This story almost snuck (yes, I know the grammar nazis would prefer me to use the term sneaked here) by my desk this week. But really, it might be the biggest economic indicator of the week. So it’s worth commenting on.
You see, American Express is offering $300 to certain customers if they close their accounts. Sounds nice. But it’s really a brilliant chess move from AMEX.
Why would a credit card company offer $300 to remove card holders when for the last decade credit card companies have been trying as hard as possible to gain market share (number of card holders) in order to impress stock holders? Have you figured it out yet? Yeah, it took me a few minutes too.
Basically, here’s what’s going on. American Express sees the writing on the wall. Our economy is going to hell. People are losing jobs at ridiculous rates. The more people who lose their jobs the less people who can pay off their credit card balances, and the more credit defaults that card companies have to deal with.
Ah. Now it’s starting to make sense, eh?
American Express is basically trying to get people to pay off their credit card balances before they lose their jobs. Makes total sense. Put a carrot out there to get as many risky accounts to pay off their debt as possible so that when the impending credit default crisis finally rears its ugly head, American Express will have buffered its impact as much as possible.
“What AmEx is trying to do is move to the front of the line in terms of getting paid back” by customers who owe debts to multiple lenders, said Michael Taiano, an analyst at Sandler O’Neill & Partners.
Brilliant move. But really, a terrible economic indicator if ever there was one. What we are seeing here is one of the most profitable companies in the world betting on massive job loss in the coming years. Take my word for it. Removing card holders goes against everything this company stood for over the last decade. It cuts against the fundamental business model of acquiring market share that has so dominated this industry. Only something radical could bring about these states of affairs.
