Amex's Chenault Tells Investors Cards Are A-Changin'

American Express president and CEO Kenneth Chenault today maintained his company's assertion that Amex has been shut out from payment card issuers' exclusive contracts with Visa and MasterCard, and he is optimistic that the card industry is at a turning point, in Amex's favor.

"I believe the payments industry is clearly at a turning point--a turning point toward which we've been headed for a while," Chenualt told investors this morning. "The 'old way' of doing things--the consistently restrictive, insular practices the associations have built over time--is being seriously challenged."

A big piece of that challenge came in 1998 in the form of a U.S. Department of Justice antitrust lawsuit against Visa and MasterCard. After an initial ruling in 2001, which demanded that Visa and MasterCard repeal bylaws that restrict issuers from working with Amex, Visa and MasterCard have continued to appeal the ruling and have not loosened their grip on such bylaws.

Noah Hanft, general counsel for MasterCard International, last month challenged Amex's motives in a statement on the ongoing case.

"Throughout the trial, American Express executives testified about their desire to shift MasterCard's or Visa's high-spending cardholders onto the more expensive American Express network by cherry-picking the customers of a few select banks," Hanft said. "American Express has made it clear that the business proposition it would offer banks to issue their cards is the ability to make more money on the higher fees American Express charges merchants."

"I firmly believe that once restrictions are lifted, banks will choose to work with us," Chenault said. "Should we get the opportunity to work with other issuers, there would be financial benefits for us. And clearly, had we been able to freely work with issuers beginning back in 1996 when we opened our network, we and our partners would have enjoyed these benefits much earlier."

Chenault also outlined benefits for card issuers if they were allowed to work with Amex, including the ability to offer products not available through other networks, "to be associated with our brand," and "to be able to provide a card product with value targeted to particular customer segments, for whom an American Express branded product would be particularly appealing."

Chenault added that taking legal action against Visa and MasterCard continues to be an option for Amex. "Although American Express has done well over the past decade," he said, "the profits lost as a result of being prevented from working with U.S. banks have been significant."