American Express Gave Small

Businesses One Rate, Then Secretly

Raised It
The forex division’s commissions-driven culture was cited by current and
former employees as fueling the practice

Current and former employees of American Express Co. describe an environment focused on bringing in as
many new clients as possible and squeezing revenue out of them before they departed. PHOTO: ANDREW
HARRER/BLOOMBERG NEWS

By
AnnaMaria Andriotis
Updated July 30, 2018 2:10 p.m. ET

For more than a decade, American Express Co.’s AXP 0.78% 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.
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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.

Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com