Word: mastercard
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...latest shock is the poor performance of one of Amex's youngest and most vaunted products: the Optima card. Launched four years ago as Amex's response to Visa and MasterCard, the revolving-charge card was perceived as a winner. But the company announced earlier this month that Optima (total card members: more than 3 million) had suffered much higher defaults than expected. The result: $155 million in Optima write-offs during the third quarter, which will produce a loss -- the first one ever -- of $50 million to $75 million for the company's Travel Related Services division...
With Optima, Amex had planned to cash in on a part of the card business the company had always disdained: revolving credit. Amex had issued only charge cards, which had to be paid in full each month. But Visa and MasterCard had successfully turned credit cards into a consumer lending vehicle, and were gaining a huge share of the total charge volume at the expense of Amex's green, gold and platinum cards. (Visa has 257 million cards worldwide vs. 163 million for MasterCard and 37 million for Amex.) So American Express decided to counterattack with a credit card...
...Visa and MasterCard have introduced so-called affinity cards for conservation groups. As in credit-card programs that award frequent-flyer mileage on major airlines, the nonprofit organizations receive a small percentage of the bill charged by each new member customer. The Nature Conservancy has taken in $150,000 from MCI since the program began last February, and expects its take to grow to nearly $400,000 annually in the future...
...issuers covet the rich profits that can be reaped from installment credit. Banks that issue general-use credit cards, like the 420 million Visa and MasterCards in circulation worldwide, have been borrowing funds in the U.S. at 9% to 10% interest and loaning those funds out on plastic at as much as 22%. For banks stuck with Third World loans and rancid real estate, that spells salvation. At the 10 largest banks in the business, which hold 48% of all outstanding card debt, credit cards account for 25% of profits. Citibank, the largest issuer, cleared $610 million in profits...
...American Express. Steve DiFillippo, owner of Davio's, where a Northern Italian veal-chop dinner for two can run $100, needed to pare costs. He threatened to turn away the American Express card unless Amex reduced its take -- 3.25% of every purchase, vs. 1.7% to 2% for Visa and MasterCard. Last week the combatants struck a truce when DiFillippo accepted Amex's offer of a 2.9% rate, saving him $11,000 a year. Amex also offered him $6,000 of advertising as part of a new nationwide program to rouse diners out of the doldrums. DiFillippo says his complaints...