How American Express Humiliates Visa & Mastercard - YouTube

INTRO: If you’ve ever used a  

card to pay for something, you’re definitely  familiar with the names American Express,  

Visa, and Mastercard. These three have dominated  the card processing industry for decades,  

but most people don’t know the difference between  them. And frankly, there’s very little difference  

between them from the consumer side if you’re not  keen on maximizing credit card points and rewards.  

However, from the business side, American Express  is radically different from the other two.  

American Express is not the most common card  by any means; in fact, Visa and Mastercard  

destroy Amex in terms of issued cards. For  example, Visa has 343 million credit cards in  

circulation within the US and 798 million credit  cards in circulation outside the US. Similarly,  

Mastercard has 249 million credit cards in the  US and 725 million credit cards outside the US.  

This means that Visa has a total of 1.14  billion credit cards in circulation and  

Mastercard has 974 million cards. Meanwhile,  Amex only has 53.8 credit cards in the US  

and 58.2 million cards outside the US,  or just 112 million cards in total.  

This means that Visa and Mastercard have issued 20  times as many cards as Amex. At first, this looks  

really bad for Amex until you take a look at their  revenue numbers. In the last 12 month period, Visa  

pulled in $24.1 billion in revenue and Mastercard  pulled in $17.8 billion in revenue. Together,  

this adds up to $41.9 billion. Meanwhile, Amex  pulled in $41 billion in revenue by themselves.  

Now, this isn’t an exact science or anything,  but if we divide each of their revenues by the  

number of cards in circulation, we’ll see that  each Amex customer is worth $366 in revenue.  

Meanwhile, each Visa customer is only worth $21  and each Mastercard customer is only worth $18.  

Now, this already paints a terrible picture  for Visa and Mastercard, but we haven’t even  

considered the elephant in the room. Here’s the  thing, Amex doesn’t really deal with debit cards,  

so the vast majority of their revenue truly comes  from just credit cards. The same, however, cannot  

be said about the other two. Visa and Mastercard  are heavily involved in the debit card game.  

Visa has a total of 2.4 billion debit cards in  circulation and Mastercard has 1.4 billion debit  

cards in circulation. So, really, each issued  card is worth less than $10 in annual revenue  

for Visa and Mastercard meaning that each Amex  customer is 36 times as valuable. So, here’s how  

Amex became the king of credit cards and why high  spenders far prefer Amex over Visa and Mastercard.

HUMBLE ROOTS: Taking a look back, Amex wasn’t  

always the high ticket closer that they are today.  In fact, they weren’t even a financial business,  

they were originally a shipping business.  It all started on March 18, 1850, when three  

men named Henry Wells, William Fargo, and John  Butterfield decided to join forces. Together,  

these guys owned three shipping businesses  that they had been running for a few years.  

The first company was called Livingston, Fargo, &  Co and was founded in 1845 by Henry and William.  

The second company was called Wells & Co and was  founded in 1846 by Henry. And finally, the third  

company was called Butterfield & Wassan and was  founded in 1849 by John Butterfield and James  

Wassan. At the time, railroads were a rather new  invention, and the demand for sending shipments  

was growing rapidly. Instead of competing against  each other and seeing who came out on top though,  

the trio decided to combine their efforts and  form a small monopoly within New York called  

American Express. The company mainly focused on  shipping goods between New York City and Buffalo,  

but they also had some destinations throughout the  midwest. This proved to be an extremely profitable  

regional business, but neither Henry nor William  were satisfied with just this market. You see,  

these two wanted to build a national business, so  they wanted to expand to California and capitalize  

on the gold rush. However, the other board  members would not approve this expansion effort.  

Henry and William weren’t willing to give up  this opportunity though, so they would start  

a new express and financial services business in  California in 1852. I think it’s safe to say that  

Amex missed out pretty big here given that the new  business was Wells Fargo. Nonetheless, things were  

going well for Amex as well. They were expanding  into the money order business and their monopoly  

was still intact up until 1866 when they saw their  first major competitor called Merchants Union  

Express Company. Amex and Merchants Union fought  fiercely for market share over the next two years,  

but in 1868, they decided to simply join  forces and create American Merchants Union  

Express Company. Honestly, that’s quite a long  and cumbersome name, but fortunately, they would  

shrink the name back to American Express in  1873. They had successfully avoided a long-term  

clash with Merchants Union, but this fiasco made  them realize the importance of diversification.  

