Intro: American Express vs. Discover
There was a time when holding an American Express card was a status symbol for the wealthy. However, nowadays, being able to flash the green or gold card has become less appealing to consumers who have instead shifted their focus to credit card companies that can offer a multitude of attractive features.
Benefits and rewards programs, such as frequent flier programs and cash back offers are very much in demand by consumers. One of those credit card companies that consumers have shifted their focus to is Discover.
In this review, AdvisoryHQ looks at the pros and cons of being cardholders of American Express vs. Discover. We’ll compare features of their credit card products, such as fees schedules, and loan terms. In addition, we’ll address the challenges these companies have faced, and how these companies are working to maintain and improve their places in this important area of consumer finance.
Review: Discover vs. Amex
Amex and Discover are considered the third and fourth players in the credit card space based on the number of credit cards each company has in circulation. Despite the fact that there are only four main companies in the credit card arena, the competition in this space is fierce. Therefore, it is imperative that these companies continue to improve upon their services and introduce new products to attract consumers, which in turn leads to some awesome offerings to consumers in terms of loans, fees, and benefits.
For American Express, its place as a status symbol remains important to the company. Look no further than its Black Card that attracts the wealthiest elites. However, the Amex seems to be recognizing that a shift in consumers’ expectations of credit card companies has impacted the attractiveness of its products. In response, American Express has rolled out a series of cards to address the needs of all segments of the credit card market.
Historically, when consumers have debated between American Express vs. Discover, they’ve always favored American Express’s “stellar status.” However, that is a trend that has shifted as consumers now favor a wide range of different factors when deciding on Discover or American Express.
Despite the credit card industry long being dominated by American Express, MasterCard and Visa, Discover’s consumer-friendly benefits has helped it earn considerable respect, as well as market share, over the years.
American Express vs. Discover: What Cardholders Want
As noted above in this Amex vs. Discover review, credit card holders have grown more sophisticated in their expectations of credit card providers. Plastic has increasingly replaced cash over the past few decades, and the allure of carrying a specific brand, such as an Amex card, is no longer a strong selling point as it was in the past.
Customers are now looking at other factors, such as if the card provider can give a meaningful customer service experience. This is especially the case when it comes to direct interactions with customers.
Customer Service from a Live Person
You may have seen the television commercial in which a Discover customer calls the company and immediately launches into the slow speak that has become the norm as computers pick up calls before a live customer service agent does. In this commercial, the agent alerts the caller that she is speaking to a live person, to the surprise (and delight) of the caller.
Discover boasts having 100% U.S.-based customer service available day or night, which is also a plus for some customers.
This may seem to be a minor aspect, but this Discover vs. American Express review found that speaking to a “real” person when placing calls to customer service lines is among the top things that credit card networks are seeing as being very important to customers.
In addition to answering routine questions for cardholders, customer service representatives must also be available at all hours to answer more complicated questions, such as disclosures about credit card offerings and billing and payment schedules.
Customer Service Regarding APRs
A real stickler has been over annual percentage rates, also known as APRs. Investopedia explains that credit card companies are allowed to advertise interest rates on a monthly basis, such as 2% per month. They are also required to clearly state the APRs to customers before any agreement is signed, notes Investopedia. Unfortunately, many customers don’t read the fine print about APRs and end up calling customer service for explanations.
Best in Service: Discover or American Express?
All of these customer service practices can contribute to credit card holders determining which credit card network is best equipped to handle their calls as well as problems and complaints. When J.D. Power ranked credit card networks using these factors, it found that Discover came out on top while American Express came in second.
This particular report released in December marked the second year in a row that Discover has managed to achieve the highest ranking. The company’s focus on the customer, as well as its improved reward redemption process, was noted as the reasons behind its high satisfaction ranking.
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Cash Back Rewards
Image Source: American Express
This Discover vs. Amex review found that cash back is another important component that customers consider in determining which credit card to choose, and it’s an additional area where Discover excels over American Express.
Discover it® Card Cashback Bonus Program
Take the Discover it Card® Cashback Bonus program, for example. The program offers holders a dollar-for-dollar match on all the cash back they have earned at the end of their first year as cardholders.
Also, cardholders receive 5% cash back on certain purchases, such as purchases for gas and even dining. Cardholders can earn 1% cash back automatically on all other purchases they make with no limits. Discover it Card holders can also use their earned rewards to make purchases at Amazon or redeem them for cash, dollar for dollar.
American Express’ Blue Cash Everyday®
Compared to the rewards offerings from the Discover it® Card, American Express’s similar credit card, called Blue Cash Everyday, only offers a comparable cash back program. American Express’ Blue Cash Everyday® cardholders get cash back offers that include 3% at U.S. supermarkets, with up to $6,000 per year in purchases (it then drops to 1%); 2% at U.S. gas stations; 2% at select U.S. department stores; and 1% on other purchases.
After its cardholders spend $1,000 in purchases within the first three months of the card’s membership, American Express pays $250 in the form of rewards dollars that can be redeemed as a statement credit.
The contingencies American Express has in place in order for cardholders to receive cash back are reasons why Discover wins when it comes to rewards.]
Those Highly-Sought Frequent Flier Miles
In addition to being able to redeem rewards in the form of cash back to make regular retail purchases, consumers also seek out cards that offer frequent flier miles.
