The American Express Company. also known as Amex. is an American multinational financial services corporation headquartered in Manhattan ‘s Three World Financial Center in New York City, United States. Founded in 1850, it is one of the 30 components of the Dow Jones Industrial Average. [ 7 ] The company is best known for its credit card. charge card. and traveler’s cheque businesses. Amex cards account for approximately 24% of the total dollar volume of credit card transactions in the US. [ 8 ] [ 9 ]

§ Early history [ edit ]

American Express Co. shipping receipt. New York City to St. Louis, MO (August 6, 1860)

American Express was started as an express mail business in Buffalo, New York. in 1850. [ 13 ] It was founded as a joint stock corporation by the merger of the express companies owned by Henry Wells (Wells & Company), William G. Fargo (Livingston, Fargo & Company), and John Warren Butterfield (Wells, Butterfield & Company, the successor earlier in 1850 of Butterfield, Wasson & Company). [ 2 ] [ 3 ] Wells and Fargo also started Wells Fargo & Co. in 1852 when Butterfield and other directors objected to the proposal that American Express extend its operations to California.

American Express initially established its headquarters in a building at the intersection of Jay Street and Hudson Street in what was later called the Tribeca section of Manhattan. For years it enjoyed a virtual monopoly on the movement of express shipments (goods, securities, currency, etc.) throughout New York State. In 1874, American Express moved its headquarters to 65 Broadway in what was becoming the Financial District of Manhattan, a location it was to retain through two buildings. [ 14 ]

§ American Express buildings [ edit ]

In 1854, the American Express Co. purchased a lot on Vesey Street in New York City as the site for its stables. The company’s first New York headquarters was an 1858 marble Italianate palazzo at 55–61 Hudson Street. which had a busy freight depot on the ground story with a spur line from the Hudson River Railroad. A stable was constructed in 1867, five blocks north at 4–8 Hubert Street.

The company prospered sufficiently that headquarters were moved in 1874 from the wholesale shipping district to the budding Financial District, and into rented offices in two five-story brownstone commercial buildings at 63 and 65 Broadway that were owned by the Harmony family. [ 15 ]

In 1880, American Express built a new warehouse behind the Broadway Building at 46 Trinity Place. The designer is unknown, but it has a façade of brick arches that are redolent of pre-skyscraper New York. American Express has long been out of this building, but it still bears a terracotta seal with the American Express Eagle. [ 16 ] In 1890–91 the company constructed a new ten-story building by Edward H. Kendall on the site of its former headquarters on Hudson Street .

By 1903, the company had assets of some $28 million, second only to the National City Bank of New York among financial institutions in the city. To reflect this, the company purchased the Broadway buildings and site. [ 15 ]

At the end of the Wells-Fargo reign in 1914, an aggressive new president, George Chadbourne Taylor (1868–1923), who had worked his way up through the company over the previous thirty years, decided to build a new headquarters. The old buildings, dubbed by the New York Times as among the ancient landmarks of lower Broadway, were inadequate for such a rapidly expanding concern. After some delays due to the war in Europe, the 21-story neo-classical American Express Co. Building was constructed in 1916–17 to the design of James L. Aspinwall. of the firm of Renwick, Aspinwall & Tucker, the successor to the architectural practice of the eminent James Renwick, Jr.. The building consolidated the two lots of the former buildings with a single address: 65 Broadway. This building was part of the Express Row section of lower Broadway at the time. The building completed the continuous masonry wall of its block-front and assisted in transforming Broadway into the canyon of neo-classical masonry office towers familiar to this day [ 17 ]

American Express sold this building in 1975, but retained travel services there. The building was also the headquarters over the years of other prominent firms, including investment bankers J.& W. Seligman & Co. (1940–74), the American Bureau of Shipping. a maritime concern (1977–86), and currently J.J. Kenny, and Standard & Poor’s. who has renamed the building for itself. [ 15 ] [ 17 ]

§ Nationwide expansion [ edit ]

American Express extended its reach nationwide by arranging affiliations with other express companies (including Wells Fargo – the replacement for the two former companies that merged to form American Express), railroads, and steamship companies. [ 14 ]

§ Financial services [ edit ]

In 1882, American Express started its expansion in the area of financial services by launching a money order business [ 14 ] to compete with the United States Post Office’s money orders.

