American Express logoWhen the economy hit the skids and credit card customers started defaulting in droves, the issuing banks started writing down big losses. One financial company that was spared the worst of the economic fallout was American Express.

As this article from the Wall Street Journal points out, AmEx has a unique business model among card issuers. First of all, the company never courted higher-risk borrowers to the degree other big banks did, and it was the only major issuer to primarily offer charge cards, which must be paid off each month, as opposed to credit cards, in which the consumer can carry a balance.
The Journal says that other banks, such as J.P. Morgan Chase, have been trying to rebuild their own decimated credit units by trying to go after the same customers that AmEx courts. The article details lavish parties held for holders of so-called concierge cards, such as the Chase Sapphire. Cards that have a higher level of perks and better access to customer-service representatives, benefits more typical of cards such as those offered by American Express.

Adam Levin, chairman and co-founder of Credit.com, says it's not surprising that competition is heating up for higher-income and high-FICO-score consumers. It's a shrinking universe," he tells WalletPop. "It's logical that there would be fierce competition in the credit world." The drop in the economy and subsequent rise in defaults led to companies rethinking their customer bases. "They were very concerned about the exposure," Levin says. When the card issuers made the decision to pull back on credit to higher-risk consumers, that shrank the pool of "good" customers significantly.

Levin adds, though, that it probably wasn't the relative affluence of AmEx's customer base that shielded the company from the brunt of the recessionary defaults. Rather, he says, it was more likely the company's reliance on charge cards instead of credit cards.

To the degree that AmEx did suffer losses, he says, it was because they'd started experimenting with conventional credit cards. The charge card model lets AmEx weed out non-paying customers faster than other card-issuing banks. In other words, Chase's move to acquire customers used to perks and the preferential treatment might not be enough in and of itself, since sticking only with customers willing to pay off their balance in full every month was the reason AmEx emerged from the trough of the recession less damaged than its counterparts.

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