MAR_APR

2 0 04
A MAGAZINE PROVIDING CURRENT CONTENT AND PERTINENT CONTEXT FOR THE PEOPLE OF AMERICAN EXPRESS

A Will to Win
The people behind the successful bid for a partnership with Air Canada

The Competition
Players and trends in the U.S. small business market

A Whole New Perspective

The first major U.S. bank joins with American Express to issue cards on the companys network an agreement that has the potential to change the card industry.

Reader Forum
www.express.aexp.com/Context/
In this issue of Context, we have introduced the first of a series entitled "A Will to Win" about the people and processes behind American Express success stories. We want to learn about your team's successes. What strategies has your team developed in anticipation of changing customer needs? How has your team gone above and beyond to deliver superior value and achieve a significant result? Tell us your willto-win story by sending an e-mail to Context magazine on Lotus Notes.

ONLINE MARCH_APRIL.2004

THIS ISSUE

ON THE COVER Illustration_Dan Page; Cambridge, ON Editor_Ann Dykman Managing Editor_Cynthia Aquila Design_Bernhardt Fudyma Design Group Printer_Bannon Group Ltd.

IN PRINT

4
Seven Days in May

14
The Competition
A snapshot of the U.S. small business customer segment is the second of a Context series on competitors in each of American Express major businesses.

16
At Work
by Cynthia Aquila Kimberly Smith, Centurion Travel Counselor

AXP Shorts
ENTERTAINING A NEW APPROACH TO MARKETING AXP finds creative ways to break through the advertising clutter TAKING UP SPACE New MR partner takes cardmembers into the final frontier VALUE ADDED Two marketing promotions in Germany garner exceptional results UPDATE Another star-studded lineup of musicians joins Blue for Music in its second year to raise money and awareness for music education programs in U.S. public schools

A WILL TO WIN

by Ann Dykman The first of a Context series on the people and processes behind American Express success stories looks at a team in Canada that worked around the clock to prepare a bid for a partnership with Air Canadas loyalty program.

A Whole New Perspective

COVER STORY

by Ann Dykman and Reed Massengill American Express partnership with MBNA brings together two of the top performers in the credit card industry, marking a turning point in the companys relationship with competitors and opening the door to expanding the U.S. network business.

TAKING UP SPACE
FOR CARDMEMBERS WITH MEANS, SPACE MAY BE

Entertaining a new approach to marketing

SHORTS
If you tuned into Wheel of Fortune during the week of December 15 last year, you probably noticed a distinct blue hue. A special Blue Cash wedge on the wheel, prizes that included blue cars and tickets to the House of Blues, Vannas blue outfits and chances for viewers to win cash prizes were all part of a marketing campaign for Blue CashSM from American Express. In the age of TiVo, DVDs, video games and high-speed Internet access, companies can no longer rely solely on print and television advertising to grab the attention of their target audiences. While American Express continues to use traditional media 35 percent of its advertising budget is spent on television commercials the company continually looks for alternative ways to reach customers. Incorporating Blue Cash into a top-rated game show in a novel and fun way is only one example of how American Express combines Madison Avenue marketing with Hollywood entertainment to break through the advertising clutter. A CONCERT WITH SHERYL CROW and a star-studded lineup of musical guests in
ITEMS OF INTEREST TO THE PEOPLE OF AMERICAN EXPRESS

AN ACCESSIBLE FRONTIER. THEY NOW CAN USE THEIR MEMBERSHIP REWARDS (MR) POINTS FOR SPACE TRAVEL WITH SPACE ADVENTURES, A COMPANY THAT SPECIALIZES IN SPACE FLIGHT EXPERIENCES AND TOURISM. CARDMEMBERS ENROLLED IN MR CAN CHOOSE FROM THREE PACKAGES: O ZERO-GRAVITY FLIGHT IN A SPECIALLY OUTFITTED JET AIRCRAFT USED TO TRAIN ASTRONAUTS (1 MILLION POINTS) O A RIDE IN A MIG-25 SUPERSONIC JET AT UP TO TWO AND ONE-HALF TIMES THE SPEED OF SOUND (MACH 2.5) AND ABOVE 80,000 FEET TO SEE THE CURVATURE OF THE EARTH AND EXPERIENCE THE BLACKNESS OF SPACE (3 MILLION POINTS) O A FLIGHT ABOARD A SUBORBITAL SPACECRAFT THAT WILL CLIMB TO AN ALTITUDE OF 62 MILES; PASSENGERS WILL BE WEIGHTLESS FOR SEVERAL MINUTES AND ENJOY SPECTACULAR VIEWS OF EARTH (20 MILLION POINTS) OPERATIONS ARE BASED AT VARIOUS SPACE AND AVIATION FACILITIES AROUND THE WORLD, INCLUDING THE FORMERLY TOP-SECRET YURY

New York Citys Central Park in 1999 was the dramatic linchpin in a marketing campaign introducing Blue from American ExpressSM to younger, music-loving consumers and making the launch one of the companys most successful. OPEN: THE SMALL BUSINESS NETWORKS sponsorship last year of the reality series The Restaurant, which integrated its products and services into the show, significantly boosted awareness of OPEN among prospective customers. While the show was on, viewers were 10 times more likely to recall the OPEN brand than nonviewers, and three times more likely after the series aired. THE COMPANYS LATEST COLLABORATION with Jerry Seinfeld brings the comedian to the Web, considered a primary acquisition channel for the future, in Seinfeld webisodes four-minute features reuniting Seinfeld and his favorite superhero, Superman. These air exclusively on americanexpress.com/jerry. The next generation of consumers will redefine the rules even before they are written, leaving marketers and communications companies more challenged than ever before, said John Hayes, chief marketing officer, in his keynote address at Advertising Ages annual conference in February. So we need to be ready for surprises. We need to adapt to the new landscape not by catching up to change but by helping make change happen.

