Investing in Key Growth Opportunities
The events of 2001 forced us to take a more critical look at our future growth opportunities. Like many other companies, we had to reprioritize our investment spending and make difficult trade-offs. As a result, we have identified opportunities in our core businesses that offer the potential for the highest levels of return and the greatest chances of success. In particular, there are three areas that we think can provide sustainable growth for American Express over the short, moderate and long terms.
Expanding our Card Business in International Markets
In the consumer, small business and commercial card areas, we are investing significant resources in a number of key international markets. Many countries have much lower charge and credit card usage rates than those in the United States, and we believe the opportunities for growth in those countries will be substantial for the foreseeable future.
Over the past couple of years - despite economic downturns in some regions - we have significantly grown our business in many international markets. This is due largely to the introduction of new products and the creation of new alliances. While we have made good progress, our presence in many markets is still relatively small, providing us with significant additional potential for expanding our business.
Our total number of cards in force outside the United States rose to 20.6 million, up from 18.4 million a year earlier. This is a 12 percent increase for the year. International loan receivables grew by 32 percent during the year. Importantly, our credit quality has remained strong, despite economic pressures in many countries.
We launched a number of new consumer card products in international markets during 2001, including Blue from American Express in Australia, Austria, France and Germany. In addition to the British Airways products cited earlier, we launched cobrand cards with Indian Airlines, Accor in Germany and a small business card with Australia's Westpac Bank. In total, we launched proprietary charge and credit products in 14 countries, as well as 41 affinity card products and 30 distribution agreements.
In the commercial card area, we continue to be the recognized leader around the world for helping companies manage their travel, entertainment and purchasing expenses. Worldwide, we have card relationships with more than 100,000 firms, and the total keeps growing. For example, we introduced our Corporate Purchasing Card in a number of key international markets, signing on as clients Pfizer in the United Kingdom, Nortel Networks in Latin America, and Dupont in Singapore and Hong Kong.
Since 1997, when we launched our Global Network Services (GNS) business, scores of banks and other institutions outside the United States have partnered with us to issue cards on the American Express network. We have expanded this business from a handful of independent operators to a robust business of 74 partners in nearly 80 countries. Network cards in force have grown at an annual rate of nearly 40 percent since 1997, while spending growth on these cards has risen more than fourfold during that period. The growth of GNS also has helped us dramatically accelerate merchant coverage, with almost 1.9 million new service establishments added to our network as a result of the partnerships that we have established. Among the new network partners signed during 2001 were Union Bank Limited in Pakistan, HSBC and Scotiabank Quilmes in Argentina, and Unibanca in Venezuela.
Early in 2002, we announced an agreement with Canada's leading credit card issuer, Canadian Imperial Bank of Commerce (CIBC), which became the first Canadian bank to offer both American Express and Visa credit cards to its customers. CIBC is issuing a suite of American Express-branded credit cards, including Canada's first smart chip credit card available nationally. This agreement represents our first card-issuing partnership in Canada and is an important step toward expanding our brand presence in that country. It also reconfirms our experience around the world by demonstrating that major banks, including Visa and MasterCard issuers, will choose to partner with American Express when they are free to do so.
Growing our Card Business in the United States
The use of charge and credit cards in the United States is significantly higher than it is in international markets. Nevertheless, there is a large opportunity for growth by continuing to expand the number and variety of places where cards can be used. American Express stands prepared to capture a significant share of that new spending.
Over the past several years, we have made steady progress in our U.S. consumer card business, particularly in two areas cited earlier - growing our lending business and introducing new products.
We are also focusing on expanding our relationships with existing cardmembers by cross-selling other products and services. One example is in the Consumer Travel area where we are testing a variety of new programs, such as rebates to cardmembers for certain vacations purchased at participating American Express Travel Service locations. In addition, we are strengthening the appeal of our premium products - the Centurion Card® and Platinum Card® - through partnerships with upscale merchants such as Neiman Marcus, Sony and Equinox Fitness Clubs.
Serving small businesses is another key growth area opportunity. Small businesses create three out of every four new jobs in the United States and are an important engine of the U.S. economy. Serving this sector has been a very successful, high-growth business for American Express. In 1987, American Express launched the first charge card specifically designed for small businesses. Since then, we have become the leading card issuer to this segment, and over the past five years have grown to be one of the top lenders as well. Today, we serve nearly 3 million small business customers.
In early 2002, we took steps to strengthen our competitive position by introducing a new set of products, services, customer communications and partnerships. We also are increasing our focus on the Internet to meet the servicing needs of small business owners. As part of this transformation, we adopted a new name - OPEN: The Small Business NetworkSM - and introduced a national advertising campaign to signal our broadened commitment to helping small business owners succeed. The campaign underscored the greater control over payment and financing that we provide customers.
