American Express (NYSE:AXP) has been the most effective credit card issuer at creating exclusive "clubs" of card members for some time now. When introduced, the original American Express "Platinum" card was considered to be the most prestigious card you could have in your wallet, and over time, the Amex clubs have gotten even more exclusive, like the Centurion, or "black card" today.
However, American Express hasn't been able to effectively mass-market their cards as well as its peers. Estimates put the total number of Amex cards in circulation at about 104 million worldwide versus 800 million for Visa and 731 million for MasterCard.
However, I think the company is on the road to major growth with its latest partnership.
One solution that could help catapult American Express to the next level
In contrast to this, American Express recently announced a joint product with Wells Fargo (NYSE:WFC) called the "Propel" cards, which come in two varieties.
This could open up American Express' products to a whole new batch of prospective customers, namely Wells Fargo's 70 million banking customers. Wells has said it wants to put a Wells Fargo credit card in every one of their creditworthy account holders' wallets, and Wells Fargo is very good at cross-selling their products to their customers.
The Propel credit cards come in two varieties, known as the Propel 365 and Propel World. One of the keys to successful cross-selling is to know what your customers want, and that is what Wells is trying to do with these products.
The Propel 365 maximizes benefits on their customers' "everyday" spending, offering triple rewards points on gas purchases and double points at restaurants for a pretty competitive $45 annual fee (waived the first year).
The Propel World card is oriented more toward the bank's business clientele, and offers triple point on airline purchases and double points at hotels. The World card also offers $100 in travel incidentals reimbursement, as well as free upgrades and amenities such as free breakfast at more than 1,000 hotels around the world.
Not surprisingly, these benefits come at a higher price. The World card's annual fee is $175, but like the 365, it is free for the first year.
I previously mentioned how Wells is great at cross-selling their products. To that end, both cards offer generous reward bonuses to existing Wells Fargo customers. Those customers who have a checking account with the bank get 10% more reward points. With a PMA checking package (the company's premier account), the bonus jumps to 25%. And, with more than $250,000 in total assets with the bank, a 50% reward bonus is offered.
What's the potential?
According to Wells Fargo's "Vision and Values" brochure, only about one in three of the bank's customers currently have a Wells Fargo credit card. So, using the estimate of 70 million total customers, this implies there are nearly 47 million customers who don't yet have a credit card with the bank.
Sure, some might not be able to qualify for a credit card, but perhaps there is a large number who simply have not been impressed with the bank's previous credit card offerings. This is a huge untapped potential customer base for American Express, and Wells Fargo likes to focus tremendous effort on pushing new products.
Impact on American Express
If this partnership proves to be successful in significantly expanding Amex's customer base; it could be the first of several to come for American Express.
Just to put the potential in perspective, consider that even if Wells Fargo is successful in only getting 10% of their customers who don't already have a card to sign up, it would mean a 4.5% increase in American Express' customer base.
According to the most recent data available, the average American Express cardholder charges about $4,200 per year to their card. So, if each Propel customer uses their card for this amount, it would mean nearly $700 million in new merchant fee income alone, since Amex charges merchants about 3.5% of sales.
This is very speculative, and the actual number of cards issued could be much more or less than this, but the point here is there is tremendous potential in this partnership. Also, if American Express successfully adds hundreds of millions to their fee income, you can bet they'll be looking into other untapped customer bases as well.