GAGARIN COSMONAUT TRAINING CENTER IN RUSSIA. PACKAGES INCLUDE ACCOMMODATIONS, TOURS AND ON-SITE TRAINING.

PAGE _3

VALUE ADDED
Restaurants and supermarkets in Germany have been seeing a lot more of the American Express Card lately, thanks to two new marketing campaigns from Global Establishment Services (GES) and International Consumer and Small Business Services (ICSS). Last summer, GES and ICSS introduced promotions to generate new business for merchants and to encourage cardmembers everyday spending. Results exceeded even their most ambitious projections: o 14 percent of cardmembers responded to a direct-mail offer to enjoy two four-course meals for the price of one at any of 34 of the countrys finest restaurants, and participating restaurants reported that 85 percent of cardmembers who redeemed the offer were new customers. o 30 percent of cardmembers took advantage of an offer to receive a refund of 10 euro or 1,500 Membership Rewards points when they spent more than 50 euro at least three times at participating supermarkets. Direct marketing professionals consider a 2 percent response rate to be the norm. The offers were such a hit that GES and ICSS extended them again later in 2003, and early results look even more promising. Both campaigns will be repeated this year.

Adam Duritz from Counting Crows, Stevie Wonder, Jewel and Elvis Costello performed at Blue Jam Sessions, helping to raise $200,000 for Blue for Music.

{UPDATE}

Rhythm & Blue

Why are Sting, Mary J. Blige, Sheryl Crow, Elton John and Stevie Wonder feeling Blue? They and other musicians have teamed up with Blue from American Express to raise another $1 million this year to help restore music education programs in U.S. public schools and to promote the lifelong benefits of music. Budget cuts are endangering music education programs, despite research indicating that students involved in music develop stronger social skills and perform better in school. Last year, American Express created a national campaign to support these programs (see Context, March/April 2002) and reached its $1 million fundraising goal. The cause is a natural fit with Blue customers, who have a real interest in music, and can enjoy special access to concerts, music downloads, charity events and other benefits through the Blue for Music site. This year, Elton John and Stevie Wonder were among the stars who shined at Blue Jam Sessions, a series of intimate concerts in Los Angeles that raised more than $200,000. Sting who will donate one dollar from every ticket sold for the U.S. portion of his 2004 tour and Crow also unveiled new video portraits (TV ads spotlighting their experiences with music education). Visit the Blue for Music site at www.americanexpress.com/blueformusic for more musicrelated benefits and awareness efforts in the coming months.
~ Channing Barringer

PAGE _5

{A WILL TO WIN | A look at the people and processes behind American Express success stories}

Seven Days in May

Under intense deadline pressure, a team of 12 in Canada worked around the clock to prepare a bid for a partnership with Aeroplan, Air Canadas loyalty program and secured a key opportunity to gain market share.

by_Ann Dykman

Beth Horowitz measured the week in hours. It was May 3, 2003, when she learned of a legal decision that created the biggest opportunity in years for American Express Canada. The judge presiding over Air Canadas restructuring had opened the airlines cobrand contract with Canadian Imperial Bank of Commerce (CIBC), issuer of the Aerogold Visa, to other bidders. The decision meant American Express would finally have the chance to bid for an alliance with Canadas most popular airline. The catch was that all interested parties had only a week to submit their proposals. It was a huge challenge, but there was no question. We had to get in the game, says Horowitz, president and general manager of American Express Canada. Although we are already a strong force in Canada, we needed the largest domestic airline in our
(Opposite page from top, left to right) Betsey Chung, Trevor Van Nest, Denise Pickett, Derek Patterson, Paul Abbott, Gary Krammer, Niels Rock, Frank Schnur, Shawn Klerer, Norm Fletcher, Beth Horowitz and Akmal Chaudhry were part of the team that worked on the winning bid for a partnership with Aeroplan.

Membership Rewards program in order to compete most effectively for the business of frequent travelers. CIBC had a clear advantage in its longterm relationship with Air Canada and Aeroplan, the subsidiary that runs the airlines frequent-flier program. The two partners had recently agreed in principle to extend their contract, which prevented additional card issuers from linking their products to Aeroplan. Now, though, a court-appointed monitor was scrutinizing the airlines financial picture and looking for ways to improve profitability. Ken Chenault had visited Toronto earlier last year, before the Aeroplan opportunity surfaced, and counseled us to be bold and aggressive in our efforts to partner with Air Canada, Horowitz recalls. This was our opening. On that spring weekend, she called her team together: Paul Abbott_vice president and general manager, Corporate Services Canada; Shawn Klerer_chief financial officer;

Trevor Van Nest_vice president, Customer Relationships; Rob McClean_vice president, Payment and Lending Products; Frank Schnur_director, Consulting and E-Commerce; Derek Patterson_manager, Strategic Partnerships, Corporate Services Canada; Gary Krammer_manager, Business Strategy and Communications, Corporate Services; Denise Pickett_vice president, Commercial Card Strategic Resources; Betsey Chung_director, Strategic Planning; Norm Fletcher_director, Finance, ICSS; Akmal Chaudhry_director, Finance, Corporate Services Canada; and Niels Rock_financial analyst, ICSS.

