2009 Business Travel Survey: American Express Makes Strategic Card Plays

American Express in 2008 made several strategic investments and partnerships that further bolstered its standing as the world's largest corporate card provider and expanded its distribution network by acquiring GE Money's Corporate Payment Services, purchasing an equity stake in Concur and launching a new partnership with Carlson Wagonlit Travel.

Meanwhile, American Express' overall financial performance suffered amid the global financial downturn, leaving the company to battle with a rise in delinquency rates, reducing its expenses and morphing into a Federal Reserve Board-regulated bank holding company, while receiving $3.4 billion from the federal government's Troubled Asset Relief Program.

In March 2008, American Express announced its acquisition of GE's commercial card division and one year later completed the integration, retaining the majority of its charge volume. Amex would not disclose the number of clients acquired through the purchase, but according to officials the group includes a large number of "brand name companies," including the card's namesake, General Electric. With the acquisition also came GE's VPayment technology enabling corporate clients to "make payments with enhanced controls, data capture and reconciliation capabilities."

In July 2008, American Express made another multimillion dollar investment when it purchased a 13 percent equity stake in online booking and expense company Concur. American Express bought 6.4 million shares of newly issued common stock worth $251 million in cash. The deal included the right for Amex to buy an additional 1.28 million shares of common stock at $39.27 per share during the next two years.

The agreement also includes an exclusive marketing agreement for Concur to promote Amex corporate payment products and for Amex to market Concur's expense management software to their respective client bases

In a move to further expand its preferred travel management company supplier base, Amex signed an agreement with Carlson Wagonlit Travel in July that made it CWT's sole preferred global supplier of payment solutions, giving it preferred agreements with all four mega TMCs.

Last year also saw Amex launch a co-branded Web-based portal with StarCite for Amex payment, reconciliation and reporting capabilities in StarCite's technology-based meetings management process. The Meetings360 technology is available in nine markets.

American Express' strategic investments and other business development moves enabled it to increase its commercial cards in force to 7.1 million globally in 2008, excluding its Open Small Business or non-proprietary commercial cards issued on bank partner networks. Total charge card volume increased 6 percent worldwide in 2008.

While still dominant, American Express was not immune to the economic downturn. According to the company's annual report, U.S.- billed business for Proprietary Corporate Services increased 4 percent in 2008. In 2007, the segment saw a 10 percent increase. Outside the United States, Proprietary Corporate Services billed business increased 9 percent in 2008. In 2007, the international segment increased 22 percent.

With the worsening economy, came a rise in the U.S. write-off rate related to credit card delinquencies. In the third quarter of 2008, in its Global Commercial Services division, charge cards that were 30 days past due increased by 1.3 percentage points year-over-year to 3.8 percent companywide. Charge cards 90 days past due saw a small year-over-year increase to 1.8 percent, which then increased to 2.7 percent in the fourth quarter.

Billed business began a downward trend in the second half of the year. In the fourth quarter, Global Commercial Services segments billed business decreased 11 percent to $28.7 billion. Average basic cardmember spending decreased 13 percent to $4,070. The commercial card billed business drops carried over into 2009 as it fell another 23 percent to $25.1 billion in the first quarter.

"This had held up pretty well through the third quarter, but we saw some sharp drops in the fourth quarter and again in the first quarter as the decision by corporations to hold back on spending is being reflected in these numbers," American Express executive vice president and CFO Daniel Henry said in a quarterly earnings call.

Although the commercial payment segments within Amex held up relatively well in comparison with its consumer business, American Express last year began implementing a series of companywide cost-cutting efforts.

In October, Amex announced plans to slash $1.8 million in costs through cuts in operating expenses, curbing investment spending and slashing headcount by 7,000 jobs, or about 10 percent of its worldwide employees.

The company announced further expense reduction plans in May 2009, including the elimination of another 4,000 jobs, 6 percent of its global workforce, to save an additional $175 million, a $500 million cut in marketing and business development expenses and an operating cost savings of $125 million. •