Two and a half years after launching what it called a "major card-issuing alliance," Canadian Imperial Bank of Commerce is discontinuing its issuance of American Express cards in Canada.
CIBC spokeswoman Susan McDougall said that as of Oct. 31 the Entourage cards will no longer be accepted for purchases. All Entourage cardholders were sent a letter last week informing them of the cancellation and offering them replacement CIBC Visa cards. Phone calls to all Entourage cardholders will follow soon, the company said.
The cards "weren't meeting our financial objectives," Ms. McDougall said. She would not say how many Entourage cards the Toronto company has issued or detail the financial shortfall.
CIBC would not state the original length of the Amex contract, but its processor, Total System Services Inc., announced at the kickoff of the card in January 2002 that its service contract was for five years, which suggests that the issuing contract was at least that long.
American Express Canada spokesman David Barnes confirmed that it was CIBC that pulled the plug on the venture, which was American Express' first and only current card-issuing partnership in Canada. "It is fair to say the products weren't meeting financial objectives for CIBC or American Express," he said. "The deal was structured in a way intended to be mutually beneficial, and that hasn't materialized."
CIBC had control over issuance, receivables, advertising, pricing, and brand management, with Amex handling only network services. The banking company offered three cards under the Entourage name: a consumer card with a microchip, and chipless platinum and small-business versions.
The Amex chip featured only one program, called LockIt, which lets customers use a card reader and PIN to make secure Internet purchases. Unlike most U.S. smart card issuers, CIBC charged customers $50 for the reader.
Mr. Barnes pointed out that MBNA Corp., which in January said it would become the first U.S. Visa and MasterCard issuer to offer Amex products, will also issue Amex cards in Canada. He said the failure of the CIBC partnership has no bearing on the deal with MBNA, which is the fourth-largest credit card issuer in Canada.
Card companies in Canada can issue either Visa or MasterCard, but not both.
"It doesn't change the strategy," Mr. Barnes said. "I wouldn't be reading into that there is a connection with any other partnership."
The CIBC deal seemed a template for the partnerships American Express has been talking up lately. In recent months the New York company has been touting the benefits to banks of issuing cards on its network in the United States. (These efforts anticipate clearance from the U.S. Supreme Court in the antitrust suit brought by the Justice Department to let U.S. Visa and MasterCard banks issue American Express.)
At a June 3 conference in New York, American Express Co. chairman and chief executive Kenneth I. Chenault said U.S. issuers besides MBNA were in talks with his company.
Mr. Chenault has said repeatedly in the past year that his goal is to make Amex the primary network for high-spending, affluent customers. The risk and expense of running the transactions over its network are minor compared to the potential new revenue, he said. He has further said that issuers would benefit from Amex's higher merchant fees, and that this benefit makes the cards ideal for customers who use them frequently.
According to The Nilson Report, a payments publication in Oxnard, Calif., almost twice as many Canadian merchants accept Visa and MasterCard than American Express. In 2003, Visa and MasterCard each had 600,000 Canadian merchant locations, against 350,000 for American Express.
When Amex announced the CIBC deal it boasted of its chip expertise and the fact that the Entourage card would be the first smart card in Canada. But apparently the chip was not an attractive enough feature for CIBC to continue.
Though Visa Canada has announced plans to convert its cards to chip over the next several years, CIBC, Canada's largest issuer, is not offering a chip on any of its Visa replacement cards.
All parties were fairly terse on the subject in phone conversations Thursday. Visa Canada spokeswoman Terry Tweddle said only, "Our members are free to make decisions they feel are best for their businesses."