We had 168 hours, says Horowitz, and we were going to need every one of them.
ANYTHING BUT BUSINESS AS USUAL

Usually, companies responding to requests for proposals of this magnitude have several months to prepare bids. But in the Toronto offices Warden Room soon shortened to the

Photography_Sandy Nicholson

PAGE _6

to have an opportunity for the guidance and swift approvals of Chenault and the Global Leadership Team in one place at one time. If I needed any of the group presidents, they were right there. And if we needed legal counsel, we could just walk over to the next table at dinner, says Horowitz, who stayed in virtual contact with her Canada team. She left Greenwich on Wednesday to fly to Montreal for a due-diligence meeting a formal question-and-answer session with Aeroplan and Air Canada. By that evening, the team had decided on its final strategy. American Express would not make a grab for If you had polled all of us at that moment, probably only a few of us thought the exclusive contract by attempting to outwe had a strong chance to beat CIBC, the incumbent. We were the long shot. bid everyone else but instead would propose something novel: a bid that could be combined brand business in addition to his CFO duties. Horowitz, a Harvard Business School grad- with either CIBCs or that of another bidder, We were the long shot. uate, happened to have taken a refresher course giving Air Canada a bird in the hand plus The team assessed the competitive landin strategic negotiation at the university earlier the additional value of a relationship with scape and considered the options. Central in the year and was able to apply that theoAmerican Express. among them were outbidding the others to retical knowledge sooner than she ever could It was now May 7 in just three days, replace CIBC or recommending that Air have imagined. She also had plenty of practical the bid was due. Canada and Aeroplan accept American experience from her days in Strategy & BusiExpress as an additional cobrand issuer. ness Development for Global Network Services, COUNTDOWN TO TAKEOFF For each scenario, the team had to calculate as well as skilled team members in Corporate On May 9, during a break in the Senior Management Meeting, the companys top leaders financial details, consult lawyers, and draft Services who regularly negotiate deals with and document proposals simultaneously. customers and suppliers. We leveraged every gathered around a phone to hear Klerer explain Flip-chart sheets soon papered the War bit of intellectual capital we had, both on the the financial details of the bid. Approvals from the Amex Bank of Canada Board of Directors Rooms walls, windows, doors and adjacent team and beyond, Horowitz says. and the American Express Company board offices. Information supplied by American Just a few days after the team began its soon followed. Express colleagues in London and New York work, Horowitz flew to Greenwich, Conn., Back in the War Room, the team scrutinized spilled over the conference table. Team for American Express Senior Management the details, and Krammer polished the draft. members sharing tight quarters adjusted to Meeting. Although she felt a bit torn about Abbott remembers leaving around 4 a.m. and the din of clacking keyboards and multiple leaving the action in Toronto, she was glad

War Room there was no sense of panic, says Abbott, who led negotiations with Air Canada. When a teams put under incredible time pressure, yes, theres a tremendous sense of urgency and immediate momentum, but it forces you to keep things simple. The team knew American Express was likely to be competing with several banks and other card issuers for the Aeroplan business. If you had polled all of us at that moment, probably only a few of us thought we had a strong chance to beat CIBC, the incumbent, says Klerer, who manages the Aeroplan co-

cellular-phone conversations going at once. Chung recalls the group packing into her office and staring at spreadsheet after spreadsheet on financial models late into the evening, well after the buildings air-conditioning had been turned off to conserve energy. Abbott and Klerer both marvel at the smoothness of the teamwork and the willingness of everyone involved to share responsibilities and credit. It didnt matter how many people were there from ICSS or Finance or GCS, Klerer says. There was just sheer determination to win.

