American Express Co. is taking its competition with traditional banks to a new level.
While many bankers talk about creating "virtual" delivery systems, allowing customers to do business from any location via computers or telephones, American Express has launched a business unit that will offer precisely those services.
The company's commitment to virtual banking was solidified this week when it named a former banker, William J. Heron Jr., president of the new unit, American Express Financial Services Direct.
Mr. Heron, 53, spent 24 years at Citicorp, where he held a number of senior posts, including group executive of U.S. consumer banking. But he joined American Express from Swig Investment Co., a privately held, San Francisco-based firm that specializes in real estate holdings, where he had been chief executive for two years.
Mr. Heron will report to George L. Farr, vice chairman of American Express.
Financial Services Direct is in its infancy as a test in the Philadelphia and Chicago markets, but industry observers say it bears the stamp of American Express Financial Advisors, the financial planning and mutual fund unit formerly known as IDS Financial Services.
Amex Financial Advisors employs 8,000 planners who offer investment advice and access to hundreds of mutual funds.
A spokeswoman for American Express said the financial planners offer mainly "face-to-face" advice, while Mr. Heron's new unit will deliver advice and other services electronically. So far only 20 financial planners are taking part in the test, handling calls out of Greensboro, N.C.
"What we need to do is enhance what Financial Advisors already does," said Mr. Heron.
Financial Services Direct is offering, for example, nonproprietary no- load mutual funds, mortgages, and home equity lines of credit through Prudential Home Mortgage Co.
With the direct service, American Express aims to leverage its cardholder base, targeting about 11.5 million households, said Sanford C. Bernstein & Co. analyst Guy Moszkowski.
The initiative is just two weeks old, but it is well known that American Express has been developing virtual banking for years, alluding to it in annual reports and meetings with analysts.
"The more significant issues in the future (of banking) won't be where to put a branch" but, rather, offering software packages, said Mr. Heron. He has not yet moved from San Francisco to New York and officially starts his new job July 1.
Mr. Heron compared Financial Services Direct to Chicago-based Morningstar Inc., which tracks mutual funds: "It doesn't offer a product but information."
Thomas P. Facciola, a Salomon Brothers analyst, pointed out that the virtual banking concept is not new. Indeed, home banking is increasingly widespread, and Huntington National Bank of Columbus, Ohio, and First Chicago Corp.'s flagship bank, among others, have packaged such services under the "direct" name.
"American Express is clearly ahead of the pack by offering such a variety of products," Mr. Facciola said.
