The American Express card has always seemed to possess an aura of exclusivity. The perception was fomented by the credit card’s ties to its parent company’s jet-setting travel business, as well as a long-standing requirement (since loosened, but still offered) that cardholders pay off their balances at the end of each month. Banks generally did not issue AmEx cards, as they do MasterCard and Visa cards. Well, there apparently was a reason for that: The two competitors imposed restrictions on member banks against issuing rival cards, such as Discover and American Express. In 1998, the US Department of Justice sued MasterCard and Visa on such grounds and, three years later, a court ordered the companies to eliminate the rules.
In the most recent turn of events, AmEx announced this week that MasterCard will pay the company $1.8 billion to dismiss the antitrust claims against them. The settlement comes on the heels of a similar $2.25 billion agreement that AmEx reached with Visa near the end of last year. Together, the $4 billion-plus MasterCard and Visa payouts to AmEx represent the largest antitrust settlements to one company in US history.
Beginning in the third quarter, MasterCard will pay AmEx $150 million per quarter over the next three years. Visa already paid about half of its settlement in the fourth quarter of last year and is making payments of up to $70 million per quarter through 2011. The combined payments will add some $880 million annually, to AmEx’s coffers until then.
The settlements come at a fortuitous time for AmEx. They not only provide the company with a windfall of cash, which will help AmEx, besieged by credit card account defaults and write-offs, to weather the current credit crunch. They should also allow AmEx, which has already inked card-issuing agreements with big banks such as Citigroup and Bank of America, to further expand its client base by making its products available through even more channels.
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