FROM BID TO BUSINESS

It took just seven days for American Express to win initial approval to issue cobranded Aeroplan charge cards and for Aeroplan to join Membership Rewards. Hammering out the fine points of the alliance took several months. This past January, the Aeroplan team was able to harvest the first fruits of its labor, which began last May. Amex Bank of Canada and Aeroplan introduced a suite of three cobranded charge cards that will enable consumers to earn frequent-flier miles for their travels on Air Canada. Cardmembers with American Express AeroplanPlus cards basic, gold or platinum can earn up to 1.6 Aeroplan Miles on virtually every dollar spent on purchases, depending on the type of card and annual spending level. Membership Rewards enrollees also can convert points earned on charge cards into Aeroplan Miles. Consumers are receptive to the products, judging from early results. As of late February, American Express had exceeded its target for new cards acquired both new accounts and any supplemental cards by 50 percent. Approval rates also are much higher than expected, suggesting that the high-quality customers American Express hopes to attract with the Aeroplan cards are indeed applying. Its a completely integrated campaign, and we think the key success factor is our strong message you can earn Aeroplan Miles faster with our cards than you can with other cards, says Jennifer Hawkins, marketing director. Weve done a lot of advertising around this and received positive press. As a result, were seeing many applicants coming to us online theyre not waiting for a piece of direct mail to be sent to them. Consumers arent the only ones to benefit from the Aeroplan alliance with American Express. In early March, the company also launched the American Express AeroplanPlus Corporate Card a product that targets midsize companies with a unique value proposition: the company earns rebates on travel spending with Air Canada and on everyday spending with a range of partners, and at the same time, employees can earn Aeroplan Miles for purchases on the card. This is an important step forward for the Corporate Services business in Canada, says Paul Abbott, vice president and general manager, Corporate Services Canada. We now have an incredibly powerful loyalty tool to build on our strengths in the expense management market. With the addition of Aeroplan to the portfolio, American Express believes it has an unbeatable portfolio of products to offer Canadian corporations and consumers.

returning a few hours later on May 10 to find Krammer still in the same spot, in the same clothes, surrounded by the previous evenings Indian take-out containers. Its one of the enduring images of that week, unfortunately, Abbott jokes. All the work ultimately boiled down to five succinct pages plus a hefty appendix, which were submitted to the court at 4:58 p.m. on May 10. And within 72 hours, the hoped-for call came American Express bid would be accepted after a brief discussion of terms. We considered all the parties making the decision, and we realized that the best financial package would include multiple players to increase the value provided to Air Canada, Horowitz says. It sounds simple, yet nobody else thought to do this. For everyone involved in the deal, the most difficult task immediately after getting the verbal Yes was containing the celebration until a preliminary agreement was signed. On June 3, however, with that agreement in hand, American Express Canada was able to have a proper employee town hall, complete with tiny bags of peanuts and soft drinks passed down the aisles by flight attendants. Chenault praised the teams will to win in a message videotaped for the town hall. When I was here last February, I told you to be bold and creative. And you took me at my word, he said. I am incredibly delighted.

IF YOU WANT TO SUGGEST AN EMPLOYEE OR A TEAM TO BE PROFILED FOR CONTEXTS WILL-TO-WIN SERIES, PLEASE E-MAIL CONTEXT MAGAZINE IN LOTUS NOTES.

PERSPECTIVE

A WHOLE NEW

by_Ann Dykman and Reed Massengill

RECENT COURT RULINGS AND A CARD-ISSUING AGREEMENT WITH MBNA MARK A TURNING POINT IN AMERICAN EXPRESS RELATIONSHIP WITH U.S. BANKS.
As New York employees cheered, American Express Chairman and CEO Ken Chenault took to a stage set up in the companys New York headquarters on the morning of Jan. 29. A few steps to his left stood Bruce Hammonds, chief executive officer of MBNA, a longtime rival in the card-issuing business. Together, they announced a partnership that promises to change the card industry. This is a terrific day for American Express, for MBNA and for the credit card industry in the United States, Chenault said. In fact, its a historic day. For the first time, a major U.S. bank is joining with us to issue American Express cards. The superlative-filled employee event followed a morning of interviews with major American news outlets, as well as a live broadcast featuring Chenault and Hammonds on CNN. This was a day to savor, in part because the announcement symbolized nearly eight years of delayed gratification. In 1996, thenChairman Harvey Golub first invited U.S. banks to issue American Express-branded cards on the companys network. Visa and MasterCard prevented their member banks from doing so, and these actions later resulted in the filing of an antitrust lawsuit by the U.S. Department of Justice (see sidebar on page 13). But that wasnt the only reason this deal was generating such buzz. As Chenault explained, the partnership with MBNA brings together two of the top performers in the industry, both of whom focus on high-spending, affluent customers. Leveraging the American Express brand and the considerable ability of MBNA to attract and retain the most desirable customers will lead to more American Express cards in the marketplace, more revenue for merchants and more opportunity for both companies. In addition, the agreement marked a victory for consumers and the marketplace overall. Once U.S. banks are finally free to partner with any card network they choose, there will be more competition in the marketplace, greater product choice for consumers and greater value to merchants, Chenault said. The companys experience with bank part-

Illustrations_Dan Page

PARTNERSHIP: THE MOST PROFITABLE FORM OF FLATTERY

American Express is a company we have admired and tried to pattern ourselves after since we started in 1982, says Bruce Hammonds, who helped create MBNA and was named CEO in 2003. Taking the American Express brand and putting it on an MBNA product is great for both our businesses. American Express clearly thinks so, too. Since its founding slightly more than 20 years ago, MBNA has become one of the largest card issuers in the world. MBNA is the recognized industry leader in affinity marketing selling to people with a strong common interest and its credit cards are endorsed by more than 5,000 membership organizations. MBNA issues credit cards in the organizations names and markets the cards to their members. In return, the organizations receive a percentage of credit card revenue. MBNAs success in affinity marketing has created a franchise that last year attracted 384 new endorsements from organizations and a total of 10.7 million new accounts. MBNA focuses on groups with strong ties to their members, fans or customers, such as alumni associations, sports franchises, professional groups and charitable organizations. The affinity strategy was the brainchild of Charles Cawley, MBNAs first president and CEO, who persuaded the alumni association of his alma mater, Georgetown University, to endorse an MBNA credit card. When the response rate of the associations membership exceeded expectations, Cawley knew he was on to something big. Up to this point, all of the affinity cards designed and marketed by MBNA have been offered as Visa or MasterCard products. However, research performed by MBNA has shown that its customers, its affinity partners and their members would be receptive to an American Express-branded card. Like American Express, MBNA targets higher-income customers who spend more on their credit cards and default less on their debt. And its pledge of single-minded commitment to customer satisfaction is another reason MBNA makes a great card-issuing partner for American Express.

