Though frequent-flier points are still popular reward features on credit cards, American Express Co. has decided that in this era of curtailed travel and frugal spending, cash is looking more attractive.
So when it came out last week with a credit card that pays consumers cash equal to a percentage of their transactions, it openly admitted the product was an imitation of the Discover card and others like it.
"We have a great opportunity to take a lot of share in Cash Rebate," Alfred J. Kelly Jr., American Express' consumer card services group president, said in a conference call. "There are a lot of people who value cash. Just because someone did it before, I'm not going to say, Stop!"
Not long ago, consumers who wanted cash-back rewards had one choice - the Discover card, which is issued by a subsidiary of Morgan Stanley & Co. And the endurance of 16-year-old Discover, which is still not as widely accepted as other U.S. card brands (though it has been making up ground), speaks to the rewards program's appeal.
There are now several options in cash-back cards. Citigroup Inc.'s card unit offers one, as do the First USA division of Bank One Corp. and State Farm Bank, and consumers seem to have new reasons for wanting them, especially in the shrinking economy. A key lesson American Express learned while conducting market research for its new Cash Rebate card was that people will switch cards to get more money back, Mr. Kelly said.
The card may be a copycat, Mr. Kelly said, but it ups the ante among its peers by offering the potential for higher rewards: as much as 5% if a customer spends enough, uses the card at certain types of stores, and revolves a balance.
The maximum that Discover customers can get back is 1% (except for purchases at some of the company's merchant partners, which bring as much as a 2% rate) - and that is on a card that has made the CashBack Bonus its signature.
Customers of First USA and Citigroup's card subsidiary get up to 1% cash back.
Mr. Kelly said that other card issuers have had no qualms about copying his company's products. Amex's new offering is a sort of tit-for-tat, he said.
"We were the first out there with gold, platinum, small-business, and corporate cards," he said. "I think flattery is nice. In this case, we are copying Discover, but we are learning from what they are doing."
American Express considered the Cash Rebate card a much smaller product launch than that of 1999's Blue card, he said, but a lot of research went into developing the new card, and he hopes it will be a category-killer.
"It gives us a balanced army of products," Mr. Kelly said, with airline cards and other cobrands complementing American Express' single-brand cards.
Though Amex's marketing materials tout the maximum rebate of 5% of purchases, Cash Rebate cardholders must follow tricky rules to get that amount. The lowest rebate rate is 0.25%, for cardholders who spend less than $2,000 a year. The rate jumps to 0.5% for those spending between $2,000 and $6,000, and increases to 1.5% for those who spend more than $6,000.
An "everyday spending" feature on the cards encourages customers to use them frequently: Cardholders get a double rebate when they use their cards at supermarkets, drug stores, gas stations, and home-improvement stores. And when they carry a revolving balance, they get an extra 2%, bringing them closer to the top rate.
To sweeten things further, the cards come with a six-month interest-free period.
"Discover will kill its economics if they try to copy that," Mr. Kelly said. "We have a differential on the discount rate" that allows American Express to offer bigger rebates while still making a profit on the cards. He said the company had also looked at other companies' cash rebate cards, including the First USA's, to try to improve on them.
Mr. Kelly said the Cash Rebate card was an example of American Express' plan to focus more on cardholder rewards programs. "We want spenders," he said.
Larry Sharnack, the senior vice president of consumer lending at American Express, said the company had experimented with cash-back cards for years. Amex eventually decided, he said, that the two most important features it could add were the potential for higher rebates, plus the everyday category. The latter "gets the consumer to use it and get in the habit of pulling it out of their wallet," he said.
Discover spokeswoman Beth Metzler dismissed the idea that American Express' cash-back feature would woo away Discover customers. "People associate it with the Discover Card," she said of the feature. "Our program is very straightforward."
In a report on the Cash Rebate launch, Credit Suisse First Boston analyst Moshe Orenbuch called it a "product that has already been heavily mined throughout the bank card industry."
The high rebate and zero introductory interest rate will not give American Express much of a revenue boost, Mr. Orenbuch wrote. "Over time, we would expect that the heavily tiered, and somewhat confusing nature of the product will make it less effective."
