03 April 2008 - American Express last week completed its $1.1 billion cash acquisition of GE Money Corporate Payment Services, a portfolio that serves more than 300 corporate accounts with 2.5 million MasterCard commercial cards and a patented electronic payment and settlement tool called vPayment.
An American Express spokesperson said the company plans to convert all cards to its own brand. All GE business units--the single largest customer in the portfolio--are to use Amex corporate cards as part of a multi-year contract, Amex said. A GE Money spokesperson said it could take up to a year to convert some clients. The deal required no regulatory approval in the United States, according to American Express.
Nilson Report publisher David Robertson said American Express bought the sixth largest issuer of both purchasing and travel and entertainment cards in the United States. According to the payment newsletter's 2007 ranking, based on 2006 T&E volume, GE Money CPS ranked sixth after American Express, Bank of America, Citi, U.S. Bank and JPMorgan Chase. GE Money CPS also ranked sixth in purchasing card volume, Robertson said.
While the majority of the GE Money charge volume is in the United States, the commercial card provider served the global needs of GE's more than 300 business units, as well as other large multinationals and government business units. In recent years, GE Money touted its ability to issue cards outside of the United States and Europe through "alliance issuers" in "Central and South America, Asia/Pacific, central Asia and parts of Europe not supporting the euro currency." It issued MasterCard purchasing, fleet, travel and entertainment and one cards that could be used anywhere MasterCard was accepted.
Following six years of development and deployment in the United States, GE Money in early 2007 launched vPayment in Europe and allowed settlement in both pounds sterling and euros. At launch, GE Money CPS-Europe managing director Ian Reid said the "supplier-friendly payment method" offered "the controls of a cheque, the float of a purchasing card and the efficiency of electronic funds transfer." However, unlike EFT, use of this tool required no training or setup.
Citing the strategic benefits of the acquisition for American Express, a spokesperson said "it expands our corporate expense management services and adds to our purchasing card capabilities." And GE Money's electronic settlement business, introduced in the United States in 2001 and extended to Europe last year, "was certainly one of several" interesting aspects of the portfolio, the official said. Asked why it was interested in the portfolio, the Amex spokesperson said, "because it was available."
Amex global commercial card and services president Anr é Williams in a statement cited the "excellent credit metrics and a premium client base," as well as the "strong leadership and talented employees who have been generating impressive growth through a combination of excellent customer service and cutting edge technological innovation."
GE previously announced plans to review its entire GE Money portfolio. If, as expected, GE sells its consumer card portfolio, the commercial card unit "obviously is very subscale at that stage," a GE spokesperson explained.
In a prepared statement, MasterCard noted that "given the consolidation trend in our industry, decisions such as these will occur from time to time." Officials said the transaction volume would not be a big loss, but nevertheless, given that its brand has served GE Money CPS customers for the past decade, "we will now aggressively pursue and seek to retain this business."
As it does not issue cards, MasterCard could not acquire the GE Money CPS portfolio. But it could have urged its major issuers to do so. "What I'm surprised about is that MasterCard couldn't come up with a way of keeping that portfolio in the MasterCard family," noted publisher Robertson of the deal. "The problem here is the logical buyer from MasterCard's point of view is Citigroup because it's the largest MasterCard purchasing card issuer, but Citi obviously is in trouble and doesn't have the ability to make a purchase at this time. The other issuers are Visa issuers--BofA, US Bank, JPMorgan Chase--now they could have purchased it and converted the MasterCard cards to Visa cards but for some reason felt it wasn't necessary to do so."
For corporate customers, the acquisition "takes away one of the big alternatives and locks in American Express' hold on the corporate marketplace even more," said Corporate Solutions Group president Robert Langsfeld. "It decreases the options and costs to the buyers. It's very strategic" on the part of Amex.
GE founded Corporate Payment Services in 1992 to service the needs of its own business units. A decade ago, CPS "had one client and was losing money," according to a spokesperson. For the past 10 years, veteran GE executive Jeff Dye headed commercial payment services and extended service beyond the more than 300 GE business units to corporations, colleges and universities and state and local governments. In 2007, customers generated more than $14 billion in global purchase volume, and CPS maintained $1.1 billion in receivables at year end. Billed business has grown at a compound rate of 18 percent during the past five years.
Dye, as well as 350 GE Money CPS employees, joined Amex as of Friday. Before heading CPS, Dye ran travel management for GE in the 1990s as manager of the GE Travel Center in Phoenix. While the majority of employees are based in Salt Lake City, about 70 are in a European office in Leeds, United Kingdom.
The deal could be especially challenging for the cost-conscious public sector business lines that GE Money CPS has aggressively pursued as it landed colleges and universities and state and local government units, noted Langsfeld and others. Yet, according to a GE Money CPS spokesperson, American Express is "incredibly anxious to look at" these customers and "discuss the strategic opportunity for them."
Last year GE Money CPS announced that the University of Delaware had signed on as a new client as part of its 2006 consortium purchasing agreement with Educational & Institutional Cooperative Purchasing. E&I provides contracts with more than 80 suppliers to its more than 1,500 institutional members. With the GE Money CPS contract, the more the consortium's purchasing card volume grew, the more each participating consortium member stood to benefit from discounts and rebates.
In other developments, GE Money last month announced a swap of its banking assets in Germany, Finland and Austria for a bank in Italy. That swap was with Spanish banking giant Banco Santander, which had acquired the operations as part of a deal for ABN Amro. In an unrelated development in Germany, Degussa Bank selected MasterCard for its corporate card platform.