IN THE LOOP
It is one of American Express key competitive advantages, up and running 24/7, working behind the scenes. Financial analysts have sometimes referred to it as one of the key differentiators between American Express and its card competitors. Its been around since 1958, when the American Express Card was born, and it still has vast, untapped potential. All these clues describe the closed-loop network, if you havent guessed already. Picture a continuous link that leads from American Express to its customers and merchants and back again. Technically speaking, the closed-loop network is about American Express capabilities to collect and disseminate data from both sides of the card transaction. As a result of its direct relationships with both cardmembers and merchants, American Express is able to craft targeted offers to cardmembers and drive more business to its merchants. For example, in its proprietary card business, American Express can draw on customer data to analyze spending trends and work directly with merchants to design relevant rewards for frequent customers, as well as incentives to expand their base of patrons. Visa/MasterCard issuers have access only to their own customer databases, so they cant customize offers the way American Express can. The incremental value that comes from American Express closed-loop is one of the reasons the company is able to charge a premium for participation in its merchant network. Customer billing is another way American Express closed-loop network adds even more value. Think about it: How often do you actually open solicitations or direct marketing materials from credit card companies? But you always open your bill. Those special offers, incentives and rewards that the company has customized for you are often included with your statement. The American Express network is a key attraction for potential card-issuing partners because it provides a connection to merchants and enables them to create customized incentives for cardholders. The result is higher business volume, which generates revenue for both the partner and American Express.

PAGE _11

ners outside the United States gives credence to that prediction. Weve been realizing those benefits and more outside the United States since we created Global Network Services in 1997, says David House, group president of Global Network and Establishment Services and Travelers Cheque and Prepaid Services. But because of the unique characteristics and established position of the American Express brand, were very excited about the potential opportunity for our GNS business in the United States. The U.S. network business wont be a clone of the Visa or MasterCard model. American Express will preserve its brand integrity and differentiate itself by opening its network only to institutions that share a focus on highspending customers and a commitment to highquality service criteria that make MBNA an obvious choice for American Express first U.S. bank partner.
NOT ONLY BOLD, BUT BEAUTIFUL

ONCE

U.S. BANKS ARE FINALLY FREE TO PARTNER WITH ANY CARD NETWORK THEY CHOOSE, THERE WILL BE MORE COMPETITION IN THE MARKETPLACE, GREATER PRODUCT CHOICE FOR CONSUMERS AND GREATER VALUE TO MERCHANTS.

Financial terms of the agreement were not disclosed, but some of the nuts and bolts were. MBNA will issue its own American Expressbranded credit cards in the United States. It also has confirmed plans to issue American Express-branded credit cards in Canada, Spain and the United Kingdom. Details will follow later this year, after the appeals process in the Department of Justices antitrust lawsuit against Visa and MasterCard for limiting competition in the U.S. credit card industry runs its course. MBNA will promote American Expressbranded cards to existing and prospective customers, many of whom are members of affinity groups professional, recreational and cause-related organizations (see sidebar

on page 9). MBNA will own these relationships, provide service, handle billing and credit management, and design the card product features. American Express will process transactions on its global merchant network and capitalize on significant opportunities to expand the number of American Express-branded cards in the marketplace, increase transaction volume on the network and deliver greater value to merchants. We have 40 million cardholders today, Hammonds said in January. A large percentage are high-spending customers, and we feel many are candidates for an MBNA product with an American Express brand. Thats the model American Express has in mind for its future U.S. bankcard partners, too target the right customers, extend the American Express brand and drive more American Express business to merchants. These efforts will complement the companys continuing, aggressive focus on growing its

proprietary card business, which is the strongest it has been for many years in the United States. In 2003, American Express had the highest charge volume of all issuers, and both its spending and lending balance growth were among the highest of all issuers. Opening the network to bank partners in the United States promises to spur further growth by increasing the number of American Express cards and high-spending customers in the marketplace, giving the company more leverage to sign more merchants that accept the Card. This was the vision of American Express leadership back in 1996, when Golub issued his very public invitation to banks at Card Forum, the premier credit industry conference, and then-Vice Chairman Chenault reiterated that offer at a meeting of the American Bankers Association a short time later. Im here to make the case that its time to let the historical relationship between American

PAGE _12

Express and banks evolve in a way that has changed from the unthinkable to the inevitable, Chenault said at the time.
THE FUTURE UNFOLDS IN INTERNATIONAL MARKETS

