What the "Black Card" Really Means to American Express

When it comes to credit cards, the "Holy Grail" seems to be the American Express (NYSE: AXP  ) Centurion Card, known to most simply as the "black card". This is perhaps the most exclusive and sought-after card in the world and it is extremely selective.

Just to qualify for the card, you need to have spent and paid off $250,000 on another American Express card -- and even this may not be enough. Even though it's not a huge part of the company's profits, the black card is a great example of why American Express' products are simply much more unique and innovative than Visa (NYSE: V  ) or MasterCard-branded cards.

The price of admission
Even if you qualify, you need to be prepared to pay for admission into the exclusive black card club. After a $7,500 initiation fee, you'll be billed for an annual fee of $2,500. So, you'll spend $10,000 on your black card before you even buy anything! Want an extra card for your spouse? It costs another $2,500 for each additional card.

Even if you have the cash, you may not be able to get it. American Express offers the Centurion card to very high-income or high net worth individuals. According to one report, card holders average about $1.3 million in household income and have a net worth of more than $16 million.

Why would anyone pay so much for a credit card?
Depending on how much you use the perks, $2,500 per year might be a great bargain. The automatic airline status (Delta SkyMiles Platinum, USAirways Platinum, and Virgin Atlantic Gold) and hotel VIP treatment can be worth more than the annual fee all by themselves to frequent travelers. And don't forget the free companion tickets you're entitled to on certain airlines.

You also get access to the Centurion airport lounges, which anyone can tell you are much nicer than even the best lounges offered by any airline, but those are free to use as well.

In addition to the travel perks, you get a 24-hour dedicated concierge service and access to personal shoppers at high-end retailers. In fact, upscale stores have been known to close down to the public to let a single Centurion cardholder shop!

What it means to Amex
In terms of money, quite a bit actually. Amex doesn't release the official numbers, but estimates put the total worldwide Centurion card holders at around 100,000. The company doesn't get interest income from purchases, because their cardholders pay in full each month.

Let's be reasonable and say the average black card is used for $500,000 annually in purchases. The minimum annual spend is $250k, so I assume some cardholders spend much more.  Amex charges merchants about 3.5% of every purchase, so this means they would make $17,500 in fee income from each card holder, or $1.75 billion total. So, in this very optimistic calculation, the black card accounts for about 5% of Amex's annual revenue. The annual fee might cover the company's cost of the card's perks, but probably not, so the actual income from these cards might be less.

Imitation is the sincerest form of flattery
More important than the money it brings in is what the card does for the company's image. Up until the Centurion card was introduced in 1999, the American Express Platinum card was the most respected credit card in the market, and is still the normal "transition card" with which people qualify for the Centurion.

In an effort to lure over some of American Express' clientele, Visa created its own black card (actually called the "black card"), but it really doesn't even come close. The perks really pale in comparison; no airline status, no Centurion lounges, no hotel VIP perks, but it's missing something else as well. The card isn't an exclusive "club", meaning anyone with good credit can go online and qualify for the card.

The bottom line
So far, American Express has been the only company successful at creating an exclusive "club" of cardholders. Until other card issuers can create a product as well-respected and coveted by consumers, American Express will always have a unique competitive advantage which allows them to charge higher fees than the competition. Why else would Amex be the only card issuer Warren Buffett is willing to put his money into?

How will American Express deal with what's next?
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