Sometime between 1888 and 1890, J. C. Fargo took a trip to Europe and returned frustrated and infuriated. Despite the fact that he was president of American Express and that he carried with him traditional letters of credit. he found it difficult to obtain cash anywhere except in major cities. Fargo went to Marcellus Flemming Berry and asked him to create a better solution than the traditional letter of credit. Berry introduced the American Express Traveler’s Cheque which was launched in 1891 in denominations of $10, $20, $50, and $100. [ 18 ]

Traveler’s cheques established American Express as a truly international company. In 1914, at the outbreak of World War I, American Express offices in Europe were among the few companies to honor the letters of credit (issued by various banks) held by Americans in Europe, because other financial institutions refused to assist these stranded travelers.

§ Loss of railroad express business [ edit ]

American Express became one of the monopolies that President Theodore Roosevelt had the Interstate Commerce Commission investigate during his administration. The interest of the ICC was drawn to its strict control of the railroad express business. However, the solution did not come immediately to hand. [ 14 ] The solution to this problem came as a coincidence to other problems during World War I.

During the winter of 1917, the US suffered a severe coal shortage and on December 26 President Woodrow Wilson commandeered the railroads on behalf of the US government to move US troops. their supplies, and coal. Treasury Secretary William Gibbs McAdoo was assigned the task of consolidating the railway lines for the war effort. All contracts between express companies and railroads were nullified and McAdoo proposed that all existing express companies be consolidated into a single company to serve the country’s needs. This ended American Express’s express business, and removed them from the ICC’s interest. The result was that a new company called the American Railway Express Agency formed in July 1918. The new entity took custody of all the pooled equipment and property of existing express companies (the largest share of which, 40%, came from American Express, who had owned the rights to the express business over 71,280 miles (114,710 km) of railroad lines, and had 10,000 offices, with over 30,000 employees).

§ Investment Banking [ edit ]

During the 1980s, American Express embarked on an effort to become a financial services supercompany and made a number of acquisitions to create an investment banking arm. In mid-1981 it purchased Sanford I. Weill ‘s Shearson Loeb Rhoades. the second largest securities firm in the United States to form Shearson/American Express .

Shearson Lehman logo

After the purchase of Shearson, Weill was given the position of president of American Express in 1983. Weill grew increasingly unhappy with responsibilities within American Express and his conflicts with American Express’ CEO James D. Robinson III. Weill soon realized that he was not positioned to be named CEO and left in August 1985. In 1984, American Express acquired the investment banking and trading firm, Lehman Brothers Kuhn Loeb. and added it to the Shearson family, creating Shearson Lehman/American Express. It was Lehman’s CEO and former trader Lewis Glucksman who would next lead Shearson Lehman/American Express.

In 1984, Shearson/American Express purchased the 90-year-old Investors Diversified Services. bringing with it a fleet of financial advisors and investment products. In 1988, Shearson Lehman acquired E.F. Hutton & Co.. a brokerage firm founded in 1904, this was merged with the investment banking business and the investment banking arm was renamed Shearson Lehman Hutton, Inc. [ 19 ]

However, when Harvey Golub became CEO of American Express in 1993, American Express decided to get out of the investment banking business and negotiated the sale of Shearson’s retail brokerage and asset management business to Primerica. The Shearson business was merged with Primerica’s Smith Barney to create Smith Barney Shearson. Ultimately, the Shearson name was dropped in 1994. [ 20 ]

In 1994, American Express spun off of the remaining investment banking and institutional businesses as Lehman Brothers Holdings Inc which after almost fifteen years of independence would file for bankruptcy protection in 2008 as part of the late–2000s financial crisis .