Just a year later, in 1997, the Global Network Services business was created to make that vision a reality. Although American Express already had a small number of partnerships with overseas banks, GNS signaled a marshalling of resources for actively courting bank partners in other countries. (Outside the United States, in the face of strong regulatory action, Visa and MasterCard have been unable to impose restrictions on member banks that want to issue cards on other networks.) Today, 79 GNS partners in 90 countries have launched more than 350 different American Express card products and added approximately 6.4 million cards to the network. Meanwhile, more than 2.5 million merchants have joined the ranks of those that accept American Express cards because a GNS partner signed them up. GNS has developed a great lineup of partners issuing American Express-branded cards around the world, says Peter Godfrey, president, Global Network Services. In doing so, we have been able to drive more high-value business to merchants and open a significant new revenue stream, as well as gain size, scale and distribution power that would be very expensive and time-consuming to acquire on our own. In smaller or midsize markets in which American Express does not issue local-currency

cards, GNS works with partners that act as independent operators. These partners issue American Express cards in local currencies and establish relationships with local merchants to accept the Card, enabling American Express to establish a presence without having to build a local card business from the ground up. Under certain circumstances, in countries such as Switzerland and Belgium, American Express has established joint ventures with banks. Each partner has an ownership interest in the venture and shares responsibility for managing the business. In larger markets where American Express already has a sizable proprietary card presence, the company pursues nonproprietary license agreements that allow banks to issue cards that are accepted on the American Express merchant network. The agreement with MBNA falls into this category. The licensees issue a card that has a design and format they create within quality and operating standards set by American Express. The Blue Box is always visible on the cards. At the same time, American Express continues to expand its proprietary card business in these markets. Take Banco Popular, the oldest and largest bank in Puerto Rico and an American Express partner for a number of years. In 1998, Banco Popular began issuing American Expressbranded cards in Puerto Rico, in addition to Visa and MasterCard. Over the years, Banco Popular has seen compounded annual growth of 35 percent in American Express-branded cards, and billed business has grown 60 percent. The Banco Popular achievements have also benefited American Express proprietary card.

Collectively, efforts of both issuers to market American Express-branded cards in Puerto Rico heighten excitement about American Express and the brand and bring more cardmembers into the fold.
BOTH SIDES NOW

American Express will continue to expand its GNS business internationally, and it will pursue additional partnerships with banks in the United States. Cards that result from those partnerships will hit the marketplace as soon as Visas and MasterCards restrictive rules are finally repealed. Because Visa and MasterCard have announced their intention to appeal the court rulings against them to the U.S. Supreme Court, that is not expected to happen until late in 2004. David House and many others in the company look forward to that day with great anticipation. With this agreement, we are creating a new line of business that will open up additional growth opportunities for us, he explains. And even though MBNA remains a top card-issuing rival, our GNS experience has shown how American Express and banks are able to benefit tremendously from targeted partnerships. Ken Chenault views the MBNA agreement not only as the start of a beneficial relationship between two companies and a new revenue opportunity for American Express, but as a bellwether for the industry as a whole: Its natural for us to team up for this groundbreaking event in our industry, which opens the door to true freedom of choice for all card issuers and consumers.

CHALLENGING VISA & MASTERCARD: KEY DATES

MAY 1996 _ In a speech at an industry forum, American Express Chairman
and CEO Harvey Golub invites U.S. banks to issue American Express-branded cards on the companys worldwide network. American Express begins conversations with banks.

JUNE 1996 _ Faced with clear opposition from European Union antitrust
authorities, Visa International abandons the idea of adopting a global bylaw that would prevent member banks from issuing American Express and Discover cards. (Authorities in various countries in Latin America and Asia follow suit later.) A prohibitive bylaw remains on the books for Visa USA. Late in the month, MasterCard adopts its own policy that prevents member banks from issuing American Express and Discover cards.

FEBRUARY 1997 _ American Express announces the establishment of Global

Network Services to expand its partnerships with banks overseas but is blocked by Visa and MasterCard in the United States.

OCTOBER 1998 _ After a two-and-a-half-year investigation, the U.S. Justice

Department sues Visa and MasterCard for limiting competition in the credit card network services market.

JUNE 2000 _ The case goes to trial in the U.S. District Court in Manhattan. OCTOBER 2001 _ The District Court rules in favor of the Department of Justice,
saying that Visa and MasterCard will no longer be able to bar member banks from issuing cards on rival networks, like American Express and Discover. Visa and MasterCard announce their intentions to appeal.

FEBRUARY 2002 _ The District Court judge grants the request of Visa and
MasterCard for a stay of judgment pending appeal.

SEPTEMBER 2003 _ A three-judge panel of the U.S. Court of Appeals for the
Second Circuit affirms the District Courts ruling in favor of the U.S. Department of Justice.