And with that, Amex would start to explore  new paths throughout the next few decades.

FINANCIAL SERVICES: 

Amex started off by thinking of new  ways they could build customer loyalty  

and provide more value. Many of Amex’s customers  were small local businesses that were using Amex  

to source their goods. These local businesses  didn’t have the resources to constantly travel  

to their suppliers and negotiate better prices.  But, Amex already had agents all over the place.  

So, in 1878, Amex started negotiating  with suppliers on behalf of their clients,  

and this has turned into one of the trademarks  of Amex today. Of course, they’re no longer  

negotiating purchase orders; instead, they’re  negotiating for high-demand items and experiences.  

No one knows exactly how Amex pulls it off, but  if you’re a platinum cardholder or better yet a  

centurion cardholder, Amex can get you anything  you want whether that be front row seats to a  

Lakers game or an invitation to Justin Bieber’s  wedding. Anyway, going back to the 1870s, this  

new negotiation service was a massive hit with  customers, and Amex would follow up this success  

with the Traveler’s check in 1891. If you’re not  familiar with what a traveler’s check is, it’s  

basically just a safer way to carry money with you  while you’re traveling. Instead of carrying cash,  

you carry a traveler’s check and redeem it for  money when you arrive at your destination. This  

was particularly appealing to international  travelers who regularly traveled to Europe.  

This transformed Amex into an international  business, and they would open offices in England,  

Germany, and Paris. Soon after, World  War 1 rolled around, and Amex would  

score a deal with the British government.  Amex was contracted to deliver letters,  

money, and relief packages to British prisoners  throughout the war. And by the end of the war,  

Amex was delivering 150 tonnes of parcels every  single day to just prisoners. It looked like  

things couldn’t get any better, but then the  American government would screw over Amex.

THE GREAT WINTER: Throughout the winter of 1917,  

the US would experience a massive coal shortage  which meant that it became extremely expensive to  

ship items across the US. This wasn’t optimal for  Amex, but given that shipping rates had gone up  

across the board, Amex didn’t really have to worry  about losing customers to competitors. They did,  

however, have to worry about the government.  On December 26, 1917, President Woodrow Wilson  

ordered the railroads to help in the war effort  by helping them move troops, supplies, and coal,  

and all contracts between railroad companies  and express companies were nullified.  

While this was an unfortunate turn of  events, Amex couldn’t really complain  

given that the decision was made for a much more  important cause. Wilson’s next decision, however,  

was definitely something worth complaining  about. Treasury Secretary William McAdoo  

proposed the idea of consolidating all existing  express companies into a nationalized company.  

President Wilson approved this proposal, and with  that Amex lost their express business. All express  

companies were hurt, but Amex was hurt the most  given that they were the largest express company.  

They lost 10,000 offices, 30,000 employees,  and their rights to 71,000 miles of railroad.  

The new nationalized company was called American  Railway Express Agency, and though the US would  

return ownership to the private companies in  1920, it would never be the same. Amex had  

lost everything that was unique to them. They had  given up a highly respected personalized express  

service, and in return, they basically got a 40%  stake in USPS. And no one likes USPS. In 1929, the  

assets and operations of American Railway Express  would be transferred to Railway Express Agency,  

and that was basically the end of this business.  The company declined for decades until it finally  

filed for bankruptcy in 1975. I guess it was  a good thing that Amex had sort of diversified  

into traveler’s checks, but this didn’t help much.  For the US, the great winter only lasted a couple  

of months, but for Amex, it would end up lasting  41 years until they stumbled upon credit cards.

CREDIT CARDS: 

Amex had considered the possibility of  launching a credit card as early as 1946,  

but it wasn’t until the launch and success of the  Diners Club card that Amex decided to take the  

plunge. At the end of 1957, Amex announced that  they were going to enter the credit card business.  