§ Recent history [ edit ]

Current CEO Ken I. Chenault took over leadership of American Express in 2001 from Harvey Golub. CEO from 1993 to 2001. Prior to that, the company was headed by James D. Robinson III from 1977 to 1993.

§ Charge card services [ edit ]

American Express Tower (tallest, left) in New York City

American Express executives discussed the possibility of launching a travel charge card as early as 1946, but it was not until Diners Club launched their card in March 1950 that American Express began seriously to consider the possibility. At the end of 1957, American Express CEO Ralph Reed decided to get into the card business, and by the launch date of October 1, 1958 public interest had become so significant that they issued 250,000 cards prior to the official launch date. The card was launched with an annual fee of $6, $1 higher than Diners Club, to be seen as a premium product. The first cards were paper, with the account number and cardmember’s name typed. It was not until 1959 that American Express began issuing embossed ISO/IEC 7810 plastic cards, an industry first.

In 1966, American Express introduced the Gold Card and in 1984 the Platinum Card, clearly defining different market segments within its own business, a practice that has proliferated across a broad array of industries. The Platinum Card was billed as super-exclusive and had a $250 annual fee (it is currently $450). It was offered by invitation only to American Express customers with at least 2 years of tenure, significant spending, and excellent payment history; it is now open to applications on request.

In 1987, American Express introduced the Optima card, their first credit card product. Previously, all American Express cards had to be paid in full each month, but Optima allowed customers to carry a balance (the charge cards also now allow extended payment options on qualifying charges based on credit availability). Although American Express no longer accepts applications for the Optima brand of cards, since July 13, 2009, Optima cards are still listed on the American Express website, as a reference to existing members only. According to American Express, Optima accounts were not converted or closed. However, Blue from American Express has prevailed as the replacement for the original Optima style of credit card. Blue includes multiple benefits free of charge, unlike Optima, including the Membership Rewards program. In October 2012, The Consumer Financial Protection Bureau (CFPB) announced an enforcement action with orders requiring three American Express subsidiaries to refund an estimated $85 million to approximately 250,000 customers for illegal card practices. This action was the result of a multi-part federal investigation which found that at every stage of the consumer experience, from marketing to enrollment to payment to debt collection, American Express violated consumer protection laws. American Express sent letters to some previous customers: We invite you to apply for the Optima Card from American Express. This opportunity is in connection with a settlement solicitation, which did not clearly disclose that a settlement could prevent you from being approved for a new account with us in the future. This is in response to an enforcement action by the Federal Deposit Insurance Corporation and Consumer Financial Protection Bureau regarding this issue. Your attached application will be approved unless we determine that you do not have the financial capacity to make the minimum payment on this new Optima Card account, or we receive the application after 04/25/2013.

In April 1992, American Express spun off its subsidiary, First Data Corp.. in an IPO. Then, in October 1996, the company distributed the remaining majority of its holdings in First Data Corp. reducing its ownership to less than 5%.

In 1994, the Optima True Grace card was introduced. The card was unique in that it offered a grace period on all purchases whether a balance was carried on the card or not (as opposed to traditional revolving credit cards which charge interest on new purchases if so much as $1 was carried over). The card was discontinued a few years later; the now discontinued One from American Express card offered a similar feature called Interest Protection.

