Amex-CIBC Deal a First But Likely 1st of Many

Strongly signaling the type of deal it is eager to pursue, American Express Co. said Wednesday that Canadian Imperial Bank of Commerce — the largest Visa card issuer in Canada — has introduced a line of cobranded American Express credit cards, becoming the first Visa issuer in continental North America to do so.

The bylaws of Visa Canada — unlike those of Visa U.S.A. — permit banks to issue American Express cards, so the arrangement is not disputed. CIBC already issues a line of Visa cards and offers them on its Web site alongside the three new CIBC/American Express card products, which use the brand name “entourage.”

Toronto-based CIBC will issue the cards, own the receivables, and handle advertising, pricing, and brand management. American Express will provide network services. The New York card company has similar deals with Banco Santander Puerto Rico and Banco Popular of Puerto Rico, neither of which are subject to Visa U.S.A. restrictions on banks issuing both its cards and American Express cards.

Visa’s restrictive bylaw — plus an analogous MasterCard policy — were formally struck down last fall in the ruling that Judge Barbara S. Jones issued in the Justice Department’s antitrust case, but the card associations have sought a stay of the ruling and say they intend to appeal. Though American Express has spent six years urging U.S. banks to sign deals like the CIBC one, it may remain a difficult sell until the legal issues have run their course.

But an American Express executive who helped orchestrate the CIBC deal, Steve McCurdy, said the climate has changed since the Jones decision. “We are talking to most of the major banks now in light of the Department of Justice’s win,” he said. “That is the best I can say.”

Mr. McCurdy, a vice president of American Express Global Network Services, said in a telephone interview that the CIBC deal “does demonstrate that an innovative bank does see the value of issuing a card on the American Express network. It challenges the idea Visa promotes” — that banks in the United States or elsewhere should steer clear of an issuing relationship with American Express.

Since 1996, when American Express started partnering with banks outside the United States to issue its card brand, the program has attracted 74 banks, including CIBC. Many of the partner banks are in Eastern Europe and South America, with a heavy emphasis on Brazil.

In the United States, American Express has entered an agent bank relationship with Bank of Hawaii, buying its $226 million credit card portfolio and issuing cards under Bank of Hawaii’s name. It purchased two other, smaller card portfolios in the United States recently and converted them to American Express cards, but those deals differ from the one with CIBC, in which the Canadian bank owns and controls the portfolio.

The “entourage” line of American Express/CIBC cards includes another first: Canada’s first smart card. While the entourage card aimed at the mass market bears a microprocessor chip, the two other products — a platinum entourage card and one aimed at small businesses — do not.

Jon Linen, a vice chairman of American Express, discussed the reasons CIBC chose to go with the partnership. “They decided to take advantage of American Express’ leadership in chip technology,” he said. “They can offer their customers more products.”

The remark was a subtle slap at Visa, which introduced its own chip product with three U.S. banks in late 2000. Visa says its smart card is more technologically advanced than American Express’ Blue card and has proven its merit by attracting Target Corp., which says it will issue the smart Visa card and equip its stores with chip readers this year.

Rick Pyves, senior vice president of marketing for Visa Canada, said conditions are quite different north of the border. “We have never had a prohibition in terms of Visa issuers issuing American Express,” he said. “The reason is American Express in Canada has always been a niche player. Only 1% of Canadian consumers have only American Express, vs. 39% for Visa.”

CIBC, which has 3.9 million Visa card customers, is planning a big advertising push for its American Express cards. The products will be showcased in commercials scheduled to air during the Super Bowl broadcast Feb. 3, on an upcoming episode of “Law and Order,” and during “60 Minutes.”

Neither the small-business card nor the one aimed at the general market will have an annual fee, and the latter will pay up to 1% of purchases as reward dollars. The platinum card will return up to 2% of purchases.

The program also comes with a heavy Internet component geared to the chip cards. American Express introduced a Web-based security program called LockIT, and has signed up 1,000 e-tailers. Under LockIT, cardholders who have attached chip card readers to their personal computers can assign a four-digit password to their account number, and when they are shopping at designated merchants they can use the password to instruct the system to pass encrypted account information to the merchant’s Web site. Eventually, LockIT will be available to Blue cardholders in the United States, the company said.

Christine Croucher, CIBC’s executive vice president of card products, said research indicated that consumers were interested in the online shopping features and would not mind paying the $50 that Amex is charging for card readers. In U.S. smart card launches, issuers have typically given readers away, at least initially.

Ms. Croucher said more chip applications will be added “when consumers tell us those features are valuable and when the economics of adding them make sense. We will be looking at loyalty points tracking capability on there as well.”

She said the average Canadian has three credit cards, and the bank expects many of its Visa customers will elect to get an Amex card as well rather than to replace their Visa cards. “We do not expect our support of the Visa brand to change,” she said. “We will remain a committed Visa issuer.”

Ms. Croucher said it was possible that CIBC might one day seek to issue cards in the United States, perhaps through its Juniper Financial Corp. subsidiary. “We will not rule out any opportunity for growth,” she said. “We want to leverage our scale as a large credit card issuer, not just in Canada. We are 17th worldwide.”

In a separate announcement, TSYS, the credit card processing subsidiary of Synovus Corp. of Columbus, Ga., said it had signed a five-year agreement with CIBC to process the entourage portfolio.

“TSYS is the only third-party processor in the United States or Canada that currently serves institutions that issue cards with the American Express, Visa, and MasterCard labels,” said Richard W. Ussery, the chairman and chief executive officer of TSYS. “By providing the industry’s leading brand-neutral processing system, TSYS offers banks and their customers the freedom to choose the products that best meet their unique and changing needs.”