It’s a category American Express Co. virtually invented and one in which the company boasts a distinctive cachet. And AmEx’s brand equity is the envy of competitors. The credit-card market of 10 years ago? No, it’s today’s $56 billion global travelers-check market. Yet, just as has been done in credit cards, Visa International is stealing share from AmEx.
It’s a cash cow AmEx can hardly afford to lose. Travelers checks were worth as much as $100 million of AmEx’s $789 million in 1991 earnings. Like other travel industry stalwarts, AmEx pointed to 1991’s double whammy of the Gulf War and the recession for its losses in share and sales. The market shrank by $2 billion last year, to $56 billion. Much of that came from AmEx, which sold $23 billion of its “cheques,” a decrease of $2.3 billion from 1990.
But in the same environment, Visa gained on both fronts. Sales of Visa checks rose $2.1 billion, to $15.8 billion. AmEx still leads the category with a 41% share, but Visa is a solid No. 2 with 28%, and growing.
Is another AmEx franchise at risk? The majority of check sales occur outside the U.S. And there, Visa claims it is now the leading brand by dollar sales. “In Latin America, Asia and the Pacific we’re seeing good [market] growth,” says Tom Gallagher, Visa’s vice president of travelers cheques. “But any gains we make in the U.S. are coming at the expense of others.”
For its part, AmEx grudgingly acknowledges the contracting situation but refuses to credit Visa’s efforts. “Some competitors like to talk about their tremendous growth,” shrugs Bruce Grieve, vice president of consumer markets at AmEx’s Travel Cheques unit. “We’ve demonstrated that we are vastly preferred to our competition [by consumers].”
In the U.S., the competitors have selected different strategies. Building on its venerable presence, AmEx pitches directly to travelers. Visa rakes the trade turf of the banks that issue the checks.
In that arena, Visa has worked for a dozen years to erode AmEx’s standing. When Visa entered the business in 1980 with a no-fee offer to banks, it forced AmEx to abandon its fee schedule, as much as 33% of the banks’ commission. Profit for all issuers now stems from the “float,” the interest earned between the time travelers buy their checks and the time they cash them. And today’s low rates has sharpened competition.
Visa claims its refund network of member banks is superior to AmEx’s 1,700 travel offices and outlets. “We have 350,000 brick and mortar refund locations,” Gallagher boasts. But those banks may not be as service-oriented as AmEx’s outlets.
And regardless of the size of Visa’s network, AmEx’s brand equity seems unassailable. AmEx had a hand in the invention of travelers checks more than a century ago and has steadily maintained its consumer identity, spending an estimated $12.7 million on U.S. advertising last year, compared to Visa’s $4.1 million.
Indeed, Visa can continue to make inroads into the AmEx bulwark. But it won’t supplant the familiar purple cheeks until it finds some way to diminish AmEx’s brand equity. Even Gallagher admits that the perception is that AmEx’s checks “are the most well-known and accepted.”
Still, Visa has chosen to avoid an ad battle with AmEx. Instead, it’s content to romance the banks, many of which compete with AmEx in the lucrative credit-card market. Visa’s don’t-help-the-enemy pitch has been effective enough thus far. “More share erosion is inevitable,” says Guy Moszkowski, who follows AmEx for Sanford C. Bernstein & Co. “Banks feel much more closely aligned with Visa.” Visa cements the relationship further by imprinting the check with the bank’s name as well as its own logo. AmEx won’t put a bank’s name on its travelers checks. But it also won’t be lowballed on float deals, and will customize terms to a bank’s advantage when pressed. “It’s well known AmEx won’t lose a traveler’s check deal on price,” says Richard Robida of Speer and Associates, an Atlanta financial services consultancy.
AmEx also counters Visa’s challenge by reminding banks that AmEx remains the most requested brand of checks. “If they want to play up the fact that we compete with banks in other areas, there are plenty of examples today where companies are selectively competitive,” Grieve says.
Just in case, AmEx has reinvigorated its consumer pitch this year, introducing two customized line extensions. For business clients, it has created corporate travelers checks, which companies issue to employees instead of cash for “around-town money.” A splashier rollout and ad support have accompanied the leisure market “Cheques for Two,” which brings the convenience of a joint account to travelers checks. Two persons can sign the checks and then either may cash them.
The industry faces a challenge of the rising acceptance and use of credit cards. But AmEx’s research concludes that its base is still sound. “As far as secure payment and refundability, travelers checks are the preferred travel payment instrument,” Grieve says. “And that’s an important consumer need that credit cards and ATM cards just can’t meet.”