For Q4 2024, American Express posted earnings that were largely in line with expectations. Consolidated revenues net of interest expense stood at $17.2 billion, up 9% year-over-year, while earnings stood at $3.04 per share compared to $2.62 per share in the year-ago quarter. The increase was primarily driven by higher Card Member spending, higher net interest income as well as card fee growth.
American Express is a global financial services company whose principal products and services include charge and credit card products and travel-related services to consumers and businesses across the globe. It's the third-largest player in card transaction volumes in the U.S. after Visa and MasterCard, with $1.55 trillion billed business in 2024.
American Express has three operating business segments: Global Consumer Services Group, Global Commercial Services, and Global Merchant and Network Services.
American Express-issued (proprietary) cards command an average Discount Fee, which is the commission charged to merchants as a percentage of the transaction value, of approximately 2.5%, compared to the industry average of below 2%. This premium is primarily due to a higher-income, higher-spending cardholder base.
This higher spending allows American Express to charge higher Interchange rates—the portion of the Discount Fee that goes to the issuing bank—since it delivers more affluent customers to merchants. To attract and retain these high-income consumers, American Express offers premium rewards and promotions, made possible by its elevated Interchange Rate.
This approach, known as the 'Spend-Centric Model,' enables American Express to earn significantly more per transaction compared to competitors, resulting in a greater proportion of revenue from Transaction Fees.
American Express's crucial competitive advantage is its Closed-Loop Network, which serves as the Issuing Bank, the Network Provider, and the Acquiring Bank in a proprietary card transaction. This lets American Express earn the entire Discount Fee on any transaction and allows it to analyze the trends and spending patterns among the various segments of its cardmember base and provide targeted marketing, analytical, and value-added services to the merchants in the process.
Below are some trends that could have a significant impact on American Express and the credit card industry in general:
Mobile phone payments are rapidly gaining popularity, coinciding with the surge in smartphone sales. An increasing number of smartphones manufactured now utilize near-field communication (NFC) chips, which facilitate mobile payments. Mobile payments crossed $2.5 trillion in 2024 and could grow considerably driven by an increasing number of phones incorporating near-field communication (NFC) chips to facilitate mobile payments.
Americans are the highest non-cash users, and the trend has grown over the years. Further, we expect it to continue in the future. Outside of the U.S., non-cash penetration is much lower, but the use of cards is expected to increase at a higher rate in emerging markets than the mature markets.
Cards are a preferred mode of payment for online shopping. Online retail sales in the U.S. have been growing at a staggering rate over the past decade. The card transaction volumes have moved from predominantly travel sales (air tickets, car rentals, and hotel reservations) to non-travel and entertainment (T&E) areas such as personal and home care products, electronics, books, and clothing. Further, growth in online sales is expected to increase card transaction volumes.
