American Express

American Express, often shortened to Amex, is a financial services company headquartered in New York. It issues charge cards and credit cards to consumers and businesses and operates the payment network on which those cards run. Unlike Visa and Mastercard, which connect thousands of separate banks, American Express for the most part deals directly with both the cardholder and the merchant.

This structure is known as the three-party card model, or a closed-loop card scheme. It gives the company information on both ends of each purchase and lets it earn revenue from merchants, from cardholder fees and from lending. American Express is one of the major international card networks, together with Visa, Mastercard, Discover, JCB and UnionPay.

The company was founded in 1850 in Buffalo, New York, as an express delivery business formed by the merger of firms owned by Henry Wells, William Fargo and John Butterfield. Carrying valuables and cash for banks led it into financial products. It introduced a money order in 1882 and the American Express traveler's cheque in 1891, which for decades was the standard way for travellers to carry funds abroad.

American Express issued its first charge card in 1958, aimed at travel and entertainment spending by business people. Later decades brought premium-tier cards, corporate card programmes and, from the late 1980s, revolving credit cards. During the financial crisis of 2008 the company became a bank holding company, which brought it under consolidated supervision by the Federal Reserve.

In the four-party card model used by Visa and Mastercard, one bank issues the card and another, the acquirer, signs up the merchant, with the network setting an interchange fee that passes between them. American Express traditionally performs all three roles. It lends to or bills the cardholder, contracts with the merchant, and authorizes, clears and settles the transaction on its own systems.

Because there is no separate issuer to pay, there is no interchange fee in the usual sense on these transactions. The company instead keeps the whole merchant discount rate it charges the merchant, and uses part of it to fund rewards and services for cardholders.

The original product, the charge card, has no preset spending limit and must generally be paid in full each month. American Express also issues ordinary credit cards with revolving balances, corporate and small business cards, and a range of co-branded cards with airlines, hotels and retailers. Many products carry an annual fee tied to travel benefits and rewards points.

The company's income comes mainly from three sources: the discount paid by merchants on each transaction, annual card fees, and interest on balances that cardholders carry. Its customer base has historically spent more per card than the average for other networks, and the company has used this to justify merchant fees that were higher than those of its competitors.

Higher fees long meant that fewer merchants took American Express than took Visa or Mastercard, particularly small businesses and merchants outside the United States. To close the gap the company introduced a programme, called OptBlue, under which third-party acquirers and processors sign up small merchants for American Express acceptance, set the price and handle servicing alongside other card brands.

The company's contracts restrict merchants from steering customers toward cheaper cards. These provisions were challenged by the United States government and several states, and in 2018 the Supreme Court ruled in Ohio v. American Express that they did not violate antitrust law, reasoning that a card network serves merchants and cardholders together as a single two-sided market.

American Express also licenses its brand to banks in various countries, which issue cards and acquire merchants on its network. Where a third-party bank is involved, the arrangement resembles a four-party scheme. In the European Union, fee caps under the Interchange Fee Regulation were held to apply to such arrangements, and the company wound down most of its bank-issued card partnerships there.

In the United States the parent company is supervised by the Federal Reserve, and its card-issuing bank, American Express National Bank, is supervised by the Office of the Comptroller of the Currency. Outside the United States it operates through locally authorized entities, such as payment institutions in Europe.

• American Express