Interview: American Express and MBNA
>> american express and mbna are celebrating a new partnership. mbna is launching a new american expression-branded credit card.
>> what we expect to get out of this relationship is, one, that we can substantially expand our scale and relevance. that, in fact, will allow us to grow substantially not only if our network card business but in our proprietary card business because we’ll be bringing more high spending customers to our merchants.
>> and give us a sense how many more merchants do you hope to sign up by linking up with mbna and will you cut fees?
>> what’s important is that we price on value. we believe that we’re offering substantial value to merchants. no merchant is forced to accept our card. we do not have the monopoly position that visa and mastercard has. we price on value. we believe we’re offering substantial value to our merchants.
>> does that mean you will not be cutting fees?
>> i think the key point is, as i said earlier, that we price on value. in some cases, we may offer a lower price. but the reality is, that if we’re generating substantial value and the point i would make is that our average spend compared to visa and mastercard is four times, four times. our spending gap increased in 2003 so we have widened the gap in average spend against visa and mastercard so i think our value proisition has improved.
>> give us a sense how the profits will be split from the venture?
>> i think clearly we’re not going to cover our financial arrangement. what i will simply say is that we have very attractive economics for both partners.
>> credit suisse says you may see a profit gain of five cents a share annually for every 10% of mbna transactions on the amex network. is that in sync with your projections?
>> not going to comment on our financials. what i will say is the economics are attractive. we are leveraging an existing structure so the economics of the network business are very attractive. that’s all that i will say at this point?
>> mr. hammond, how many cards do you expect the amex relationship to add to your portfolio in the next 12 months?
>> we’re not projecting a number on that yet, ellen. it’s early and we have to see the results of our solicitations. i can tell you, we have already talked to over 300,000 customers who have opted into the offer, customers who think that us offering with the affinity group the great american express brand name and rewards programs we’re offering with it in a short period of time we’ve opened up 300,000 accounts. in terms of new customers, we just went out with a nailing -- mailing last friday to millions of potential new customers and it’s too early to know the results of that mailing but we’re very optimistic because only mbna has the number of affinity groups, over 500 affinity groups, we can tailor offers to -- 5,000 affinity groups and only american express has the relationships with the merchants community and putting those two together is an offer we believe no one else will be able to match.
>> give us a sense in terms of how much you. expect this to boost balances? can you tell us balances or the capital you’re setting aside in anticipation of the balance gains?
>> that’s not something we’re projecting but we are targeting our higher spending customers. both new customers in the affinity groups as well as existing customers and even some of our inactive customers we know have high spending on other cards, we’re targeting those for this offer. we believe that our customer base is most like american express’s in that we have a high percentage of customers that are high spending customers and as ken mentioned, how much more the typical american express customer spends as compared to mastercard and visa. our customer spends about twice as much as the typical mastercard or visa customer spends.
>> how much are you budgeting and will that impact earnings?
>> well, we, again, are not forecasting or not putting those numbers out but it will be a very significant marketing effort. on the other side, every time we open a new account, every time we get more spending from our existing customers, it’s going to enhance our profitability over time.
>> that was ken chenault of american express and bruce hammonds of mbna. checking shares at the close, we saw a rally in both american express and mbna. u.s. consumer borrowing in september rose by 9.8 billion dollars as credit card use rebounded, more than that forecast by economists. when we return after the break, the dollar dropped to a record low against the euro and the slide is expected to continue. we’ll talk currencies when we return.
