American Express is changing so fast that long-time observers of the company might have a hard time recognizing it.
Outside analysts and former employees marvel at how many layers of corporate dogma are being peeled away as chief executive Harvey Golub implements his reorganization plan.
Mr. Golub's vision for the New York-based company led him to move Thomas O. Ryder in 1992 from a plum job as president and publisher of American Express Publishing, and into the cauldron of coordinating American Express' relationships with card-accepting merchants.
Mr. Ryder, as president of establishment services worldwide, has focused on mending fences with a number of merchants who complained that American Express' fees were too high. More recently, he has turned his attention to signing new merchants.
Mr. Ryder seems to be fulfilling his boss' expectations.
Even merchants who dropped American Express cards, like Laura Ashley and Carnival Cruise Lines, are giving the company a second chance.
In 1994, American Express added 250,000 merchants in the United States, representing 300,000 acceptance locations. That was well above the typical addition of 100,000 merchants annually.
The difference in 1994 had to do with American Express' beginning to shed its elitist image.
The seeds of change were planted at least two years ago. And late last year, the company unveiled how it planned to become more aggressive, competitive, and leaner.
A major part of the strategy will be to launch a series of credit card products under the Optima brand. The irony of the premier charge card provider embracing revolving credit after years of criticizing the banks' card programs was not lost on the competition.
"American Express will look more like a bank operation in the way it generates revenue," said William J. Westervelt, a principal of First Annapolis Consulting.
Following the September launch of the first new credit card in this series, Optima True Grace, came the announcement that American Express would eliminate nearly 6,000 jobs over two years.
American Express also promoted and reshuffled a number of senior executives, including Mr. Ryder, who joined the company's senior management committee on corporate planning and policy matters, which reports directly to Mr. Golub.
In light of these changes, the fact that American Express secured contracts last year with independent sales organizations to sell its products to merchants raised only a few eyebrows. So far American Express is working with 51 ISOs, including some acquiring banks, who are reporting 3,000 new signings a week.
"I'd like to think in some way that it is an admission of our own arrogance and an indication that we have become a lot more flexible," said Mr. Ryder, referring to American Express' reversing a longstanding policy of using only its own staff to sign merchants.
Still, American Express is limiting so-called ISOs to smaller merchants. The largest 20,000 merchants are handled by American Express' own staff.
"We put our people on the most important accounts," said Mr. Ryder.
Out of the 250,000 new merchants signed last year, representing $6.4 billion in charge volume, ISOs accounted for only $1 billion.
Unlike the banks issuing MasterCard and Visa cards, American Express restricts its hired sales agents to selling its brand.
Some Visa and MasterCard members use ISOs to provide card processing functions, credit approval, and account servicing.
Even as American Express pushes to be accepted in more places, MasterCard and Visa cards are significantly ahead of it in the merchant numbers game.
At the end of 1994, 3.9 million merchants worldwide accepted the American Express brand, compared with 12 million for both Visa and MasterCard.
Visa and American Express, who have clashed over these numbers publicly for many years, renewed the battle in newspapers last October.
Responding to the advertising blitz supporting the launch of the Optima True Grace card, Visa took out ads reminding consumers that the Visa brand is more widely accepted.
American Express countered, "Why is Visa incorrectly claiming seven million more merchants than American Express? (We challenge them to name them)."
American Express contends that the bank associations' numbers are inflated, saying Visa and MasterCard members work with so many ISOs they cannot possibly keep track of how many merchants are signed.
"Visa doesn't have the slightest idea how many merchants they have, and Visa certainly does not know how many we have," said Mr. Ryder.
He claims that American Express has a proprietary method of counting its merchants. In fact, American Express would have a merchant base closer to five million if it modified its accounting system, he said.
"We have a ridiculously conservative way of counting," Mr. Ryder said.
In an analysts' meeting earlier this month, Mr. Golub said he may change how American Express reports its merchant base.
"We believe the way bank cards report location coverage to be intentionally misleading and grossly inflated," he said. "I'm no longer convinced that reporting service establishments in force, utilizing the methodology we have developed, is a fair and relevant measure of our coverage. Therefore, we are considering changing how we report coverage data."
