American Express launches smart debt management tool to atract new customers

The debt management tool is likely to be very useful for big ticket items.

In a strategic move aimed at roping in young, economically conscious consumers into its fold, American Express Co has unveiled a new option that allows young customers to borrow funds for big purchases such as weddings, furniture, airplane tickets, medical expenses, etc while separating their balances from revenue items such as $2 cups of coffee.

The U.S. No. 1 card issuers is also adding a feature that allows customers to immediately debit their account for small purchases.

Under its new option, as many as 10 purchases of at least $100 can be grouped into installment plans, said American Express.

Case in point: a $1,000 purchase, can be covered in six monthly installments of $172.18, and as a result cost an additional $33.06, or $5.51 a month, in finance fees. This is virtually the same as AmEx would charge in interest for a revolving balance on the account.

Incidentally, other monthly spending will be interest free as long the cardholder pays in full by the due date.

This new option will allow cardholders the flexibility to select which of their purchases will deserve interest payments and thus will be in a better position to budget their finances in real time, said Jeff Chwast, head of global lending new products and capabilities, at American Express.

“You’ll know exactly how much you’ll be charged before you set up the plan, which is very different than a normal credit-card revolve feature,” explained Chwast in an interview.

In adding the features, American Express is responding to a generational shift that has hurt credit-card lenders.

The move is highly strategic since an industry research shows that young Americans who have grown up during the Great Recession or have seen their parents struggle with debt, or have faced debt-related issues on their own, before the implementation of financial reforms in 2010, have backed away from racking up debt.

However, big banks, including JPMorgan Chase & Co and Citigroup Inc, have taken a different strategy of enhanced rewards for consumers who spend using their credit cards. This strategy appears to have worked since they have taken market share from American Express.

According to The Nilson Report, AmEx still has more spending on its cards, more than any other U.S. issuer, and has a market share of 22.1%. This has however taken a small beating due to Costco, a mega-retailer , shifting its jointly branded cards to Citigroup from American Express, and saw its market share drop to 10.7%.

It is to be seen how AmeEx’s new approach will help it recover lost ground, and whether it will be able to lure debt-leery customers into its fold by providing tools for better debt management. This will especially count for big-ticket items.

“We believe customers will be taking out their American Express card to pay, rather than other cards,” said Chwast.

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