The Business Ethics Blog

A couple of months ago I blogged about the launch, led by U2’s Bono, of a new “socially responsible brand,” called “RED”: U2’s Bono Rocks Corporate Philanthropy

Now, American Express has joined the project, and launched its new RED American Express card. When consumers use the card to make purchases, 1% of the purchace price goes to the Global Fund to help in its fight against AIDS, TB and Malaria.

Cynicism was not long in following:
The RED Card: American Express pretends to be charitable

On the surface, it’s a brilliant idea. Since RED is like any other credit card offered by American Express, you’re not subsidizing a charity’s advertising campaign with your donation. 100% of your donation is going to the Global Fund.

But there’s a devil in the details.

Make no mistake about it, the donation is from you, not from American Express. Every credit card offer has some kind of deal where you get free things or money back, and a good way to choose a credit card is to calculate the exact percentage cash back that you are getting. For example, if you get one Air Mile for every dollar you spend, and it costs 25,000 Air Miles to buy a domestic flight in the United States (say, $400-500 max), then you’re effectively getting between 1.6% and 2.0% off of your purchases. ($400/$25000)

In my experience, most credit cards offer effective discounts of 2-3%. The RED card gives 1-1.25% of your purchase value to the Global Fund, and there are no other discounts. Two things are eminently clear: (1) American Express is not hurting at all from this, as they are offering a lower implicit discount than that on their other cards; and (2) Your donation is real, since that 1% going to the Global Fund would eventually be cash in your pocket if you used any other card.

You are making a donation to the Global Fund every time you use the RED card. So why don’t you get a receipt for a tax deductible charitable donation? Because American Express is getting it. Which makes the RED card little more than a way for American Express to get money out of you, foolish consumer.

Three things need to be said:
1) I’m glad someone did the math. Reward cards of any kind are always a mixed blessing, and smart consumers should always, always figure out just what they’re getting, and just what they’re paying for it.
2) It’s still not foolish to want one of these cards, if you want a simple and effective way to contribute to worthy causes. Yes, it would be more effective, in principle, to carry a cash-back rewards card, save up the cash rewards and donate them (and enjoy the tax benefits, too). But not many people are that dedicated & organized. Much simpler to let Amex handle the details for you.
3) Why be surprised (or saddened) that the money is coming from YOU, rather than Amex? What they’re contributing isn’t a percentage, but rather the infrastructure. They’ve got relationships with a gazillion merchants, which means they’re providing a gazillion opportunities for consumers to make charitable donations. Why would anyone even think this is about Amex giving money? This isn’t corporate philanthropy. But who said it was?
4) If, alternatively, Amex said “OK, we’ll just give a million dollars to the cause,” or “OK, we’ll donate our profits from the RED card”, where would that money actually come from? Ultimately, it would come from consumers (either in the form of higher credit card rates, or in the form of lower dividends for investors, including the pension funds of blue collar workers & so on.)

Is RED a good business opportunity for Amex? Sure it is. In fact, according to the RED website‘s page about the Red Amex…

American Express is a founding member of RED because they’re convinced it makes good business sense.

So, I’d say this is a pretty decent example of Corporate Social Responsibility. Amex is doing something it is genuinely good at (gathering & processing payments) and thereby doing some real good in the world. As for their “real” motives…who knows? Who cares?
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(Thx to Rebel Sell for the heads-up.)