Corporate travel buyers will see a narrower field of options for their travel and entertainment card programs but potentially boosted reporting capabilities and acceptance, following a pair of acquisitions in recent weeks: American Express' acquisition of GE Money's Corporate Payment Services and Discover Financial Services' purchase of Diners Club International from Citigroup in an effort to expand the acceptance of both networks.
American Express' $1.1 billion deal brings more than 300 large corporate clients of Salt Lake City-based GE Corporate Payment Services into its fold. GE's clients used the MasterCard and Visa networks but will convert to the American Express platform during the next several months, although existing corporate agreements will be honored, according to an Amex spokesperson. GE, its largest single client, already has signed a multiyear card services agreement with American Express.
"It's going to change the landscape, but to me, it's another whale eating a minnow," according to Bob Langsfeld, a consultant with the Incline Village, Nev.-based Corporate Solutions Group. "Unfortunately for the buyer, it's one less option."
In comparative T&E charge volume, American Express dwarfed GE Corporate Payment Services—created by General Electric in 1992 to issue T&E cards to its own employees—with $170 billion in U.S. corporate account volume in 2006, compared with GE's volume of $3.3 billion, excluding small and midmarket programs
(BTNonline, June 25, 2007). Still, GE was the sixth-largest issuer of corporate T&E and purchasing cards.
GE Corporate Payment Services said its total global purchase volume was more than $14 billion in 2007. During the past five years, its billed business grew at a compounded rate of 18 percent.
Langsfeld said the overall impact on corporate card programs likely would be minimal, although more pronounced for the governmental and educational institutions to which GE's program catered. Still, buyers negotiating card programs might feel a little extra pressure as a result.
"Once choice is removed, competition is removed, and the surviving suppliers have an opportunity to increase their negotiation levels," said former National Business Travel Association president and travel buyer Kevin Iwamoto. "On the other hand, given what's going on with the banking industry, maybe some of that is necessary."
Mark Begor, president and CEO of GE Money in the Americas, said the deal is part of GE's strategy to redeploy financial services assets.
American Express also intends to incorporate GE technology into its own offerings. This includes GE's VPayment technology, which provides unique account numbers for large-ticket purchases that expire once the purchase is authorized, giving users more fraud control.
"Acquiring Corporate Payment Systems adds to our purchasing card capabilities and gives us the opportunity to accelerate our growth," Anré Williams, president of American Express' global commercial card and services, said in a statement. "In addition, Corporate Payment Services also has excellent credit metrics and a premium client base."
Iwamoto said American Express particularly stands to gain on the procurement card side, which made up a good portion of GE's business. "American Express' reports are industry-leading, but the procurement-specific reports could use some improvement," Iwamoto said. Langsfeld also said that GE has a quality online payment system that would complement Amex.
As part of the fallout from the deal, AirPlus International already has announced a partnership with Salt Lake City-based Wright Express Financial Services Corp. to issue a corporate MasterCard product, replacing its GE Money-issued MasterCard product
(BTNonline, April 21). The new card recently was released to the broader market after use by a handful of pilot clients.
Within weeks of American Express' acquisition, Discover Financial Services announced it would buy Diners Club International from Citigroup for $165 million. The deal, expected to close in the next few months, will give Diners Club greater acceptance domestically and Discover greater acceptance internationally.
Under the terms of the agreement, Discover acquires Diners Club International's network, brand, employees and agreements with 44 issuers. This means Diners Club, which deals largely in upscale, premium T&E card products, will broaden its acceptance in North America through the Discover network. Users of Discover—which has a small-business product, but no dedicated corporate T&E card product outside of what its own employees use—will be able to access the Diners network abroad. Network integration will happen during the next two or three years.
Diners Club licensees, both in North America and abroad, are not included in the acquisition, and current Diners Club clients will keep their cards and all related benefits. Discover also will not issue cards or extend consumer credit in international markets through the acquisition, although it will take advantage of Diners Club's issuer network and loyalty programs, including access to about 100 airport lounges, said Discover Financial Services executive vice president Harit Talwar, who runs the Discover Network.
"We're very excited by the merchant acceptance this will give us globally but equally excited about the long list of franchisors, most of whom are banks, that offer a very strong footprint of global partnerships," Talwar said. "They have a long list of corporate customers, so being able to leverage all this brings an exciting set of opportunities."
Although Iwamoto said that the American Express/GE Money deal made more immediate sense, neither acquisition came as a complete surprise. For one thing, mergers and acquisitions are one of the few methods of growth in the payment sphere, Corporate Solutions Group's Langsfeld said. GE had been reviewing its GE Money portfolio for slimming opportunities, and some analysts have called for it to be sold off entirely. Citigroup, meanwhile, has articulated a strategy to focus on its card-issuing business and will remain a long-term issuer of Diners Club per its agreement with Discover.
The current economy's impact on the banking industry could mean further deals are on the horizon, Langsfeld said. "There's going to be additional changes, consolidations and mergers as a result of the marketplace, more on the institutional side than on the branding side," he said. "We'll probably see some teaming with different suppliers from different parts of the sector."