MBNA, AmEx Alliance Begins With a Bang

  MBNA Corp. and American Express Co. launched in November the first of the credit cards planned from their much-ballyhooed partnership, marketing the cards as MBNA Affinity Rewards American Express to over 1,000 affinity groups. Within one week over 300,000 cards were approved for members of alumni organizations, professional groups, and others, according to MBNA.
  The cards carry a variety of rewards, deals, and services that AmEx cards typically feature. In addition, the cards offer automatic enrollment in the MBNA WorldPoints reward program, double points for travel and dining purchases until 2006, cash rewards, travel with no blackout dates, VIP access to certain travel-and-entertainment merchants, and a Web site devoted to the program.
  Both Kenneth I. Chenault, AmEx chairman and chief executive, and Bruce Hammonds, MBNA's chief executive, told CCM sister publication CardLine that the alliance was proceeding nicely, as proven by the initial response to their new product.
  "We are well on our way to a very successful partnership," said Hammonds. MBNA is the third-largest card issuer in the U.S. with over 57 million cards in consumer's wallets, according to the Card Industry Directory, 16th Edition. AmEx is arguably the top travel-and-entertainment brand in the world and counts over 60 million cardholders.
  The two card titans plan a wide variety of card types designed to appeal primarily to affluent consumers who will pick and choose the card they prefer, the executives say. "There will be different offers and different programs for different groups and different organizations," said Chenault. "There will be different products for different customer segments."
  The deal is the first between AmEx and an issuer of MasterCard International and Visa USA credit cards in the U.S.
  The cards are issued by MBNA, carry the blue AmEx logo, and are processed over the AmEx network. MBNA owns the receivables and manages the accounts. Merchants will pay the AmEx discount fee to accept the cards, though specific figures have not been released. Executives have said previously that MBNA will receive a share of the discount rate that AmEx charges merchants. The AmEx fees can be as much as a percentage point higher than the interchange fee that MasterCard and Visa charge merchant acquirers. Acquirers typically pass the fee on to their merchant clients.
  The two associations responded quickly to the launch, hammering away at the chinks in AmEx's armor to their member financial institutions.
  MasterCard noted in a statement that members might hear AmEx's siren song of rich fees. But those members will soon "find they are losing transaction volume because of the smaller number of merchants who accept American Express, particularly outside the United States," MasterCard said.
  The number of Visa and MasterCard merchant locations topped 22 million worldwide in 2003, dwarfing the 5 million locations where AmEx cards are accepted.
  Visa touted its own Signature rewards program, claiming that 35% of consumers who earn $125,000 or more a year are Visa Signature cardholders. Visa has been promoting Signature as an alternative to AmEx, offering top rewards along with widespread merchant acceptance.
  MBNA and AmEx announced in January they would team to issue AmEx-branded cards this year ("Behind the AmEx/MBNA Deal," March). The launch was delayed until the U.S. Supreme Court denied the appeals of Visa and MasterCard to review a lower-court decision that the associations cannot prevent their U.S. financial-institution members from issuing AmEx and Discover cards. AmEx already has issuing partnerships with banks in more than 90 countries.
  A spokesperson for Discover Financial Services says advanced discussions with potential partners were continuing.
  Chenault says that AmEx continues to seek other U.S. banking partners. "We are in conversations with small, large and medium-sized banks," says Chenault. "Stay tuned."