In the days since American Express chairman Harvey Golub, attacked Visa and invited bankers to issue his company's cards and explore other types of alliances, the combatants have settled into a wary silence.
Mr. Golub dropped his bombshell at a credit card conference in Atlanta last week, but has kept a low profile since. "Until we have an actual deal," said American Express spokeswoman Gail Wasserman, "I don't know how much more detailed we can be."
Visa, the object of Mr. Golub's scorn because its rules prevent member banks from issuing the American Express (or Discover) brand, probably will be counterattacking out of the public eye from here on.
MasterCard, which does not prohibit its members from offering the competing brands, has remained mysteriously silent throughout the whole affair.
And Dean Witter, Discover & Co. is using less "theatrics" than American Express to pursue relationships of its own with banks, said Thomas R. Butler, president of Discover Card Services. Dean Witter chose a marketing executive, rather than chief executive Philip J. Purcell, to deliver its anti-Visa message at the Faulkner & Gray Credit Card Forum in Atlanta.
"We are very willing to talk to institutions," Mr. Butler said in an interview this week. "But we haven't been proactive in that regard. We have been concerned with Visa's bylaw."
By contrast, American Express said it has been talking to bankers for a year about this issue.
Mr. Butler said he sees his strategy as differing from Mr. Golub's in the fact that Dean Witter would like banks to issue their own cards on the Novus network using the Novus mark. "By putting the Novus flag on the card," said Mr. Butler, "we are saying (cardholders) can go to these locations." Ultimately, such an arrangement would reduce Dean Witter's fixed costs by increased volume.
Mr. Golub, it appears, is seeking a franchise network in which banks would issue American Express cards. Mr. Butler acknowledged that American Express has been more "dramatic" and "pointed" in attacking Visa. Also, Dean Witter appears to be more focused on whether Visa will adopt a similar bylaw abroad.
Dean Witter may be somewhat humbled by a loss last year in its four-year legal fight to force Visa to admit it as a card-issuing member. Visa is still fighting a countersuit.
Legal experts now see an emboldened American Express crossing a dangerous line to encourage banks to end their relationships with Visa - which they would have to do if they buy Mr. Golub's proposition.
"Arguably, Visa lawyers might conclude that American Express was inducing members of Visa to break their contracts," said Lloyd Constantine, a New York lawyer. American Express could be inviting a civil lawsuit, said Mr. Constantine.
Nine years ago, Mr. Constantine, assistant attorney general for antitrust in New York, found himself caught in the credit card crossfire.
At that time, Charles T. Russell, then president of Visa U.S.A., sent his member banks a letter suggesting they reconsider their marketing of American Express travelers checks. This was a response to American Express' introduction of the Optima card.
He provided bankers with the telephone number of James Robinson, then chairman of American Express, to "voice your displeasure over his decision to enter one of your most profitable lines of service," said the letter.
Mr. Constantine said he forced Visa to call off its request for a boycott of American Express. "Within six weeks," he said, "we got Visa to back off."
Later, Mr. Constantine spearheaded a successful effort by numerous state antitrust officials to prevent Visa and MasterCard from launching a joint debit card, Entree.
If American Express seems to be inviting regulatory scrutiny, Visa and MasterCard are not off the hook either. For the past three years, the Justice Department has been investigating whether the associations promote competition in the card industry by sharing the same members.
A source familiar with the investigation, who wanted to remain anonymous, said the Justice Department has found evidence that duality - the term used to describe card issuers who offer both MasterCard and Visa brands - is anti-competitive. The investigation is focusing on the fee charged to merchants for accepting credit cards. This fee, which affects consumer costs, is lower in Canada where duality does not exist, said the source.
"If Justice sees duality as a problem, it would likely see triality or quadrality as a bigger problem," said the source.
American Express' merchant fee is higher than any other in the industry. On average, according to Bear Stearns analyst, Susan Roth, American Express charges 2.75% per dollar charged to an American Express card. MasterCard and Visa cards cost the merchant 2%. Analysts see the merchant fee as American Express' central selling point to banks.
The benefits to American Express are numerous, but primarily American Express hopes to drive more volume to its network, increasing its fee income. Also, if there are more American Express cards in the market, more merchants would be inclined to accept the cards. Some merchants do not take American Express cards because they are more expensive and they are not as widely used as Visa and MasterCard cards.
Mr. Golub also indicated that American Express is interested in selling its back-office services. American Express is willing to become essentially an outsourcer for banks, and work with them regardless of whether the banks sell American Express cards. "The degree of their flexibility was somewhat of a surprise," said Thomas Facciola, analyst with Salomon Brothers.
For its part, Visa is not surprised that American Express wants to accommodate banks in any possible way.
"Visa is the only competitor growing market share in this business," said Michael Beindorff, executive vice president of Visa, in an interview Wednesday.
"Harvey's decision to go public is a fundamental result of American Express' continuous loss of market share," said the Visa executive.
MasterCard would not comment beyond a brief statement that said it "is examining this issue in depth to determine what immediate actions, if any, need to be taken."
Some industry observers speculated that MasterCard's silence might be an indication of an agreement with American Express. Others disagreed, saying that the association has nothing to lose by staying on the sidelines.
"I find it odd that MasterCard, which is also owned by banks, has remained silent," said Mr. Beindorff.
If American Express reaches its stated goal of increasing its card receivables from about $10 billion to $30 billion, said Mr. Beindorff, "you can bet a lot of that will be at the expense of MasterCard's market share."
