American Express Rolls Out Cash Rebate Card

Following the trail blazed by the Discover card, American Express has launched a new card product that gives users cash rebates. How will it attract new cardholders in a market segment already populated by large issuers? American Express will simply pay people more to use its card.

Alfred J. Kelly, Jr., president of American Express' consumer card services group, told the American Banker that a key lesson the company learned through it market research was that people will switch cards to get more money back. Consequently, holders of the new Cash Rebate card will be able to earn as much as 5% cash back on certain types of purchases. The reward rules are complex, but designed to encourage everyday use. The lowest rebate is 0.25% for cardholders who spend less than $2,000 per year. The rate rises to 0.5% for total purchases between $2,000 and $6,000 a year, and 1.5% for charge volume in excess of $6,000 per year. In addition, an "everyday spending" feature gives cardholders a double rebate when they use the card at supermarkets, drug stores, gas stations and home-improvement stores. If they revolve a balance, they get an extra 2%.

Kelly said "Discover will kill its economics if they try top copy that. We have a differential on the discount rate" which allows American Express to offer larger rebates and still turn a profit. Larry Sharnack, senior vice president for lending at American Express added that their market research revealed that the two most important features it could add in launching a new rebate card were the potential for higher rebates, plus the incentive for everyday usage. The latter "gets the consumer to use it and get in the habit of pulling it out of their wallet."