Will American Express Crush Small Online Players?

Last week, American Express gave online banks, insurance companies and travel agencies an abrupt wake up call when it suddenly flexed its Internet muscles.

The world’s largest credit card company said that it would begin pumping $250 million (US$) a year into expanding its Internet presence by improving its existing Web sites and introducing new products.

Slow Start

The company unveiled its new Internet strategy at a semi-annual meeting for analysts held in New York. The meeting seemed to be aimed at some industry experts who had been complaining that the world’s largest travel company with a huge portfolio of financial services had been dragging its feet on e-commerce.

This is not to say that American Express is a novice to the Internet. About 1.2 million of its customers check or pay their bills on its Web site, but use of its card for Internet purchases have lagged behind competitors Visa and MasterCard. This is critical when you consider that consumers used credit cards to make $16.7 billion in Internet purchases last year. That’s predicted to skyrocket to $178 billion by 2003, according to Frederick, Maryland-based RAM Research, a company that tracks credit card spending.

Internet Banking

In an attempt to better position itself to take advantage of this coming e-commerce windfall, last month American Express said it would open an Internet bank. Meanwhile, such heavy-hitters as Bank One Corp. has already opened an online bank using its wholly owned subsidiary Wingspanbank.com. In addition, American Express has to cover its flank from aggressive online rivals such as Providian Financial Corp. and Capital One Financial Corp.

Fall By The Wayside

This flexing of American Express muscles translates into bad news for small to medium online banking players, according to recent report from Cambridge, Massachusetts-based Forrester Research Inc.

“Small startup virtual banks will fall by the wayside,” the report predicts.

Forrester adds that small players like CompuBank will only survive if it focuses on narrow markets — “or get drowned out in the coming promotional blitz.”

Once again, it seems that small e-marketeer pioneers have cleared the ground for an onslaught of big players. Perhaps its time for them to circle their wagons by consolidating into one financial entity. This could be their only chance for survival.

What do you think? Let’s talk about it.