§ Boston Fee Party [ edit ]

From early 1980s until the early 1990s, American Express was known for cutting its merchant fees (also known as a discount rate) to merchants and restaurants if they accepted only American Express and no other credit or charge cards. This prompted competitors such as Visa and MasterCard to cry foul for a while as the tactics locked restaurants into American Express. The practice ended in 1991, as several restaurants in Boston started accepting and encouraging the use of Visa and MasterCard because of their far lower fees as compared to American Express’ fees at the time (which were about 4% for each transaction versus around 1.2% at the time for Visa and MasterCard). A few even stopped accepting American Express credit and charge cards. The revolt, known as the Boston Fee Party (alluding to the Boston Tea Party ), was orchestrated by a PR firm hired and paid by Discover Card. The campaign spread to over 250 restaurants across the United States, including restaurants in other cities such as New York City. Chicago. and Los Angeles. In response, American Express reduced its discount rate gradually to compete more effectively and add new merchants such as supermarkets and drugstores to its network. Many elements of the exclusive acceptance program were also phased out and American Express pursued other programs to effectively encourage businesses to add American Express cards to their existing list of payment options.

§ Cable TV [ edit ]

American Express formed a venture with Warner Communications in 1979 called Warner-Amex Satellite Entertainment. which created MTV, Nickelodeon. and The Movie Channel. The partnership lasted only until 1984. The properties were sold to Viacom soon after.

§ Conversion to bank holding company [ edit ]

On November 10, 2008, during the financial crisis of 2008. the company won Federal Reserve System approval to convert to a bank holding company. making it eligible for government help under the Troubled Asset Relief Program. [ 1 ] [ 21 ] At that time, American Express had total consolidated assets of about $127 billion. [ 21 ] In June 2009, $3.39 billion in TARP funds were repaid plus $74.4 million in dividend payments, and in July 2009 they ended their obligations under TARP by buying back $340 million in Treasury warrants. [ 22 ] [ 23 ] [ 24 ]

§ Controversy in the UK [ edit ]

In November 2010, the UK division of American Express was cautioned by the Office of Fair Trading for the use of controversial charging orders against those in debt. [ 25 ] The regulator said that the company was one of four companies who were encouraging customers to turn their unsecured credit card debts into a form of secured debt.

§ Loyalty acquisition [ edit ]

In March 2011, American Express completed a $685m purchase of Loyalty Partner, which operates the Payback loyalty program in Germany and Poland, and the i-Mint loyalty program in India. [ 26 ]

§ Business model [ edit ]

§ Typical credit card business model [ edit ]

When a consumer makes a purchase using a credit or charge card, a small portion of the price is paid as a fee (known as the merchant discount), with the merchant keeping the remainder. There are typically three parties who split this fee amongst themselves:

1. Acquiring bank . the bank which processes credit card transactions for a merchant, including crediting the merchant’s account for the value charged to a credit card less all fees.
2. Issuing bank. the bank which issues the consumer’s credit card. This is the bank a consumer is responsible for repaying after making a credit card purchase. The issuer’s share of the merchant discount is known as the interchange fee .
3. Network. the link between acquiring banks and issuing banks. These banks have relationships with a network, rather than with each other, for fulfilling card purchases. This allows a card issued by a community bank in Peru to be used at a shop in South Africa, for instance, without requiring the banks to have a direct relationship with each other. The two largest networks in the world are Visa and MasterCard. American Express operates its own network.

The average merchant discount in the United States is 1.9%. Of this, approximately 0.1% goes to the acquirer, 1.7% to the issuer, and 0.09% to the network. [ 27 ]

Most Prime and Superprime card issuers use the majority of their interchange revenue to fund loyalty programs like frequent flyer points and cash back. and hence their profit from card spending is small relative to the interest they earn from card lending.

§ Card products [ edit ]

American Express currently has over 109.9 million cards [ 28 ] running on its proprietary network, these include consumer, small business and corporate cards issued by American Express themselves and cards issued by its Global Service Network partners that run on its network (Such as Westpac and NAB in Australia and Lloyds Bank and Barclays Bank in the UK).

American Express is also the largest card issuer in the world based on purchase volume. [ 29 ] It is the 4th largest card issuer in the world, based on the number of cards it has personally in circulation. [ 30 ]

§ Consumer cards [ edit ]