Discover it® Miles Credit Card
In the case of Discover, its Discover it® Miles Credit Card is popular due to several reasons. For example, cardholders can be offered deals in which they can double their miles accumulated on their card. One such offering allows them to turn, for example, 50,000 miles into 100,000 miles. This is where Discover will automatically match all of a cardholder’s frequent flier miles earned at the end of the first year. Cardholders can earn 1.5 miles per every $1 spent.
American Express Delta Gold Card
The American Express Delta Gold Card has extended offers in the past that entail cardholders earning 50,000 bonus miles after they make $2,000 in purchases within the first three months of being new card members. These deals have included no fee being charged for the first year, with a $95 fee kicking in the year after.
Note that these types of offerings for frequent flier miles often come with expiration dates. However, they are constantly being rolled over in some shape or form.
The Credit CARD Act
The financial collapse of 2008 exposed several weaknesses in the financial sector, including the credit card industry. Credit card networks landed in the crosshairs, mainly due to their disclosure polices (or lack thereof) and their fee schedules.
To the delight of consumers, Congress, in 2009, passed the Credit Card Accountability Responsibility and Disclosure Act (Credit CARD Act).
According to a report released by the Consumer Finance Protection Agency in December of last year, huge numbers of credit card holders had been at needless risk for several reasons. This included inconsistent billing practices, pricing changes, and the proliferation of backend fees, among other issues.
The agency touts the Credit CARD Act as providing relief to consumers as pricing became more transparent and upfront. Furthermore, the agency says the act led to fees and interest rates falling as a share of balances.
Revisions Made by Amex and Discover
To their credit, American Express and Discover have complied with the Credit CARD Act, resulting in relief for their cardholders.
This Discover vs. American Express review found that revisions had been made regarding some of the fees by these companies that had, in the past, been one of the biggest complaints of cardholders. Both American Express and Discover responded to the act and developed strategies to make their cards more attractive to those customers concerned about fees.
The complaints were particularly aimed at American Express. In response, it has taken several steps to remain competitive with other networks. For example, American Express has further diversified its card offerings beyond its traditional charge cards. In addition to credit cards that have no annual fees, American Express offers reloadable debit cards with terms that allow consumers to better control the fees they may be assessed.
The results of its efforts are noteworthy. Since the act became effective, American Express has seen its growth increase each year. It has roughly 55 million credit cards in circulation in the U.S. That compares to the roughly 44 million cards Discover has in circulation.]
Amex vs. Discover: Where Its Credit Card Cards Are Accepted
Also important to consumers is where their credit cards will be accepted. Here, Discover wins out over Amex. It is reported that roughly 9.3 million merchants throughout the U.S. accepted Discover as of the end of 2014 while just 6.9 million accepted American Express. These numbers are according to the Nilson Report, which covers the payment systems industry.
A main reason that American Express is not as widely accepted as Discover (or any other cards for that matter) relates to the fees it charges merchants. On a comparable basis to other credit card networks, Amex’s fees are the highest. Instead of paying the fees or passing them on to customers, merchants choose other network systems, including Discover.
Amex was recently struck a serious blow when Costco Wholesale announced the end of its exclusive agreement with the company in allowing Amex to be its sole credit cardprovider. Costco has inked a new agreement with Citi.
It is estimated that Costco accounted for 8% of worldwide annual spending on AmEx cards in 2014 and 20% of the company’s outstanding loans.
This is a double-edged sword for American Express. On one hand, customers won’t be able to use their cards at the popular retailer and will lose the benefits they reaped from the American Express/Costco relationship. On the other hand, Amex customers may see some sweetened offers from the credit card network in order to keep them as customers. Also, American Express may offer additional deals to attract new customers.
Loan Balance Sheets
When it comes to loan balances, American Express carries a larger load than Discover. Amex has roughly $61 billion in outstanding loans while Discover has about $57 billion.
The loss of the partnership with Costco has forced American Express to seek other revenue sources. It has announced a partnership with the online marketplace Fundera, in which it will pay the company to feature its charge cards. The goal is to get small business owners that do business on the site to sign up based on American Express’s loan terms and interest rates, which the company hopes will be more attractive than traditional loans.
Regarding consumer balances on both companies’ credit cards, it is possible to transfer balances from cards with higher interest rates. American Express’s Blue Cash Preferred Card and the Discover it Card allow for balance transfers.
Image Source: Pixabay.com
Discover vs. Amex: Conclusion
In considering the pros and cons of American Express vs. Discover, there are two key things to keep in mind: the rewards programs offered and benefits such as frequent flier miles. Research company J.D. Power found that more than half of credit card customers select their new card for a better rewards program while about a quarter choose their cards based off the benefits.
Customers are also very concerned about customer service, which Discover and American Express do well in providing. Given the complexities of their products, such as introductory APRs, customers want to be assured they are being met with courteous and knowledgeable service representatives.
When deciding on Discover or American Express, the latter offers more types of products to suit the wide array of needs that different consumers may have. This makes it extremely attractive for those customers who are seeking specific perks.
However, if fees are a concern when it comes into cashing in on the rewards offered by these two, Discover comes out as the preferred choice.
Hopefully, this American Express vs. Discover review has provided you with a detailed analysis regarding what the two companies offer as well as the positive and negative aspects regarding services and products offered by the two. Armed with this information, you should now be able to decide whether Discover or American Express will be able to assist you in your future financial prospects.
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