How American Express Went From Freight to Financial Services

1.The company began with physical movement, not finance

American Express was formed in 1850 by the combination of express businesses associated with Henry Wells, William Fargo and John Butterfield.

Its original business moved parcels, valuables and other goods. [S6]

2.Trust became an economic asset

Moving valuable items required customers to trust the company.

American Express had to build a reputation that a package, document or valuable could be handed over and delivered reliably.

That reputation later became useful in financial products.

3.The network came before the card

The nineteenth-century express system created offices, agents and relationships across a growing geographic network.

The company learned how to coordinate transactions across distance before electronic payments existed.

4.Travel exposed a different problem

Customers moving across cities and countries needed a safer way to carry money.

Cash was risky.

Bank relationships did not always travel easily.

5.Travelers Cheques converted trust into a financial product

American Express introduced the Travelers Cheque in 1891. [S6]

The product solved a simple problem:

How can a traveler carry value in a form that can be replaced or recognized across locations?

6.Travel services deepened the customer relationship

American Express began selling tickets, arranging rail and steamship travel and helping customers plan trips.

The company was moving from transporting objects to facilitating people and money.

7.World War I disrupted the original express business

The U.S. government consolidated private railroad express operations during World War I.

American Express exited the freight-forwarding business that had originally defined the company.

8.The company kept the assets that traveled well

What survived were not the freight depots.

The durable assets were:

• trust;
• financial instruments;
• travel relationships;
• service;
• international presence.

9.The first charge card arrived in 1958

American Express launched its first Charge Card in the U.S. and Canada in 1958. [S6]

The card turned the company's existing travel and service relationship into a payment relationship.

10.The card solved a familiar travel problem

A business traveler could now pay for meals, hotels and travel expenses using one trusted relationship rather than carrying large amounts of cash.

11.Corporate Card extended the model to employers

The Corporate Card launched in 1966.

This changed the customer from only an individual traveler to an enterprise trying to manage employee spend.

12.The network opened internationally

American Express began partnering with other financial institutions to issue cards and expand acceptance outside its proprietary footprint.

13.Membership changed the psychology of the product

The company began emphasizing Card Membership, customer tenure and service.

The product was no longer marketed only as a payment mechanism.

14.Premium cards made service monetizable

Platinum and later premium products turned travel, access and service into something customers would pay annual fees to receive.

15.Lending expanded the economics

The introduction of revolving credit products meant American Express could also earn interest income from eligible balances.

16.Merchant relationships became as important as cardholders

A payment card is useful only when merchants accept it.

American Express invested in acquiring merchants and expanding acceptance.

17.The company became a financial-services institution

By the late twentieth and early twenty-first centuries, American Express had become primarily a payments, lending, merchant and Membership company.

18.The historical thread is still visible

The modern company still revolves around movement:

• money moves;
• people travel;
• purchases move through a network;
• information moves between customers and merchants.

19.What Actually Changed

1850 FREIGHT NETWORK
↓
1891 TRAVEL MONEY
↓
TRAVEL SERVICES
↓
1958 CHARGE CARD
↓
1966 CORPORATE CARD
↓
PAYMENTS + LENDING
↓
PREMIUM MEMBERSHIP PLATFORM

20.What Stayed the Same

The core intangible assets remained trust, service and the ability to coordinate a network across distance.