In an era when new players are constantly emerging to knock more traditional competitors out of the box, an institution's ability to shift gears and redirect strategy is paramount.

So when American Express's charge card strategy began to falter several years ago, the company changed course, introducing a credit card offering in hopes of generating the kind of revenue growth experienced by card issuers like MBNA. But to the dismay of Amex officials, Optima's performance was far less than optimal. "They did not have the proper credit management tools and credit policy people in place," says an industry analyst, speaking on the condition of anonymity.

In the aftermath, American Express regrouped, coming out with a financial services strategy that may be showing modest gains now (about 8 percent growth in the card business this past quarter), but, sources say, promises far greater earnings down the road. The strategy includes the issuance of a bank-branded franchise card, a bank network card akin to bank-issued cards from Visa and MasterCard and extensive development of its financial advisory services offering, incorporating a sophisticated direct banking program called American Express Finance Direct, reportedly operating at a loss of $30 million for 1997.

American Express president Kenneth I. Chenault acknowledges the company's development hinges on growth in global card acceptance, network card services and financial advisory services. And while he's prepared to pursue consumers directly, Chenault would prefer distribution through banks. But in the United States, neither Amex's franchise card nor its network card can be issued by Visa and MasterCard banks as yet.

Nevertheless, having fine-tuned its credit card offering, Amex's no- and low-fee cards are gaining popularity. And the company's made a big push into merchant acquisitions, says James Beam, director of retail services for The Tower Group. As a result, Amex's card acceptance is gaining "ubiquity"-the ultimate goal of any successful card scheme. And if the company can "develop products that meet more than the needs of just the travel and entertainment consumer and meet the needs of the common man, too," they will win significant market share, says Moshe Orenbuch, research analyst of Sanford C. Bernstein.

And what has thus far been a $30 million drag on earnings, is the one program that analysts see as the beacon for the future of American Express Financial Advisors. Finance Direct "is one of the best direct bank offerings in the industry," says Price Waterhouse's Gary Meshell, managing director of electronic financial services.

What makes Amex the best, he says, is its robust customer segmentation strategy, a target marketing approach that homes in on persons with the greatest potential to become large share-of-wallet customers. Amex's direct bank is able to take that information and sell consumers products through electronic channels. "You will also see Amex take the leadership role in the whole area of interactive marketing, being able to diagnose needs, do pattern-driven analysis (and) event and behavior analysis to predict the most likely product (customers will buy)."


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