AmEx Cuts Gift Card Fees And Expands Simon Mall Card Program

American Express Co. turned up the competitive heat in the gift card sector Wednesday by announcing the immediate elimination of monthly fees on all of its gift cards. AmEx also announced an expanded gift card program with shopping mall operator Simon Property Group Inc., the nation's largest public real-estate company and sponsor of the biggest single gift card program. AmEx had charged a $2 monthly fee on each gift card 13 months after issuing the card. Customers didn't like it, according to Alpesh Chokshi, president of AmEx's Global Prepaid unit. “They did tell us these monthly fees undermined the value,” Chokshi said at a telephone news conference. He later added, “Consumers spoke and American Express listened.” How much the move will cost AmEx is unclear. The company doesn't disclose the number of prepaid cards it issues, and a spokesperson wouldn't divulge the estimated foregone revenue. While the fee cut will cost American Express, prepaid card market observers say it's a smart move that not only makes AmEx look more consumer-friendly, but also could reduce expenses for complying with varying state gift card laws. “It's actually the way we're expecting branded prepaid cards to go,” says analyst Adil Moussa of Boston-based Aite Group LLC. “We're going to see less and less fees. There are so many state laws that interfere, and you either have to have very tight control … or else do away with the fee and you're compliant in all the states.” According to Moussa, prepaid card issuers foregoing monthly fees can make up some of the revenues by charging small fees for paper statements, card activation, balance inquiries, and other functions. AmEx, however, says that unlike other gift cards, its cards do not charge any fees after purchase. AmEx gift cards cost $2.95 to $6.95 upfront, depending on the load value. Sales fees “do cause some friction,” says Tim Sloane, director of the Prepaid Advisory Service at Mercator Advisory Group Inc. But he adds that by dispensing with the monthly fees, “I think they [AmEx] are honestly trying to get in front of the market?elimination of hidden fees, and disclosure.” AmEx's fee cut comes at a time when banks are cutting politically sensitive overdraft fees often triggered by debit card purchases (Digital Transactions News, Sept. 24). The credit card regulation signed by President Obama a few months ago has some provisions regulating gift card inactivity fees and expiration times. The move also follows a major fee reduction by Wal-Mart Stores Inc. in its MoneyCard prepaid card program, which has triggered prepaid card price cuts by other sponsors and program managers (Digital Transactions News, Feb. 18). Meanwhile, AmEx appears poised to grow its gift card business with the expanded agreement announced today with Simon Property Group, which owns or has an interest in 387 malls and other properties worldwide, most in the United States. The Indianapolis-based firm offers Visa-branded gift cards issued by U.S. Bancorp, but in 2007 began testing AmEx gift cards in some of its malls. AmEx is now Simon's “primary gift card provider,” according to Stefan Happ, AmEx's general manager for U.S. gift cards. The new AmEx cards will be available in 230 Simon properties for the 2009 holiday season. The Visa-branded program remains in place, according to Mikael Thygesen, chief marketing officer at Simon Property Group, though he was vague when asked about it at the news conference. “We continue to have a program with Visa as well; this is about the new, expanded relationship with American Express,” he said. “What we're going to do is expand it mall-wide and offer it across our entire platform.” He noted that the elimination of the monthly fees would be a major differentiator of the Simon/AmEx gift cards. A U.S. Bank spokesperson did not respond to a Digital Transactions News call for comment. Simon Property Group says it has sold 41 million cards over the life of its Simon Giftcard program. Maynard, Mass.-based Mercator estimates the annual load value of the Simon card program at $500 million-plus, making it the largest gift card program by sponsor, according to Sloane. Neither AmEx nor Simon disclosed terms of their expanded relationship, but analysts say that AmEx probably made Simon an attractive offer made possible by the revenues generated by its discount rates, which generally are higher than comparable Visa/MasterCard rates. “American Express makes more on the transaction, and they are in a position to compensate Simon slightly more,” says Sloane. “The downside is that American Express doesn't have the acceptance of Visa.” AmEx also announced on Wednesday three new gift card designs, including three limited edition ones by pop artist Peter Max. Max is known for his recent presidential portraits and for his “Cosmic” art of the 1960s.