The Blue Card And Blue Skies
American Express` year-old chip-based Blue Card gives online shopping a green light
By Andrea McKenna Findlay
American Express Co., a credit card powerhouse since the 1950s, is becoming a big name on the Internet. While other card companies are toe-dipping their way online, AmEx is taking the plunge—and its cardholders are following. A year ago, American Express introduced the Blue card, equipped with a chip that gives it smarts. Today nearly 2 million consumers own the card. They are big online users who like technology, electronics, music, low card pricing and shopping online. Nearly 60% of them use it to buy merchandise on the web, according to research earlier this year from Atlanta-based Brittain & Associates.
And the interesting part is that Blue is only a year old. For e-retailers who do not accept American Express, it might be time to consider it, while keeping an eye on Blue’s evolution. One year after a massive marketing campaign to support the launch of its chip-based Blue card, the company continues to drive home the online message, a big part of which promotes online shopping.
Acknowledging the shift to online shopping, AmEx in October 1999 introduced its Blue card. And what a product: no annual fee and a 0% introductory interest rate that jumps to a fixed rate as low as 10.99%. The card has its own rewards program called Blue Loot that features palm pilots, Sony Playstations, Motorola two-way radios and Geartec backpacks, for both online and offline card spending.
Aside from attractive pricing and rewards, the card promotes online shopping, giving cardholders an online wallet, the smart chip and an online card reader for their PCs. The reader accesses the chip to securely provide sensitive details for automatically filling out online shopping forms with shipping, billing and card information.
Rounding out the major features are an online shopping guarantee, in which cardholders are not responsible for unauthorized charges and special online discount offers that are communicated via statements and email. The card also encourages users to go online to check card balances, download statements, check Blue Loot points and access other AmEx financial management tools such as retirement planning or debt reduction. The company encourages consumers to sign up for the card online by restricting Blue Loot rewards to those who apply via the web site.
Show me the money
But for all its vaunted and highly touted online features, analysts say the initial draw to the Blue card was low pricing. “Security, although consumers mentioned it, clearly played second fiddle to pricing,” says Bruce Brittain, president of Brittain & Associates. Although the Internet may not have been the main attraction to Blue, the web draw still has potential. “The name of the game for AmEx is how to get people to think of the AmEx card as the card to use online,” Brittain says. “The Blue card gives them the image of being ahead of the curve on e-commerce.”
A card this stacked full of online features is bound to make some impact and market observers say it has. AmEx shook up the banking industry by beating Visa, MasterCard and Discover to the market with a major chip-card product to be used online. At the time of the Blue launch, the card associations had done little to develop a consumer chip product other than to conduct various closed-system stored-value card tests, most of which were not terribly successful. Now they are touting their own nascent ewallets (see sidebar).
While the numbers may still be small in terms of the overall credit card market—Brittain estimates 2 million Blue accounts, which AmEx executives will not confirm but also not deny—the card may be having an impact on online payments. In the third quarter 1999, just as the Blue card was announced, 28% of all Internet users said they had paid online, according to CyberDialogue. By second quarter 2000, 38% had paid online, a jump CyberDialogue Senior Analyst Sam Callard says may be due in part to Blue card promotion. He notes that while Visa and MasterCard cards count for the majority of online payment, the smaller AmEx card base represents a significant portion of online transactions because a higher percentage of AmEx cardholders are shopping online.
Brittain estimates Blue will have upwards of 4 million accounts by year’s end. Richard Quigley, vice president of credit card marketing at AmEx, says the company is pleased with the Blue card’s progress. “We’re trying to deliver on the implicit promise that the product is evolving and reflects the changing needs of cardmembers,” says Quigley.
One measure of Blue’s success is research showing it has attracted a new audience for AmEx. Nearly half of Blue cardholders did not have AmEx cards before Blue, reports Brittain, who also says 45% of Blue cardholders stopped using other cards or replaced another credit card. Brittain notes that such big issuers as Citibank, First USA, Chase Manhattan and MBNA are suffering attrition to the Blue card, which underscores AmEx’s power to become a force in cards used online.
