Harvey Golub has a message for bankers: Stop picking on American Express Co.
Mr. Golub, president of the financial services giant, contends that banks are being hurt more by their own card groups - Visa and MasterCard - than by his big green card machine.
"The associations have engaged in behavior that has shifted business from banks to non-banks," he said. "Bankers will soon begin to understand that the competition is not US."
In a wide-ranging interview with the American Banker - the first in a series profiling leaders of non-banking companies in the banking business - Mr. Golub insisted that he was being sincere.
He contends that Visa and MasterCard are unleashing new competition on their own members by opening the doors to AT&T and General Motors.
Moreover, he insisted, MasterCard and Visa are poisoning the U.S. economy by hooking the American consumer on debt.
"They provide a facility that can only make money if people revolve [their credit card balances]," Mr. Golub said. "That cannot be good for the public or for the banks, because they serve the public."
It is not surprising that the burly Brooklyn native, who is also chief executive of American Express' key business unit, the Travel Related Services Co., would encourage interbank warfare.
He has plenty of problems of his own.
Mr. Golub, 53, was imported from the outer branches of American Express one year ago to resuscitate a card unit that was once one of the nation's premier consumer operations but had turned into an embarrassment.
He had earned his Amex stripes by transforming its Minneapolis-based IDS unit from a backwater employer of door-to-door investment salesmen into a financial planning powerhouse.
As No. 2 to Amex chairman James Robinson, Mr. Golub is now expected to perform the same magic on the card unit. It hasn't been easy.
The new Optima revolving credit card, launched in direct competition with banks, was in disarray when he arrived. Indeed, the Travel Related Services had just lost $88 million, caused in part by a writeoff of $24 million in the domestic credit card portfolio.
Senior managers were being fired for participating in a cover-up of writeoffs at Optima, and about 1,700 employees in the card units were being sacked.
The statistics on market share were also grim. American Express' share of worldwide card sales volume on Nov. 1, 1991 - when Mr. Golub took the reins - had fallen to 14.5% from 20.3% at the end of 1987, according to the Nilson Report, a card industry newsletter.
More Work to Be Done
Mr. Golub insists that things are now under control. But he still has fires to put out.
Amex's share of cards outstanding in the United States at the end of the second quarter fell to 8.5% from 9.1% a year earlier. In the same period, MasterCard's market share rose to 31.0% from 30.8%, while Visa inched up to 45.7% from 45.6%.
Mr. Golub's attack on the bank card associations, the groups say, amounts to bullying.
"It's a transparent attempt to deflect the success that our members have had in taking share from Amex, to split the bank card industry," said Richard Woods, director of public affairs at MasterCard International.
Indeed, Mr. Golub's main attack on his opponents centers on one of the most sensitive issues he is facing: a continuing revolt against Amex by merchants that accept the card.
He claims that stores and restaurants pay higher fees to his company than to banks that process their MasteCard and Visa receipts because the card groups keep their interchange fees unconscionably low.
That, in turn, forces bank card issuers to charge consumers interest rates that are unconscionably high.
"It's bad for consumers," he stated, claiming that interest rates are 350 basis points higher than necessary.
Opening Salvo from Visa
Mr. Golub hasn't forgotten that it was Visa that launched a mass-market campaign in 1990 attacking the rates that restaurants and retailers pay for what it sarcastically called the "privilege" of accepting the American Express card.
He has no compunction, he continued, about moving forward with his campaign to "educate" consumers about the high prices of bank credit cards.
American Express has been running ads offering "four easy steps to get a lower interest rate on your Visa and MasterCard."
It advises people to ask their banks for a better deal on their credit cards and to call the BankCard Holders of America for a list of low-rate issuers.
Similar Ads Cited
Asked if the ads aren't provoking the card groups to respond, Mr. Golub pleaded innocence. Rummaging through his desk, he unfurled a copy of the Amex ad and several others from Bank of New York that promote its low-interest Consumers Edge card.
One shows a man caught inside an oversized credit card. The copy suggests that consumers are being "squeezed" by high card rates.
"Do you think ours is any worse than this one or," he said, pointing to several others, "this one or this one?"
The card associations dismiss Mr. Golub's attacks and defenses as nothing but smoke.
"There are literally thousands of rates available to consumers today," said David Brancoli, a spokesman for Visa International. "They range from as low as 7.75% to 19.8%."
A High Annual Fee
Furthermore, he said, the annual fee for Amex's green card is $55 - more than three times the $17 average annual fee for bank cards.
"They need to take a look at their own pricing," Mr. Brancoli asserted. Amex is "overcharging merchants, just as it is overcharging cardholders in many cases."
Mastercard agrees with Mr. Golub in one respect: Banks are not covering their costs through the fees they charge merchants for processing transactions.
Consumers May Bear Brunt
Alex W. Hart, chief executive officer of MasterCard, told attendees of the American Bankers Association's annual bank card conference last month that his group will continue to work toward increasing the fees.
But the card groups warn that if they move too quickly, merchants will start passing their higher fees along to consumers.
As for Mr. Golub's arguments about interest rates, Mr. Woods of MasterCard said that the executive is denying reality. Banks have been lowering their rates, and competition between MasterCard and Visa is stronger than ever, he said.
Then he pointed a finger at Mr. Golub's shop.
"Amex has the worst price-value relation of any payment product today," Mr. Woods said. "Consumers know it, and Amex is losing cards as a result. That, in my view, is why he is making the comments he's making."
For Mr. Golub, of course, nothing would be sweeter than to see bank issuers raise their interchange rates.
That would put his card on a more even footing with the fees that Visa and MasterCard pass on to merchants, who would be hard pressed to accept Visa or MasterCard over Amex.
Against the Grain
But Amex's critics aren't backing off. Indeed, they have stepped up their attacks on the travel giant's new advertising campaign, claiming that the upscale image it continues to promote is all wrong for the value-conscious '90s.
Mr. Golub, who proved at IDS that he is no slouch in analyzing consumer psychology, said the critics are wrong.
"If people don't think prestige is relevant, they simply don't understand people," he said.
Mr. Golub said he's willing to suspend the rhetoric if bank card issuers would agree to split up the consumer pie.
His plan: Bank issuers should focus solely on revolvers, those who don't pay off their entire balance every month, while Amex would take the "convenience users" who pay off their balances, many of whom are well-heeled corporate types.
End to Grace Periods Seen
That, he said, would keep both camps happy.
Indeed, he envisions a time when banks will eliminate grace periods on all of their credit cards, driving convenience users into alternative payment vehicles like cash, debit cards, or the American Express charge card.
"That would be better for us, and it would be better for banks," he said.
Bankers could be forgiven for being skeptical.
Despite its problems, the American Express card remains a powerful product. Its parent company is about to pocket $1.45 billion from its sale of the Boston Co., and few bankers doubt that it will again gear up its Optima revolving card attack.
"We believe that [Amex is] going to reintroduce Optima in a new fashion," MasterCard's Mr. Hart told attendees of the bank card conference. "How they are going to do that gracefully is beyond me. But my guess is that they will."
Mr. Golub gives every indication he has something up his sleeve. Visa and MasterCard are "bizarre" if they believe their members would do much better if American Express would disappear, he said.
"If the associations are going to somehow treat us as the enemy," he added, "then we're going to have to deal with that in a competitive environment and deal with it as effectively as we can."