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Discussion in 'General Discussion | Credit Cards' started by toddreg, Jan 13, 2013.
Points cost money to the issuing banks. As the cost of points goes up the bonus numbers are likely to go down. Otherwise the acquisition costs of the customers spike way too high.
It is not clear we've hit an inflection point yet, but I'd say we are closer than ever before.
Like the Fox link above noted, I do agree many of Amex's products are less and less unique and there are a lot of them. In other words, to me it seems difficult to distinguish yourself when you have so many different products, many of which look so much like your competitor's products.
FWIW, it is a Dow Jones News wire piece, not a Fox story. Just in case that alters anyone's view of the information.
Good point. I just edited my post to read link instead of article to perhaps minimize confusion.
These layoffs are unlikely related to signup bonuses in any way, except in the most indirect fashion imaginable.
That is, if current signup bonuses were attracting so many widely profitable customers so as to dwarf the costs involved in these personnel, then one imagines Amex might not have pulled the trigger even though they either didn't need these folks or they weren't generating profits themselves.
I think we can rule that out!
But Amex will offer bonuses to the extent that they either (1) help the marketing department meet their new cardholder signup targets, or (2) attract customers who drive Amex profits.
Sadly from a business perspective I often think the driver is more #1 than #2, and that suggests that bonuses on the whole may be higher than makes sense from a financial perspective, and eventually in spite of dysfunction that encourages overspending to acquire a customer they'll realize it's not a profitable strategy.
On the other hand, the bigger bonuses rarely come out of Amex. And most that do come with higher spend requirements which may well correlate with more profitable customers. The recent 100k Amex Platinum bonus and the recent 70k Delta signup bonus are outliers in that regard, both were short-lived as well, and probably intended to be a bit more targeted than they wound up being.
So if anyone is likely to scale back on signup bonuses, one imagines it would be Chase. And Chase actually seems to have a higher profit per customer than some of their competitors like Citi anyway.
All in all I'd say the layoffs are analytically separate from the question of customer acquisition spend, except that overall Amex isn't as profitable as they want to be under their current strategies -- hence the layoffs and perhaps a look at their customer acquisition spend to see whether it makes sense. They could decide to INCREASE that spend if they are acquiring profitable customers, or reduced that spend if they are not. Of course they might wind up doing that ANYWAY, entirely apart from the question of layoffs!
Good analysis Gleff. The other issue with Amex is the CC costs to their merchants. I get asked by restaurants (mostly in canada) that take Amex if I would use another card like visa or MC whose merchant charges are much less. The other thing with Amex is that they apparently have an incredible amount of unused points that go back several years since they have no expiry dates (I have one friend who has held 650K points for the last 10 years and has reduced his card to basic green). Those points sit on their BS as a liability. Layoffs at banks and quasi banks like Amex are more the norm these days as they drive technology to offset human costs.
In Canada they have many TA's who work from home on a low salary and good commission base.
I agree that the layoffs are unrelated to the points, mostly because the company explicitly says they are. The layoffs are coming in their travel space, not marketing, partners or credit.
But that doesn't mean the $342mm charge related to points costing more than expected at redemption time will not have an impact down the line in terms of customer acquisition costs and bonuses paid out. If the long-term view of the points is that they are more expensive today than they were yesterday and the customers being acquired are not as profitable then that should lead to lower bonus offers or earning rates.
And perhaps lower referral fees if it turns out those customers that are being referred aren't as profitable as expected.
Amex is trying to recover by raising the membership fees for their platinum cards in particular.
In any specific markets? The USA fees haven't changed in a few years AFAIK.
Only on a ff bb like this would this question arise when people are losing their jobs
Fees for platinum cards at least in Canada and parts of Europe have definitely changed. They have announced a $200 increase for the next renewal of my card, albeit they have also offered a $200 on the first trip charged through an Amex travel office. I'm not sure how much they have raised UK platinum cards.
Amex has been on a push towards better technology in thie business and their TA business has suffered a lot. I'm sure business is way down in the US their major market and thus the costs to acquire and keep customers have risen. Their points liabilities must be quite high, which is not really a cash loss but a liabilitiy none the less
AMEX is a global company in case you hadn't noticed
.....sad that so many people are getting fired. This fact seems to get lost by many here.
I don't think that fact is getting lost; I think that it just isn't germane to the discussion. The layoffs have nothing to do with the MR points side of the business.
Doesn't matter to me, it's the human side that counts here.
I read the thread title and the story in the media and don't find it difficult to reply "on topic".
My thoughts line up perfectly with thoose of gleff so won't bother to repeat them.
Thanks to those who are thinking of us . I expect cuts to come in all areas. Marketing, credit , MR, technologies, all staff groups. Whatever happens we are still here to take care of our card members.
Love you guys. My favorite bank. <3
...Though a story I read this morning in WSJ specifically mentioned that AmEx is having problems now that more MR points are getting redeemed. Offering fewer points or devaluing them would be one solution.
Yes, they are. The story linked above talks about that with some detail.
Also, from an AP version of a story on the same topic (http://articles.washingtonpost.com/...4_1_american-express-travel-business-job-cuts):
From NPR (http://www.npr.org/blogs/thetwo-way/2013/01/10/169089928/american-express-to-cut-5-400-jobs):
From Bloomberg (http://www.bloomberg.com/news/2013-...osts-tied-to-5-400-job-cuts-at-lender-1-.html)
From CNN (http://money.cnn.com/2013/01/10/investing/american-express-jobs/index.html)
I really struggle to see how the layoffs can reasonably be spun as a massive change in the points side of the business.
I do think that the way points are distributed and accounted for in their systems will change. That goes to costs of customer acquisition and costs of financing deals with airlines and many other factors. But, at least right now, not to layoffs announced, at least IMO based on the story being told.
These quotes seem to be the operative ones. The layoffs are nearly all related to Travel not cards nor other business liens. Surely they will have some staff reductions in Cards too, but that is not the focus. Everyone in the travel agent business is having a very hard time American Express too. They've held on for a long time, probably too long. That is mostly not about the card business, let's not overreact.
It seems keeping Amex points is not as safe as we think.
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