In the commercial card area, we serve about 70 percent of the Fortune 500 U.S. companies. We have a strong presence among middle-market companies (those with revenues of $10 million to $1 billion), where the potential for expansion remains quite high. In an environment in which companies are increasingly tightening expenses, we have increased signings of new commercial card customers who recognize more than ever the value of expense management solutions. These accounts represent significant potential for us once the economy stabilizes and corporate spending increases.
During 2001, we added or expanded a number of Corporate Card relationships with companies in the United States, including Prudential, Invensys, Apple Computer, Inc., Delta Air Lines and EDS/AT Kearney, as well as about 7,000 mid-sized companies. We signed ADP, Delta and BP, among others, as Corporate Purchasing Card clients. We also announced a collaborative effort with Oracle to ensure interoperability between our Corporate Purchasing Card and Oracle's iProcurement solution.
It is particularly noteworthy that, in October, a federal court ruled in favor of the U.S. Department of Justice and found that Visa and MasterCard had violated the country's antitrust laws. The judge's opinion found that the associations' rules prohibiting banks from issuing American Express-branded cards in the United States were illegal, harmed consumers and American Express, and stifled innovation and competition. We are very pleased with the judge's decision.
However, we were disappointed, but not surprised, by the stay of judgment granted to Visa and MasterCard pending appeal. The U.S. District Court judge reiterated that she is "fully confident" in her initial ruling, stating that the associations' bylaws "have had a significant adverse effect on competition and consumer welfare." We agree, and are confident that the decision will be upheld on appeal, although that process will take some time. We look forward to conducting our GNS business in the United States as we do in the rest of the world. That said, our ability to achieve our long-term financial targets is not predicated on U.S. banks being able to issue cards on our network.
Growing Retail Financial Services
As part of our long-term vision, we aim to make American Express as well known and successful in financial services as we are in the card and travel businesses. Toward this goal, we are leveraging the strengths of our various financial services businesses in order to expand our customer base and increase our share of the market for global consumer financial services.
AEFA continues to be one of the premier financial planning companies in the United States, providing an excellent foundation upon which to build our financial services business. Unlike many of our competitors, whose field forces typically comprise brokers who focus on completing transactions, many of our advisors are Certified Financial Planners who work closely with clients to develop long-term financial strategies. As a result, AEFA has an outstanding client retention rate of 94 percent. In fact, our redemption rates continue to compare favorably with industry levels, even in the difficult environment of 2001. Not only do our clients stay with us, but they tend to take a long-term view of investing.
Moving forward, AEFA's strategy for growth is focused on two overriding strategic initiatives: to strengthen our premier retail distribution network and to develop world-class asset management capabilities. Within these strategic initiatives, we are focusing on a number of key areas:
We continue to invest considerably in developing tools and training for our advisors to bolster their ability to offer solid advice and state-of-the-art financial plans. The payoff for us is significant. During 2001, nearly 44 percent of new clients had a financial plan that we developed with them. As has been the case historically, our clients with plans tend to buy more products. In 2001, product sales generated through financial planning and advice services were 73 percent of total sales, compared with 68 percent during the prior year.
In addition, we will continue to focus on cross-selling AEFA's products and services to our cardmember base. In recent years, more than 30 percent of new advisor clients have come from our base of U.S. cardmembers. We can and will do more to significantly increase the number of cardmembers who have a relationship with AEFA. With appropriate segmentation and targeted offers, we could substantially add to AEFA's bottom line even if only 5 to 10 percent of our U.S. cardmembers became AEFA clients.
We also took steps to improve the performance of our proprietary products by strengthening our investment talent, including the hiring of a new chief investment officer, research director, head of risk and, early in 2002, adding several new investment managers to our team.
American Express Bank is another key element in our strategy to grow our retail financial services business. As cited earlier, we have made strong progress in realigning the business of the Bank. We have reduced our corporate banking business, while simultaneously growing businesses that serve consumers - Personal Financial Services (PFS) and Private Banking. With the bulk of this reorientation behind us, we are now focused on leveraging the opportunities for cross-selling between AEB and our international payments business to grow international financial services. In 2001, PFS client volumes were up by 9 percent for the year, and more than 55 percent of PFS customers are American Express Cardmembers.
We are also expanding AEB's reach by partnering with other institutions to sell our mutual funds to their customers. During 2001, AEB signed more than 50 third-party distribution agreements in Europe. We also added our first partnership of this kind in Hong Kong.
In all, we made many fundamental changes throughout American Express last year. The progress we made in each of our businesses gives us confidence that we are poised to take full advantage of an upturn in the economy.
| Copyright © 2002 American Express Company. All Rights Reserved.
Users of this site agree to be bound by the terms of the American Express Web Site Rules
and Regulations. View Web Site Rules and
Regulations and trademarks and Privacy Statement of American Express. See
Corporate Entities and Important Disclosures for additional information about the American
Express entities who offer products and services on americanexpress.com. American Express
Brokerage is offered by American Express Financial Advisors Inc., Member NASD and SIPC.
American Express Company is separate from American Express Financial Advisors Inc. and is
not a broker dealer. |
