purchase high priced products on a 6 month interest free programme IF they remember to pay up in full a day or two before the deadline.
I cannot think of anything that would induce me to pay a fee for the privilege of borrowing money, paying interest and getting into debt but might consider the Amex offer and drop it 364 days later. As John says, it saddens me to think about how many people are lured into such arrangements with offers that appear tempting but disappear rapidly. If only they concentrated on ways to make the system work for them rather than against them.