American Express Wins Major Government Contract
NEW YORK (AP) _ American Express Co. today won a major government contract to provide corporate charge cards to some 900,000 federal workers, defeating Citicorp’s Diner’s Club subsidiary for the job, a government agency said.
The U.S. General Services Administration said it expects to save $120 million over a five-year period with the new American Express charge card contract. Federal workers charge an estimated $2.5 billion on the cards each year.
Roger Ballou, president of American Express Travel Related Services Group, said the government contract amounted to ″the largest commercial card account in the world.″ The company spent two years developing its bid.
″We are clearly going to be profitable on this contract,″ Ballou said.
Ballou said this even though American Express is paying the goverment $18 million, or $20 a card, to make the transition from Diner’s Club to the new American Express corporate charge cards.
Loss of the contract is a blow to Diner’s Club, which analysts say has had difficulty expanding its market share in recent years. The government contract accounted for about 10 percent of Diner’s Club’s worldwide charge volume and about 40 percent of its nearly 2 million U.S. cardholders.
″It was the lifeblood of that whole program,″ said Robert McKinley, president of Ram Research Inc., a credit card consultant in Frederick, Md. ″For all intents and purposes, Diner’s Club was a government travel and entertainment card.″
Diner’s Club said they believe their bid had superior technical aspects ″but fell short on the financial consideration side.″
″As much as we hate to lose a major customer, we can’t afford an uneconomic relationship,″ said Robert Rosseau, president and chief executive officer of Diner’s Club. He said despite the loss, ″our overall business and commitment to customers has never been stronger.″
American Express has about 5 million corporate cards. It claims a 26 percent share of the $130 billion corporate travel and entertainment market, according to Roger Ballou, president of American Express Travel Services Group.
The corporate card segment is one of the fastest-growing elements of American Express’ charge card business, which has been under pressure from lower-cost bank card issuers that have expanded aggressively in recent years.
The number of American Express charge cards has dropped 2.5 million since 1990, while Visa International gained about 49 million during the same time period.
″American Express needs all the help they can get right now,″ said McKinley. ″It would be a boost for them.″
Total corporate card spending grew 9.8 percent at American Express last year, much faster than spending on its trademark green card.
The new government contract becomes effective Nov. 30.