AmEx may need to reconfigure its business plan due to high fee structure

In continuing its battle against forced fixed fees, American Express’ President of the U.S. Consumer Services Business, Joshua Silverman is

In continuing its battle against forced fixed fees, American Express’ President of the U.S. Consumer Services Business, Joshua Silverman is defending the card company’s high fee structure.

For over 4 years AmEx has been in a class action battle against the Justice Department in regards to its overly priced fees. No verdict has been made yet, but most chances point to The Justice Department creating a set of universal fees for all card firms. Such a move could affect not only AmEx, but its cardholders as well resulting in the company needing to rethink its business plan.

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“[A fee reduction] would be disastrous, and we would have to rethink everything in our business model,” stated Silverman.

American Express’ main hook for cardholders is its royalty and redemption programs as well as offers and specialized services for certain card holders (Centurion Card). A reason for higher fees is to accommodate their cardholders with additional perks. Merchants on the other hand are left paying higher fees than that of MasterCard and Visa. Merchants are unable to charge AmEx cardholders more and cannot afford to not support the card.

While main competitors Visa and MasterCard boast a collective billion cards in US circulation, AmEx caters to only 55 million cards. With the low number of cards AmEx has proven to possess a large portion of the market, coming in second after Visa’s market value of $133 billion and before MasterCard’s 90 billion with a market value of $97 billion.

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“When people actually use their points, they like us more and spend more on their cards cardholders feel they are getting ‘free money’,” Silverman said.

The class action suit initially charged MasterCard and Visa along with American Express. The 2 largest card firms in the world quickly came to a settlement resulting in the amount of $5.7 billion.

 

 

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