Citi, Amex’s Partner, Also Rival with New MC Card
In the increasingly competitive payments market, MasterCard International can now claim at least a symbolic victory over American Express Co.
This week Citigroup Inc. said it had developed a MasterCard product that would compete with Amex’s Platinum card for affluent customers. The irony was not lost on observers. Citi, after all, had recently said it would begin issuing Amex cards this year.
The announcement also came a week after MasterCard told its members that it would raise interchange across the board and create a new interchange schedule for its upscale World cards. Citi says the Chairman Card, which it expects to start offering March 1, was in development before any announcement was made on new interchange rates. A spokeswoman for Citi said it chose the World platform for the new card because of its attractive rewards programs and its lack of a preset spending limit.
But the plan to issue the Chairman Card serves as a reminder of something Amex’s chairman and chief executive, Kenneth I. Chenault, said recently: “In the world we live in today, you’re both a competitor and a partner.”
That world was created in October, when a Supreme Court decision to let an earlier ruling stand freed Amex and other network operators to work with the bank members of MasterCard and Visa U.S.A. MBNA Corp. has begun issuing Amex cards.
“I am competing day in and day out with a number of banks, not only in retail financial services, but obviously in payments,” Mr. Chenault said during a conference call last week. “I am also competing with network partners. So if you ask Al Kelly, who runs the proprietary consumer card business [at Amex], if he considers MBNA a strong competitor, he will tell you that he wakes up trying to figure out how to beat them every day.”
Because the Chairman Card is a World card, transactions made on it will be subject to higher interchange rates than transactions made with typical MasterCard products. One transaction category will have a rate higher than American Express Co.’s 2004 average of 2.56%, but the rest will be below that average.
Amex has said the fact that its cardholders spend more on their Amex cards than on other card brands justifies its higher interchange rates.
Its merchant pricing is “set on the value we deliver to merchants,” Christine S. Elliott, an Amex spokeswoman, said Thursday. “We cannot comment on our competitor’s reasons for raising their rates. They can arbitrarily raise them, because they have monopoly power. We don’t arbitrarily raise our rates. We have to prove our value.”
(In November, Visa said it would create a new fee structure for its Visa Traditional Rewards and its high-end brand, Visa Signature. The new structure will increase interchange by an average of 6.5%.)
The Chairman Card’s higher rates will help pay for cardholder benefits that are similar to those of the Amex Platinum card, including free companion airline tickets and airport lounge access — the types of things many high-income businesspeople favor.
In a January memo, MasterCard said that it had enhanced its cards’ benefits “to meet affluent cardholders’ demands for superior purchasing power and a robust rewards program.” The higher interchange rates will “ensure a competitive offering for members and merchants,” the memo said.
The Chairman Card will not carry any network brand on its face. The World MasterCard logo will appear only on the back of the card.
“Our strategy is to attract and retain high-net-worth clients,” said Pamela Parker, a managing director and the director of client and account services at Smith Barney, the Citi unit that helped develop the Chairman Card.
The card will carry an annual fee of $400, or $5 more than the Amex Platinum card, and will be marketed first to Smith Barney customers who have at least $1 million of assets and spend $10,000 a year on commissions. The commission requirement is waived for those with more than $5 million of assets.
Eventually the card will be offered to others, but on an invitation-only basis, Ms. Parker said.
“We didn’t look at competitors” when developing the card, she said. “We asked clients, ‘What do you care about? Is it about companion tickets?’ We went through a host of benefits and features.”
Another feature that proved popular among customers is similar to one offered by regular airline frequent flier cards. Customers who use the Chairman Card to buy airline tickets will receive a point for each dollar spent as well as a point for each mile flown. The points can be used for awards such as admission to special events custom-designed for cardholders. Customers will also be able to claim miles through their own frequent flier programs.
Free companion tickets and airport lounge access are “the only two reasons I am willing to pay more than $300 for a credit card,” said James L. Accomando, the president of Accomando Consulting Inc., of Fairfield, Conn., and a longtime Amex Platinum cardholder.
He said he had used the free companion ticket offered by Amex to bring relatives along on trips to Asia, and he often uses airport lounges, especially when traveling with his family.
Issuers have worked on such cards before but have never really offered an alternative to Amex Platinum before, and “it’s about time” someone did, Mr. Accomando said. “There are going to be more” offerings from other issuers. “A lot of larger issuers are targeting the wealth segment as a new target.”
The high fee is necessary to fund the benefits that come with such cards, Mr. Accomando said. “I think Citigroup will pack in more than $400 in benefits to the consumer.”
Citi already issues the World MasterCard. A MasterCard spokesman would not say how many World MasterCards are in circulation or how much cardholders spent on them.
