One Chart That Explains How American Express Has Lost Its Charm

Digital Transformation Doesn’t Always Work — Here’s How American Express is Failing

Travel has been hit hard. And that means American Express has been seriously damaged. It’s hard to imagine that many would sign up for a platinum card during the pandemic. American Express charges you a USD $500 annual fee for the card, in exchange for access to airport lounges and personal concierge services. But when you are mostly ordering food delivery at home, there’s nowhere for you to show off your black card.

And so, Amex has resorted to throwing in new perks. It’s giving customers cash credits, up to $220 each, on dining and telephone bills. Any prestige is effectively gone.

But not that long ago, American Express was a darling of digital innovation. It was on the forefront of social media marketing.

In summer 2016, Amex partnered with Buzzfeed to create the “Epic Everyday” campaign. That campaign, featuring Tina Fey, used Facebook to engage the younger generation. Then the company experimented with a Facebook messenger bot. It also let people pay their friends through Facebook. All these efforts were getting Amex customers to spend more and stay loyal.

The problem is that everything digital stayed on the marketing side. Just like a better coupon campaign wouldn’t have saved Blockbuster, nothing at Amex had changed the fundamentals of its business model. Meanwhile, Mastercard and Visa were forging digital partnerships everywhere.

Fintech is now all the rage. At IMD’s Center For Future Readiness, we have been tracking how prepared financial companies are for a changing landscape. You can read our 2021 ranking of selected players here.

American Express does possess big advantages. It has a closed-loop operation. It issues credit and processes its own transactions, and thus earns both interest and transaction fees. And unlike Mastercard and Visa, Amex doesn’t need JP Morgan Chase or HSBC to underwrite its cards.

By controlling everything in-house, American Express is effectively pursuing the Apple end-to-end strategy in the payment sector. American Express cardholders are also more affluent than the industry average. So why hasn’t it work out better?

My research team decided to download every report published by the standard-bearers of business news —the Wall Street Journal, CNBC, and the Financial Times—along with the corporate press releases. Data from the last 10 years was all fed to an algorithm. We wanted to see how companies talked about themselves and how business journalists understood their actions.

Specifically, we want to look at how digitally obsessed these companies were, and to what extent the business community had come to understand how digitally savvy each of these players were. Such “textual analysis” may not be the perfect measure of digital capabilities. But it should give us a rough gauge of where things stand.

What you are seeing is the cumulative score over the year. Amex isn’t becoming less digital over time. In absolute terms, it is improving. But its relative position is declining. The company has been falling further behind its rivals, especially in the last six years.

Here’s the main lesson: Just because you are improving, it doesn’t mean that you are improving enough. You need to make progress at the same speed as the industry evolves, if not faster. Amex’s transformation simply isn’t drastic enough. You can read here how Mastercard and Visa reinvented themselves by de-emphasizing their own plastic cards.

Coincidentally, in 2015, Amex lost one of its crown jewel partnerships, the Costco card, to Visa/Citi. That same year, JetBlue, a card partnership that Amex had for ten years, also pulled the plug in favor of a deal with Barclays and MasterCard.

These were huge client losses, accounting for 10 percent of Amex cards, 20 percent of its loans and a substantial portion of its annual volume. With less revenue, it became even harder to invest in technologies beyond mere digital marketing. A downward spiral began.

Amex once had a big first-mover advantage. It has a full, direct overview of its customers’ real-time transactions—where people spend, how much they spend, and what their repayment habits are. In contrast, Mastercard and Visa don’t run any banking operations. They can’t, in theory, tailor offerings and create precise marketing. But ironically, it’s the low-hanging fruit that has Amex trapped in its legacy business model, and eventually becoming outmoded by the industry.

Stay healthy,

P.S. What has been your observation in industries where early success turns into burdens? How can leaders make tough choices ahead of time rather than postponing them? Tell us your thoughts. We’d love you to join our discussion below.

This article has been co-authored with Lawrence Tempel and Angelo Boutalikakis, both researchers at The Center of Future Readiness at IMD.