JANUARY 2004 _ The U.S. Court of Appeals for the Second Circuit denies Visas
and MasterCards petitions for a rehearing but grants their request for a stay of mandate, pending appeal to the U.S. Supreme Court. This means the lower court rulings will not be put into effect until the Supreme Court has acted on the associations appeal. American Express and MBNA announce their landmark agreement, the first of its kind between American Express and any U.S. member of the Visa or MasterCard associations.

fewer than

WHATS A SMALL BUSINESS?

fall into this category, according to the

500
23 MILLION
IN THE UNITED STATES

Companies with fewer than 500 employees U.S. Small Business Administration. The SBA says there are 23 million in the United States primarily engaged in service industries, retail trade, construction and manufacturing. They represent 99 percent of employers, employ about half of the private sector workforce and generate more than 50 percent of nonfarm private gross domestic product. American Express defines a small business as a company with less than $10 million in annual revenues and fewer than 100 employees.

SOURCES OF CREDIT:
percentage of small firms using credit by credit type

46

34 28 21 14 13

11

10 10

Small Business Services: Attracting More Suitors

more than

80%
USE CREDIT

Business credit card

Loans from owners

Mortgage

Personal credit card

Vehicle loan

Lease

A decade ago, most U.S. bankcard issuers had little or no interest in small businesses, considering them to be risky and unprofitable customers. Thats not the case today. Major issuers not to mention smaller players like community banks and credit unions have since recognized the growth potential of small businesses and are aggressively targeting them with deposit, payment, lending and leasing products. American Express is the leading card issuer and a top lender to small businesses in the United States. The company continues to focus intensely on delivering premium value to these customers and to expand its leadership position as small businesses have become increasingly important to other card issuers. This scan of the small business customer segment is the second in a Context series entitled The Competition.

SURVIVAL OF THE FINANCED Although the vast majority of small businesses still use cash and checks to pay for things like raw materials, rent and payroll, a 1998 study by the Federal Reserve found that more than 80 percent rely on some form of credit to get their businesses off the ground and keep them running. About 70 percent use personal and business credit cards to pay for and manage some portion of travel and entertainment expenses, office supplies, computer equipment, wholesale purchases, and business or professional services.

Source: Financing Patterns of Small Firms: Findings from the 1998 Survey of Small Business Finance, conducted by the Federal Reserve. (Latest data available)

Equipment leasing

Line of credit

Other

EMPLOYEES

PAGE _15

{THE COMPETITION I Players and trends in the financial services industry}

OPEN: THE SMALL BUSINESS NETWORK

In 1987, American Express was the first financial services firm to launch a charge card for small business owners, and in 1995, it was also the first to dedicate staff and resources specifically to serving small businesses. The company rebranded the small business services unit as OPEN: The Small Business Network in 2002 to expand its leadership position as other issuers became more intensely focused on those same customers. The business has achieved strong results billed business increased 14 percent in 2003 by delivering superior value through a comprehensive package of charge and credit cards, business loans, lines of credit, equipment financing, online account management and savings on business services. Some of the features and benefits that help differentiate the OPEN Network in an increasingly competitive market are: Charge cards with no preset spending limit A wide selection of travel, entertainment and retail rewards. Unlike other issuers rewards programs, Membership Rewards (MR) points dont expire, and there are no limits on point accruals Savings on everyday business expenses from such top brands as FedEx, Hertz and Staples Small Business Dashboard: 24-hour online access to accounts for tracking spending, paying bills, redeeming MR points, shopping for business-related purchases, running credit checks on clients and suppliers, and receiving alerts when payments are due or spending is outside a usual pattern, among other activities Helping small business owners manage and grow their businesses through a Web site that offers: I a library of articles, interactive tools, quizzes and workshops on managing, planning and growing small businesses I the ability to submit questions to a small business advisor on a wide range of business topics I an online networking tool that enables business owners to connect with their peers I the Dun & Bradstreet Business Directory to locate suppliers and get targeted business leads
MBNA Affinity marketing targeting members of professional, recreational and cause-related groups Targets high-quality, more loyal customers Issues small business cards in partnership with banks such as PNC, Wachovia and Citizen Bank US Bank, Wells Fargo, Bank of America and Citigroup Offer a full suite of products, such as banking accounts, business credit cards, lines of credit and payroll services Preferential pricing and product bundling to existing customers Visa issuers (US Bank and Bank of America) are focusing on moving cash and check transactions to business debit cards with rewards to grow share Branch networks for reaching and servicing customers Advanta Focuses on small business cards only Low annual fees and interest rates Emphasizes direct mail Does not emphasize brand in marketing Target segment: smaller small businesses

COMPETITORS IN SMALL BUSINESS CREDIT (Selected major U.S. issuers)

FOR MORE ON HOW AMERICAN EXPRESS SERVES SMALL BUSINESSES, VISIT WWW.OPEN.AMERICANEXPRESS.COM.

