American Express: History, Global Strategy & Growth

The Origins of American Express

American Express was founded by Henry Wells, William Fargo, and Henry Butterfield when they merged their individual express companies in Albany, New York. The first surprising fact in this company's history is that when it was established in 1850, it was not a financial company at all, but rather a "pony express"-style business that delivered packages, parcels, gold, and other goods that the early U.S. Post Office could not — or would not — handle. The company also served destinations the post office did not reach. American Express built its early reputation by delivering cargo reliably, whether by horseback or stagecoach, and largely on time.

Banks happened to be the company's biggest customers, since carrying money, gold, and financial instruments was more profitable than hauling bulkier freight. Financial institutions appreciated the high level of performance they received from American Express and paid them accordingly.

Around 1890, American Express recognized that the banking and financial business could be profitable for the company itself, and it began issuing money orders. In 1891, the famous American Express Traveler's Check was introduced. Because of the company's strong prior reputation, this money order business grew quickly into a worldwide enterprise. American Express opened offices in England, Belgium, Germany, and France.

Expansion into Financial and Travel Services

The second surprising chapter in the company's history involves how it entered the travel services business. When World War I broke out in Europe in 1914, more than 150,000 U.S. citizens were stranded abroad without a way to return home, because foreign banks would no longer honor their American letters of credit. American Express honored them, funding the safe passage of these Americans back to their country. By 1925, the company was well established in the luxury guided-tour business across several continents. In 1922, it chartered a cruise ship for the first round-the-world, four-month luxury cruise, which firmly established its reputation for premier travel services.

The late 1920s and 1930s brought serious difficulties, coinciding with the Great Depression. Chase Bank quietly purchased 95% of American Express's stock and made an offer for the entire company. However, the remaining American Express stockholders refused to sell. Then, in 1933, Congress passed legislation prohibiting banks from participating in non-banking services, and Chase lost its opportunity to complete the acquisition.

During World War II, the company's WWI experience proved invaluable. The U.S. government encouraged soldiers serving in Europe to convert their cash pay into traveler's checks for safety, a development that likely saved American Express from financial ruin.

Challenges, Near-Collapse, and Recovery

During the post-WWII economic boom, the company thrived. As the economy improved and servicemen returned home, travel within the United States expanded rapidly, and so did American Express's travel business. A transformative new financial instrument — the credit card — also emerged during this period. American Express issued its first credit card in 1958, followed by local-currency credit cards in other countries and the Gold Card in 1966. By the late 1970s, both the traveler's check and credit card businesses were extremely profitable.

The late 1970s and 1980s saw the company pursue a strategy of aggressive acquisition, seeking to become a diversified conglomerate in order to insulate itself against downturns in any single market. American Express acquired several large corporations and financial institutions. However, the strategy did not deliver the expected returns, and by the late 1980s the company was refocusing on its core businesses and divesting many of its recent acquisitions.

A deeper crisis followed in the late 1980s and 1990s. The very center of the company's business — the American Express credit card — began losing market share for two primary reasons. First, merchants in the United States protested the high fees associated with accepting the card. Second, internationally, businesses were actively discouraging customers from using American Express for the same reason. This occurred even after AmEx introduced a revolving credit card in 1987. The company's own CEO later admitted that American Express came close to collapse during this period.

By 2000, however, the company had recovered by refocusing on its core businesses, divesting non-essential holdings, strengthening relationships with merchants, and forming alliances with airlines, banks, and retailers around the world. Then the September 11, 2001, terrorist attacks struck directly. American Express's headquarters, located across the street from the World Trade Center, was severely damaged. Several employees were killed or injured. Within a year, however, AmEx had resumed normal operations.

Why American Express Succeeded in the U.S. and Internationally

American Express succeeded because it established an outstanding reputation in its core businesses very early in its history. It also capitalized on the disruptions caused by both World Wars to support customers with financial assistance precisely when they needed it most. Its strategic decisions, taken as a whole, were sound: the company divested unprofitable segments when necessary and consistently returned its emphasis to core businesses — traveler's checks, travel services, and credit cards. AmEx also demonstrated flexibility in adapting to consumer demand, introducing the revolving credit card at a moment when that segment of its business might otherwise have failed.

Today, American Express is recognized as one of Forbes magazine's top 100 companies.