From the very beginning, Amex was set on targeting  the premium market and capturing high spenders.  

They charged an annual fee of $6 which was $1 more  than the Diners Club’s $5 fee. Amex figured that  

this would make their card seem more exclusive and  desirable, and they were completely right given  

the massive demand that followed. By the time  the official launch happened in October of 1958,  

Amex had already issued 250,000 cards. Initially,  the cards were printed on paper, but in 1959, Amex  

introduced plastic cards with embossed numbers.  Similar to how everyone wants a metal card today,  

back in 1959, everyone wanted Amex’s new plastic  card. Amex further built on this exclusive image  

with the Gold Card in 1966 and the Platinum  Card in 1984. The Platinum card was invite-only,  

and Amex only picked the highest spenders with  the best payment histories. Aside from being hard  

to qualify for, the Platinum card carried a hefty  annual fee of $250 which has since grown to $695.  

And to persuade people to pay these hefty fees,  Amex introduced their famous Membership Rewards  

program in 1991. Within just 10 years Membership  Rewards became the world’s largest card-based  

rewards program, and Amex has held that title  ever since. Aside from building an exclusive image  

amongst customers, Amex was concurrently building  exclusive relationships with merchants. They  

offered lower merchant fees to restaurants and  businesses if they exclusively accepted American  

Express. This worked pretty well between 1981  and 1991, but a group of merchants would start to  

rebel against Amex in 1991. Instead of exclusively  accepting Amex, they started to exclusively accept  

Visa and Mastercard. And with that Amex would back  off with their exclusivity deals, but they would  

never give up their exclusive image. AMEX TODAY: 

Even today, exclusivity is the name of the  game when it comes to Amex because their  

business model is radically different from  the rest of the industry. A lot of credit  

card companies make their money on  the high-interest rates they charge.  

And given that 55% of Americans carry a credit  card balance, this is quite profitable. But this  

model would never work for Amex because they only  issue cards to customers with excellent credit.  

And the thing is, people with excellent credit  don’t carry balances. Amex is well aware of this,  

and this is why many of their cards don’t  even allow customers to carry a balance.  

The Amex Green Card, Gold Card, Platinum Card,  and Centurion Card are all charge cards which  

means that you have to pay your balance in full  every month. Amex has become more lenient over  

the past few years, and introduced workarounds  that allow you to sort of carrying a balance,  

but this is by no means their focus. In that case,  you might think that their annual fees are their  

focus. Amex cards often carry annual fees in the  hundreds of dollars and even thousands of dollars,  

but while this pulls in a lot of revenue,  it’s not exactly that profitable. You know,  

sourcing tickets to Justin Bieber’s wedding and  giving customers access to Centurion airport  

lounges aren’t exactly cheap. And, given  that their customers are smart spenders,  

most of them are not gonna pay a $5000 annual fee  unless they’re confident they can milk $6000 worth  

of value. But then why does Amex spend so many  resources on what seems like a zero-sum or even  

negative-sum service? Well, the answer is that  you are their partner, and they’re willing to go  

to extreme lengths to keep you happy. You see, the  key to Amex’s business is not high-interest rates  

or high annual fees, the key is the high fees they  charge merchants. Visa and Mastercard only charge  

1.25 to 2.5% per transaction, but American  Express charges 1.5 to 3.5% per transaction.  

This may not sound like much, but an extra  1% on every transaction adds up super fast.  

Because of this, most merchants aren’t a fan of  Amex, but they’re forced to accept Amex because  

all the high spenders prefer to use Amex. And  this creates a super unique business dynamic.  

Visa and Mastercard partner with retailers to  try to get you to spend as much money as possible  

and pay as much interest as possible. Meanwhile,  Amex partners with you to try to get as many  

retailers to accept their high fees as possible.  And so far, they’ve been extremely successful at  

this given that 99% of US merchants who accept  a credit card also accept American Express. So,  

how about we keep up this streak and continue  supporting American Express. Do you guys have  

an Amex card? Comment that down below. Also,  drop a like if you’re a fan of Amex’s business  

model. And of course, consider joining  our discord community to suggest future  

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