The associations' members work with thousands of companies that all compete with each other for the same merchants. Mr. Ryder maintains that the agents duplicate each others efforts, sometimes signing up the same merchant. The ISOs report those retailers to their bank partners, which supply Visa and MasterCard with the total number of merchants.
"There is some truth to the duplication (theory)," Mr. Westervelt, the consultant, conceded.
For its part, Visa declined to respond to Mr. Ryder's contention. A spokesman said, "Visa stands by its numbers. It is not productive for us to get into a discussion about this."
American Express claims that duplication does not occur in its system because once a merchant is signed, American Express takes over the relationship, providing the card processing, issuing, servicing, and so on. American Express does not rely on the ISOs to count the number of merchants.
Sniping aside, Mr. Ryder dislikes talking about merchant numbers because he doesn't think they are important.
"Forever, American Express judged itself by the number of locations," said Mr. Ryder. "We changed that, and we have begun to think in a fundamentally different way."
American Express is focusing on signing merchants that reflect the lifestyles of its cardholders.
According to American Express, 50% of all the merchants in the world account for 3% of spending on plastic, while the other 50% of merchants account for 97% of spending. Large retailers like airlines and department stores make up the majority of the merchants providing the most spending, so Mr. Ryder argues that it is more important for American Express to get those merchants rather than pursuing a strategy of signing the most merchants.
One industry source who wanted to remain anonymous said, "American Express is aggressively signing merchants that their cardmembers say they want. It is a targeted strategy, whereas Visa's and MasterCard's (members) are signing anyone who breathes."
American Express categorizes the universe of unsigned merchants by industry type, geography, and charge volume.
American Express' competitors in the bank-card-acquiring business are not unfamiliar with this type of segmenting. The largest acquirers, representing 75% of bank card charge volume, conduct research identifying high-priority merchants, said James B. Shanahan, a partner in Business Dynamics, a Nyack, N.Y.-based consulting firm.
While the bank card business focuses on segmenting the market, "their overall strategy is to sign up everyone, whereas American Express is more selective," said Mr. Shanahan, who once worked at American Express on the card issuing side.
In the travel and entertainment category, American Express says it is accepted at 98% of the locations that are important to the company, including 100% coverage in airlines, 100% coverage in car rental companies, 99% in lodging, 96% in restaurants, and 88% in entertainment venues like movie theaters.
Last year, American Express began wooing supermarkets, signing deals with chains like Kroger Co., Giant Foods, and 7-Eleven. Oil companies are also important to American Express.
Mr. Ryder estimates that American Express was accepted by 70% of the service stations that it wanted and moved to 86% coverage in 1994. Last October, for example, Shell Oil Co., with 8,600 service stations around the country, signed with American Express.
By the end of the year American Express expects to be accepted by five million merchants worldwide.
Buoying its effort to penetrate supermarkets and gas stations is the fact that American Express has significantly lowered its merchant fees.
While American Express offers thousands of different merchant discount rates, it says it is 2.8% on average, just 80 basis points more than Visa and MasterCard merchant banks' norm.
Some industry followers speculate that American Express is following the path that Visa and MasterCard blazed in the supermarket and service station industries.
"Is it a coincidence that American Express is going after grocery stores after Visa and MasterCard had two incredible years in supermarkets?" asked Mr. Shanahan.
Mr. Ryder said American Express reversed its decision not to enter supermarkets in mid-1994, when the company realized that it was far ahead of its own schedule in gaining travel and entertainment accounts.
International acceptance, however, is more a more important priority to Mr. Ryder, and he is spending much of his time on that.
"It is fair to say that our coverage gap in the U.S. (with Visa and MasterCard issuers) is relatively small, and in the international markets the gap is pretty large," said Mr. Ryder.
American Express added 450,000 merchants outside the United States last year.
While the company does not disclose how many of the 3.9 million merchants are abroad and how many are in the United States, analysts say it is an almost even split, with nearly two million merchants signed domestically.