AmEx hopes to retain cardholders by continually pushing the card’s features. “We’re trying to make sure that cardmembers know the benefits of the card’s additional security and that using the wallet helps them more quickly complete order forms,” Quigley says. AmEx also promotes its Offer Zone discounts, which give AmEx cardholders across the board discounts at various merchants, many of which are online. A recent statement stuffer listed Barnes & Noble.com, Costco.com, Clinique Online, Kozmo.com and Drugstore.com. AmEx also sends email to all cardholders regarding various online and offline merchant discounts.
But while AmEx uses online tools, it has not abandoned the tried-and-true card marketing methods that get consumers to act on offers. Christopher Keenan, director of marketing at Hockessin, Del.-based consultants De Novo Corp., says AmEx has struck a sophisticated balance between integrating email marketing and direct mail.
“Unlike other card issuers who are making the mistake of shying away from direct mail and focusing only on email contact, AmEx sees the importance of the two media,” he says. The bottom line is cardholders will get hit with the message from all angles.
Amex also spared no expense to launch and market the Blue card. Analysts’ estimates range from $25 million to $45 million, although AmEx officials have never provided cost details. Along with various print campaigns, Blue appeared in a handful of television commercials, promoting the card’s use online, pricing flexibility and general high-tech image. Blue ads also appeared on the video screens of some health club equipment while Rolling Stone and Entertainment Weekly ran ads with compact disks that link to the Blue web site.
Getting cardholder feedback also is helping AmEx develop Blue. Quigley says Blue cardholders have told AmEx the music and entertainment category is important. AmEx has been on the mark since day one: the card’s launch last year was bolstered by free concerts by Eric Clapton and Sheryl Crow. This summer, AmEx worked with outdoor concert venues, such as Chicago’s New World Theater, to offer a free CD from the concert artist to Blue cardholders who bought tickets online from Ticketmaster and paid with the Blue chip reader and ewallet.
While use of the chip itself is marginal, Quigley notes that there is a benefit to getting the chip application into circulation. “We could have done all this with just a mag-stripe but what makes the chip more secure is that it’s impossible to manipulate the card information,” he says. “It promotes security online.”
Although Quigley says cardholders do use the ewallet and corresponding chip card reader to buy online, some observers say getting cardholders to use the security features will be a challenge. Even though the concept of the ewallet is security as well as convenience, consumers are not catching on.
Brittain says the ewallet feature has not been a powerful driver of the Blue card. To say the least: while more than half of Blue cardholders buy online, the number who use the ewallet and reader is almost nil. Usage might go up, Brittain says, once cardholders discover the convenience of using the ewallet to fill out forms and if cardholders understood better why to use the reader.
Target practice
But while the ewallet concept has yet to really take off, security is on the minds of consumers who do not yet shop online. According to CyberDialogue, 66% of those who are online but have not yet made a purchase believe it’s too easy for someone to steal card information over the Net. Those consumers may yet be attracted to Blue’s secure chip and ewallet features. John Almash, president of Stratcom, a marketing consulting firm, says at least AmEx is getting ready by establishing the technology and the customer base to use it.
AmEx says that, while it has a nice base of cardholders who may have been attracted to the card’s pricing, it will target consumers who are interested in the Internet and technology as well as being self reliant—essentially those who are likely to use computers and the web to perform such tasks as planning travel, shopping or managing their finances online. Clearly, AmEx’s entire web effort is focused on providing services and products for people who want to be able to go to one site to use tools that help organize their lives. Quigley says that while the Blue card has been slated for young technology-oriented people, AmEx views it more as a psychographic than a demographic. “Rather than looking at an age bracket, we think the card is very appealing to those who are young-minded,” he says.
