In recent months, holders of the American Express card have seen a change in their billing statements.
In the past, the bills came with a bulky packet of paper receipts of purchases. Today those slips have been supplanted by neat laser-printed sheets compressing as many as eight shrunken images of the original receipts on a single page.The change may appear modest, but it is the cornerstone of a high-stakes gamble by the American Express Co. that has wide implications not only for the rest of the credit card industry but for major sectors of the service economy as well.
At the heart of the change are new technologies that are revolutionizing the way American Express handles the mountains of paper and billions of pieces of data that are its stock in trade.
The key technology involved in the billing - image processing - converts all that paper and information into digital images stored on computer disks. The images can be recalled instantly in readable form, or effortlessly transmitted thousands of miles away.
Image processing is already paying off in 25 percent lower billing costs.
But American Express is expecting a much bigger dividend from the almost limitless possibilities that image processing presents for identifying target groups of customers and marketing new products and services to them.
By tracking charge slips, the company's computers might identify a cardholder as a frequent traveler to Toyko, say, or an avid tennis player. Working with American Express, a Tokyo hotel or a local sporting goods shop could then add custom-tailored advertising to that cardholder's monthly billing package.
In theory, American Express has had that capability for years, but the cost of such narrow targeting was prohibitive.
By contrast, image processing allows information from the receipts to be manipulated cheaply and far more accurately.
And customized advertisements can be sprinkled electronically, at virtually no extra cost, on empty spaces on each laser-printed page in the billing package.
In short, American Express is counting on image processing and other high-tech advances to keep up its own image as the company of choice for those seeking status and service in a charge card.
That image is increasingly important to American Express, the world's largest financial services company, as competition intensifies in a credit card industry whose growth has flattened in recent years.
"The financial services industry is at a point where the bold and swift are going to be able to create significant competitive advantages through technoogy," said Louis V. Gerstner Jr., American Express president and the company's chief strategist.
Meanwhile, other companies with huge paper flows - banks, hospitals, utilities, airlines and insurers - are keeping a close watch on the American Express effort.
Paper has been the principal, and frequently only, way business transactions have been recorded. Large corporations devote warehouses to storing paper and armies of employees to preparing documents, moving them, recalling them and converting them to microfilm.
"There is tremendous room for improvement in billing technology," said John Keefe, a financial analyst at Drexel Burnham Lambert. "Right now it's a little like a 20th century version of the pony express."
If image processing fulfills its promise at American Express, many other companies are poised to follow.
The International Business Machines Corp. is already prepared for such a trend. Last month it announced that it would begin marketing image-processing systems to give companies the capability that American Express, the undisputed leader in the field, has recently developed.
"About 95 percent of the information in business enterprises is in paper form," said Carl Conti, IBM's senior vice president and general manager, enterprise systems. "Companies envision transforming their business with image-processing systems, which are now becoming economically feasible."
But image processing is just one of the high-tech changes transforming the charge card division of American Express, which is fast becoming a case study of how a sophisticated service company can use cutting-edge science to anticipate the future.
The division, known formally as the American Express Travel Related Services Co., or TRS, is the most profitable subsidiary of the financial conglomerate, which also includes Shearson Lehman Hutton Holdings Inc. and IDS Financial Services.
In 1987, TRS had revenues of $6 billion and net income that grew by 16 percent to $655 million. American Express as a whole had revenues of $17.8 billion and net income of $533 million, a drop in earnings of more than 57 percent. The decline stemmed largely from a $625 million loss at the company's banking unit.
Already in place besides image processing is Authorizer's Assistant, a computer system based on artificial intelligence. The system, which was fully installed in June, automates many routine charge-card authorizations and provides detailed guidance for the company's telephone operators in handling more complex transactions.
Many other new services are expected in the next three years, the fruits of a separate $100 million research program, dubbed Project Genesis, that began in 1986. The proj-ect is staffed by some of the best technical minds in the company and overseen by Gerstner and Edwin M. Cooperman, president of the company's domestic card operation.
While American Express executives are uneasy about disclosing details of Genesis, they say that it will involve a new generation of uniform software for the company's largest mainframe computers.
This will permit American Express to standardize its data around the world _ and develop powerful and comprehensive files on its cardholders.
The flood of information would be available instantly at any of the company's offices, which are tied together by an enormous data processing system that employs more than 120 mainframe computers, 170 minicomputers and 46,000 individual work stations.
"What Genesis means is that we will be able to meet the needs of our customers anywhere in the world," said Cooperman.
The company, for example, has a global "electronic valet" in the offing for corporate clients. Within several years, business travelers will be able to send and receive electronic mail at any American Express office and even plug into their own company's information systems.
Eventually, American Express may employ elaborate speech-processing equipment to recognize the voices of merchants and customers when they call for information.
And advanced software may make the notion of a fixed individual credit limit obsolete: computers will know your spending and paying habits so well that the machines will individually tailor credit to take into account where you are in the world and what time of month it is.
Genesis is now well under way. Many of the offices at the project's headquarters in New York are empty as planners have moved out into the field to begin to implement ideas that were once considered "blue sky."
Like the effort in image processing, many of these new technologies will provide dramatic cost savings. The introduction of software designed to systematically manage routine paperwork tasks at the company's Southern regional operating center in Ft. Lauderdale, Fla., cut 80 jobs and produced annual savings of $1.9 million.
American Express executives, however, say that viewing technology solely as a means of lowering labor costs is shortsighted. Instead, the principal value, according to Gerstner, is the creation of new services and the winning of a longterm competitive edge. But the strategy is by no means guaranteed.
Over the years, other companies have invested millions of dollars in new technologies to give themselves a special identity or to win market share only to find that whatever they could do with technology, their competitors could do just as well. In fact, American Express's competitors argue that they will be able to match any new technological initiative.
American Express says it is not worried. "Someone comes out with a gold Mercedes," Cooperman said, "and then someone comes out with a Volkswagen and paints it gold. It won't work."