Citibank yesterday became the second U.S.-based bankcard issuer to forge an agreement to issue American Express cards in the United States. While the partnership of the two huge card companies has enormous potential for the corporate card market, so far it is limited to personal cards.
Citibank follows an Amex deal with MBNA that materialized after a court-mandated repeal of Visa and MasterCard rules that forbade its issuers from working with the likes of Amex. Like the MBNA deal, Citibank told
BTN it has no plans to move the Amex partnership into the commercial card space.
Citibank will be responsible for card issuing, customer management, account services, billing and credit management as well as "designing the card product features," while Amex will process transactions on its merchant network. Financial components of the deal were not yet revealed, yet industry insiders contend Citibank will command a higher payment from Amex than from Visa or MasterCard.
Speculation on an Amex partnership with Citibank began when the bank issuer was conspicuously missing from a recent American Express suit against Visa, MasterCard and eight U.S.-based bank issuers
(BTN, Dec. 6). While announcing the suit, American Express said it excluded from the suit bank issuers that are negotiating deals to issue its cards.
Amex said more deals are in the pipeline. "We are committed to working with outstanding partners like Citibank and the premiere customer experience they provide," Amex CEO Ken Chenault said yesterday in a statement.
Citibank added, "This agreement will bring together two highly successful and internationally recognized brands."
MasterCard, which potentially could lose some Citibank volume to American Express, is less sanguine about the relationship. "Given the competitive nature of the payments industry, this kind of experimentation is to be expected," the card association said in a statement. "The real test will be how much traction these programs get over the long term."
Industry analysts also have expressed skepticism on the profitability and viability of such partnerships. A recent Morgan Stanley analyst report noted that Amex has been reluctant to disclose profits associated with similar partnership strategies outside the United States. As such, Morgan Stanley analysts, as well as analysts with CS First Boston, have questioned the endurance of such issuing arrangements.