Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: WEDNESDAY, September 7, 1994 TAG: 9409070133
SECTION: BUSINESS PAGE: B8 EDITION: METRO
SOURCE: ASSOCIATED PRESS
DATELINE: NEW YORK LENGTH: Medium
The company's Optima True Grace Card, rolled out Tuesday, allows users to make monthly payments and gives a better deal on interest charges for people who don't pay off their balances right away.
The card ups the ante in the cutthroat race among banks and other companies to win a spot in consumers' wallets. The card's 25-day ``grace period'' is unique because most Visas, MasterCards and the company's original Optima card charge interest on new purchases as soon as they are made.
But the new Optima card could be a tough sell for the financial services conglomerate, which has spent millions cultivating its upscale image.
First, the product is a major about-face for American Express, which has for years primarily concentrated on a single brand - its flagship green charge cards that cost $55 a year in membership fees and must be paid off in full each month. The card is carried by 23 million people around the world.
Second, grace periods are one of the most misunderstood aspects of credit cards. Most people assume that if their credit card has a grace period, interest charges don't accrue immediately on new purchases.
In fact, for 90 percent of all cards, grace periods only buy extra time if the balance is paid off each month. Consumers who carry a balance on their cards wind up paying interest as soon as they use it again.
American Express not only has to sell the card to consumers who think its products are out of their league and already get numerous new card offers, but the company will have to convince consumers its card is a better deal.
The company said it will launch a multimillion-dollar advertising and direct-marketing campaign this week.
``It won't be easy,'' said Anne Morgan Moore, president of Synergistics Research Corp., an independent credit card research firm in Atlanta. ``Grace periods are even more misunderstood than variable versus fixed interest rates.''
Indeed, even American Express employees still are learning the ropes. One customer service representative said Tuesday that the interest-free period runs for 25 days after a new purchase is made, while another said - correctly - that the grace period begins after the monthly billing period ends.
The Optima True Grace card will put grace periods in the forefront of credit card issues, said Moore. She believes that if American Express succeeds in convincing people that they are not getting as good a deal on interest charges as they thought, the rewards could be spectacular.
The card will have a 7.9-percent interest rate for the first six months, after which it will convert to the prime bank rate rate plus 8.75 percent - about 16 percent at current levels.
The card is free for the first year and as long as it is used three times annually.
American Express estimated that a consumer who carries a balance of $2,000 and makes $1,500 of new purchases during the year will save $118.47 in interest charges.
The new Optima card is the first of a family of traditional credit cards that American Express plans to market, said a spokesman. The company will roll out various reward cards and cards aimed at specific customer groups starting next year, he said.
Wall Street welcomed the new venture, bidding up American Express' stock by $1.37 1/2 per share to $30.37 1/2 on the New York Stock Exchange on Tuesday.
by CNB