Goliath may stomp on David when the government awards its travel and entertainment card contract in the next few weeks, according to industry sources.
They say American Express Travel Related Services Co. is poised to win the General Services Administration business away from Diners Club International, the Citicorp unit that has provided the government charge cards for 10 years.
American Express is by far the larger T&E card provider in terms of merchant acceptance, cardholders, and volume.
Banks, for their part, are out of the competition. First Bank System Inc. of Minneapolis, the leading Visa business card issuer, expressed interest in the contract but did not bid.
Downside for Banks
The General Services Administration does not pay a fee for each card. This puts banks at a disadvantage, because Diners and American Express make their money by charging higher merchant discounts.
The five-year government contract represents 860,000 cardholders and $2 billion in annual volume, said Allan Zaic, GSA's director of services acquisition. Diners' contract expires Nov. 29.
"It has been competitive," Mr. Zaic said. "Certainly, we wanted to open it up to as many vendors as we can." The contract was not written to exclude bankers, he added.
Smaller Contract
A second government card contract, covering small purchases, is currently held by Rocky Mountain BankCard System, a Denver-based First Bank System affiliate. The pact expires in March 1994.
The travel and entertainment contract "would be a feather in [American Express'] cap," said H. Spencer Nilson, president of The Nilson Report, which reports that Amex has 56% of the corporate-card market. Diners claims 11%.
Volume Is Key to Profits
Government T&E cardholders could give American Express a net increase in cardholders for this year. At midyear, Amex said it had 34 million cardholders, down 6.8% since 1990, though its corporate cards -- 5.4 million -- are growing. Its largest corporate account has 100,000 cards.
"American Express makes money on volume," said James P. Hanbury, an analyst with Wertheim Schroder. "This will add volume. It's a pretty important business for them. It's something they ought to have."
Not everyone in the government uses the travel and entertainment card. And those who do, use it a third of the time, according to The Nilson Report.
The GSA card could generate as much as $10 billion over five years. Loss of that volume would be a blow to Diners, which handles about $20 billion a year in worldwide charges.
Under its contract, Diners also provides travelers with checks and access to automated teller machines. To maintain contact with its government clients, Diners opened a Washington office four years ago.
Incumbent's Advantage
"Very often in Washington, the incumbent on any contract has the clear advantage because they know what the needs are, they know the hot buttons, they know what problems there are," said Stanley W. Anderson, president of ProCard Inc., Golden, Colo., a consulting firm in the business-procurement area.
"The government's a very important customer for us," said a Diners spokesman. "We've worked hard to meet their needs."
In addition to the federal government, Diners serves 21 state governments and a number of colleges.
The bulk of Diners' 2.3 million card-accepting merchants cater to business travelers. Diners claims 100% acceptance at airlines, hotels, and car rental companies, and 81% acceptance at table-service restaurants.
American Express dwarfs Diners, with its 3.4 million merchants and $117.6 billion of annual charge volume. Determined to nab the GSA contract, it formed a task force more than a year ago.
Last month, Amex developed a direct-deposit system, which gives government and corporate. clients the ability to deposit travel reimbursements into employees' accounts.