At Work

{ KIMBERLY SMITH | Luxury Travel }

OFFICE_Phoenix, TITLE_Centurion

Ariz., USA Travel Counselor Alberta, Canada

FANTASY JOB_Pediatric nurse or elementary school teacher CREATIVE OUTLETS_Baking

WITH AMERICAN EXPRESS SINCE_1982 MOST RECENT TRIP_Banff,

and cooking

MOST RECENT PROFESSIONAL ACHIEVEMENT_Being

PASTIMES_Spending time with her family, reading inspirational books FAVORITE MOVIE_Signs

named a 2003 Pacesetter, an award recognizing Consumer Travels top travel counselors; this is the seventh time Smith has received the honor

A cardmember wants to propose to his girlfriend at the summit of the Sydney Harbor Bridge in Australia. Another is using Membership Rewards points for flights from Goa to Delhi to Mumbai as he tracks tigers on a photographic safari through India. Yet another is on vacation with his wife and eight-month-old daughter, and needs a babysitter. Its up to Kimberly Smith to make it all happen. Smith is a travel counselor with American Express Centurion Travel Services, a 300-member team dedicated to providing personalized service to high-spending, affluent Centurion cardmembers. Each counselor is assigned to individual cardmembers who turn to them for customized travel planning, flight and hotel bookings, reservation upgrades and the best way to use their Membership Rewards points. They are some of the companys most valued and discerning customers, and they rely on us to help create the best possible travel experiences for them, Smith says. On any given day, Smith is booking trips and handling special requests for many of her regular customers. Its a balancing act to serve everyone at once, especially when some clients consider you to be a member of their personal staff working solely on their requests, she says. Meeting customers expectations often requires going beyond the standard booking and reservation channels. What that means for Smith is building relationships with vendors and knowing the key people who can help deliver what customers want. When a cardmember requests connecting rooms for her family at a particular hotel that normally doesnt reserve blocks of rooms, Smith calls her contact in the sales department. These vendors value their relationships with American Express and realize how important our clients are to us, so they do whatever they can to help us, she says. Exceptional customer service abilities, commitment, patience, persistence, attention to detail, and an in-depth knowledge of American Express and Centurion Card programs are also essential for a Centurion Travel Counselor, Smith says. Theres something new to learn every day, different people to deal with, different situations that require you to go beyond what you already know, she adds. Its challenging and rewarding and never dull.
Cynthia Aquila
Photography_Scott Baxter

CORRESPONDENTS

ARGENTINA_Carolina S Martin Office 54.11.4310.3511 Fax 54.11.4328.8275 AUSTRALIA_Luisa S Megale Office 612.9271.2070 Fax 612.9271.2554 BANGLADESH_Qamar A Hussain Office 880.2.956.1804 Fax 880.2.956.1806 BRAZIL_Fernando A Poyares Office 55.11.3741.7245 Fax 55.11.3741.5099 CANADA _Janet A Lee Office 905.474.7946 Fax 905.474.8363 FRANCE_Claire F LeGall-Rouxel Office 33.1.47.77.78.45 Fax 33.1.47.77.77.83 GERMANY_Ursula E Hellstern Office 49.69.9797.2332 Fax 49.69.9797.2919 HONG KONG_Susanna S Hui Office 852.2.811.6325 Fax 852.2.811.2331 INDIA _Vibha B Bajaj Office 91.124.680.1590 Fax 91.124.639.8304 INDONESIA_Fathia I Syarif Office 62.21.521.6655 Fax 62.21.521.6363 ITALY_Luciana B Strippoli Office 39.06.722.80.756 Fax 39.06.722.80.424 JAPAN_Sakiko A Kasegawa Office 81.3.3220.6229 Fax 81.3.3220.6717 MALAYSIA_Donna K Lee Office 60.3.2050.0801 Fax 60.3.2026.2425 MEXICO_Adriana A Rivera Office 525.55.209.7310 Fax 525.55.209.7317

NEW ZEALAND_Craig H Dowling Office 649.367.4370 Fax 649.367.4358 PHILIPPINES_Enrique Papa Office 632.840.6851 Fax 632.840.6830 SINGAPORE_Lotus Y Tan Office 65.6880.1236 Fax 65.6294.0516 SPAIN_Luis B Dupuy Office 34.91.743.7229 Fax 34.902.195.111 TAIWAN_Tiffany T Chen Office 886.2.2514.5019 Fax 886.2.8712.3836 THAILAND_Hassaya B Hasitabhan Office 66.2.273.5028 Fax 66.2.273.0324 UNITED KINGDOM_Atalia M DaSilva Office 44.207.976.4604 Fax 44.207.233.0873 UNITED STATES FT. LAUDERDALE, FL_Stacey L Orange Office 954.503.9519 Fax 954.503.3056 GREENSBORO, NC_Tyler J Cox Office 336.668.5824 Fax 336.668.5696 MINNEAPOLIS, MN_Julie Thelen Office 612.671.2802 Fax 612.671.1220 NEW YORK, NY_Cynthia Aquila Office 212.640.5917 Fax 212.640.0331 PHOENIX, AZ_Alanna Vitucci Office 623.492.7081 Fax 623.492.7411 SALT LAKE CITY, UT_Steve Allnatt Office 801.945.5268 Fax 801.945.5675

GOT A STORY IDEA? We welcome your thoughts on items and people we cover in Context features and in the following departments: Update_Whatever happened to . . . ? Behind the Scenes_How did we score that big win? At Work_American Express employees and the jobs they do Corporate Citizens_Putting a face on philanthropy The Numbers_Quantifying our success Time Capsule_Mining the archives for reminders of our 153-year history Please contact any of the Context correspondents (at right) with your comments.

Copyright 2004 American Express Company. All rights reserved.

CONTEXT

AMERICAN EXPRESS TOWER _ WORLD FINANCIAL CENTER _ NEW YORK, NY 10285