The financial crisis is making everyone step back and reassess the way they do things. Take American Express, for example. According to an article in The Wall Street Journal, the financial services company is starting to regret moving away from its long-time policy of offering charge cards to an exclusive group of people it knew could pay off their balances in full every month.In the late 90s and earlier this decade, the company decided it wanted to expand its customer base, so it offered credit cards with revolving credit. This put the card company into unchartered territory as this new customer segment proved to be slightly less predictable. Add to that increasing ills from the credit crunch and Amex is beginning to turn the ship around, seeking to renew its love affair with its original customer base. It is trying to find predictability in time of crisis and instability.
Going back to basics is what many banks and analysts I've spoken to have said is needed during this uncertain period. It will always be imperative to continue to innovate and find new markets. However, financial institutions won't be quite so anxious to jump on the newest bandwagon as they were prior to 2008. In addition, the regulators will be breathing down their necks more than ever before, so risk aversion will likely climb in the industry, at least in the short term.
But will Amex's decision to return to its traditionally well-heeled customer base be the best decision in this market? We'll have to wait and see. The company has to try something to keep itself from falling victim to the same losses that are plaguing its competitors and to keep customers-desirable customers, that is. Plus, with the new tax scheme being pushed in Washington, will the wealthy and small business owners-two of Amex's target segments-necessarily have as much disposable income now that their taxes will skyrocket? These people may not exactly go broke, but the new economic climate might make some of them think twice before jetting to Paris for the weekend-or hiring new workers to expand their businesses.