Analysts say AmEx is attracting the right kind of customer for Blue and for online shopping. “AmEx’s Blue card is attracting the entrepreneurial individual for whom the card is designed,” says Almash. “The marketing also is in the right direction because it’s tailored to those who are inclined to shop online.” And he thinks AmEx is on target with the Blue card’s rewards program. “They have items such as electronics that people already are inclined to buy online,” he says. “Clearly they are customizing the rewards to the cardholders’ tastes and they have an impressive list of merchants.”
Almash adds that, from his experience consulting with retailers, online merchants will benefit from the Blue card’s promotion of online shopping. “Increasing sales is always the bottom line with retailers. Companies like AmEx are promoting online shopping to a customer base that the online retailer wants to target,” he says.
While AmEx Blue is still evolving as an online and offline shopping tool, it is well ahead of other card products. “What we really try to do is keep our finger on the pulse of the marketplace,” Quigley says. “Over the last few years, we saw the explosion in the use of the Internet and the use for e-commerce gathering steam, and we wanted to try to find a way to be relevant in this space.” With the reaction from consumers so far, the Blue card is making AmEx relevant and it’s bound to see blue skies from here. >
E-Wallets: A Work In Progress
Every once in a while, a technology comes along that actually makes things easier. To help consumers shop online more easily and securely, card associations and credit card issuers have started marketing online wallets. Slated to allow cardholders who sign up to save time online by using the wallet to automatically fill out order forms, which include shipping, billing and credit card information, the products seem to have a good theory behind them. In addition most ewallets are touted as security measures for Internet shopping, as card numbers are encrypted and protected within the wallet software. But are they being used?
Aside from the American Express Blue card, which features a smart chip and reader that work with the wallet to secure and store information online, the most recent high-profile ewallet offering is from Purchase, N. Y.-based MasterCard International. MasterCard launched a major national television campaign in July which followed its well-known “priceless” format. It featured a man shopping in a real world simulation of the Internet depicted as a retail store. The shopper avoids a congested check out line by using the ewallet.
MasterCard geared its ewallet towards experienced shoppers. “Those who will download the wallet will have some experience shopping online so they would know the benefit of using the wallet,” says Larry Flanagan, the company’s senior vice president of North America marketing. MasterCard is working with Brodia, a San Francisco-based ewallet company that provides the service not only to the association but to card issuers also, including Wells Fargo Bank, Capital One, Providian and MBNA.
To use a Brodia wallet, consumers must go to Brodia.com or a partner’s link to sign up. They then can click open the wallet to make purchases. Consumers apply for the wallet online through a card issuer’s web site, which is connected to Brodia.com.
While ewallets are not overwhelming online shoppers today, there are a number of players providing the service. Citibank in August launched a free downloadable toolbar from Obongo Inc. that lets users shop over the Internet with what it calls single-click login, registration, form filling, searching and comparison shopping. This is the version 2.0 of the Citiwallet, now called Citibank Toolbar.
Morgan Stanley Dean Witter Discover offers the Discover Desk$hop virtual credit card that fills out forms and secures the user’s Discover card number via encryption. Cardholders also can use tabs on the menu to shop on Discover’s Internet ShopCenter that includes online deals for cardholders, store search options, account access options and a file to update the form-filling information.
But not all credit card companies believe the buying public is ready for ewallets. Visa U.S.A. is working on but has not yet introduced an online wallet. A Visa spokesperson says “though the promise that digital wallets offer is appealing, consumers are still unaware of their functionality.” While there is little empirical evidence thus far, market observers say consumers are content to retype credit card, billing and shipping information for different purchases because it’s what they know.
Although the number of ewallet users is small now, observers say at least the technology base is there. “Consumers are slow to adopt the ewallet but the card industry is getting ready for when online shopping really takes off,” says John Almash, president of Stratcom, a De Nova Corp. company that does consumer research and business planning including Internet development. And the logic goes that as online shopping increases so will use of ewallets—the card companies are banking on it. 
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