It has recently been reported that American Express Small Business Rates have been secretly raised for quite some time now. It has been found out that the American Express would give small businesses a certain rate, and then gradually increase it to boost revenue. To read more about the practice of American Express Small Business Rates raised secretly, please continue on:
The Wall Street Journal reports the following: For more than a decade, American Express Co.’s foreign-exchange unit recruited business clients with offers of low currency-conversion rates before quietly raising their prices, according to people familiar with the matter.
AmEx’s foreign-exchange international payments department routinely increased conversion rates without notifying customers in a bid to boost revenue and employee commissions, the people said. The practice, widespread within the forex department, was occurring until early this year and dates back to at least 2004, the people said.
The practice targeted mostly small and midsize businesses, the people said, a group of customers that accounts for about a quarter of the company’s credit-card revenue. AmEx, one of the largest small-business card issuers in the U.S., earlier this year said it hoped to become the leading payments and working-capital provider for small and middle-market companies.
AmEx said it doesn’t have contractual pricing arrangements with most of its foreign-exchange customers. “We have training, control and compliance oversight and believe that our transactions are completed and reported in a fair and transparent manner at the rates which the client has authorized,” said spokeswoman Marina Norville.
On Monday afternoon, Ms. Norville said the company takes “allegations like these very seriously” and will conduct a review with an external party to determine if its standards are being met. “If we find that we fell short of the mark, we will fix the problems and take appropriate actions to make sure it doesn’t recur,” she said.
Although the forex business is small—accounting for less than half of a percentage point of AmEx’s total revenue—it is among a suite of services the company offers to its small-business customers. Small business is a key growth area for AmEx, which has long sought to distinguish itself from rivals JPMorgan Chase & Co. and Citigroup Inc. by offering generous card-related benefits and tailored services to its consumer and business clients.
Current and former employees say the division’s commissions-driven culture fueled the practice.
Here’s how it worked, according to current and former employees: Salespeople would often tell potential clients that AmEx would beat the price they were paying banks or other financial institutions to convert currency and send money abroad. The salespeople didn’t inform customers that the margin, a markup that AmEx tacks on to the base currency exchange rate, was subject to increase without notice, they said. Prospective clients with certain AmEx cards also were accurately told they could earn points for the transactions, they added.
Some time later, salespeople would increase the margin without informing the customers, the current and former employees said. To spot the change, customers generally would have to log in to their accounts and compare the rate AmEx was offering to the market exchange rate at the time of the transaction. As recently as this year, they said, some customers had margins increased anywhere from 0.05 to 0.25 of a percentage point. In earlier years, margins rose by as much as 3 percentage points, according to former employees.
When clients did notice a change and inquired, AmEx salespeople sometimes would blame a glitch or other technicality and lower the margin, according to current and former employees and emails reviewed by The Wall Street Journal.
Current and former employees say the division targeted smaller businesses in part because they’re less likely than large corporations to have employees who closely track forex transactions.
Managers directed salespeople to keep the details of the payment arrangements hazy when speaking with potential customers and to avoid putting pricing terms in emails, current and former employees said.
Managers in the division tapped the brakes on the practice in recent months, according to current and former employees, following an article in the Journal late last year alleging similar practices at Wells Fargo & Co. An AmEx manager told salespeople they would need his approval before offering prospective clients a margin of less than 0.70 of a percentage point, according to an email reviewed by the Journal.
Current and former employees said the price changes were common knowledge within the forex business. Paul Hargreaves, who ran AmEx’s global foreign-exchange services division for many years, was aware of the tactic, former employees said. Following a long career with AmEx, he left the company earlier this year, Ms. Norville said.
Mr. Hargreaves couldn’t be reached for comment.
Current and former employees describe an environment focused on bringing in as many new clients as possible and squeezing revenue out of them before they depart. Employees were told that the average forex customer did business with AmEx for around three years, they said.
“Who cares if they come or go? Let’s make money while we have them,” one current employee said, referring to the attitude within the division.
“We constantly reinforce the importance of acting in the best interest of our customers,” said AmEx spokeswoman Ms. Norville.
Commissions are tied to monthly revenue targets, which are heavily influenced by margins and transaction volume, current and former employees said.
Salespeople who hit their targets earn a commission of 15% of the monthly revenue new customers generate, according to current and former employees. Commissions rise to around 25% after an annual revenue target of as much as around $285,000 is exceeded, they said. Sales reports distributed by managers list how much revenue salespeople generate, they added.
At AmEx, rate increases often would occur after managers told salespeople to review their accounts and adjust pricing, the current and former employees said.
Some salespeople said they were encouraged to employ the tactic at the division’s training program for new employees. One former employee said he was told during training to sign up as many accounts as he could in his early days and to go back later and adjust the rates upward to hit revenue targets.
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