For Q3 2024, American Express revenue rose 8% year-over-year to $16.6 billion, while earnings per share rose 6% to $3.49. The company saw its total Card Member spending rise 6% year-over-year, while card fee revenue growth picked up to 18%.
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 $1.46 trillion billed business in 2023.
American Express has three operating business segments: Global Consumer Services Group, Global Commercial Services, and Global Merchant and Network Services.
The American Express Issued (proprietary) Cards command an average Discount Fee (commission charged to merchants as a percentage of the dollar value of the transaction) of about 2.48% compared to the industry average of 1.9%, primarily on account of a higher income/spending cardmember base with an average spending per cardmember 2-4 times that of the competitors. This lets American Express charge higher Interchange rates (the portion of the Discount Fee that goes to the Issuing Bank) since it brings higher spending customers to merchants. To maintain and attract high-income consumers, American Express offers greater promotions and membership rewards afforded only by the higher Interchange Rate. This is American Express's much-publicized 'Spend-Centric Model' wherein American Express stands to earn more per transaction (4-8 times per transaction compared to the competition), leading to a higher proportion of Transaction Fees compared to competitors.
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 $1.7 trillion in 2022 and are expected to reach $6.3 trillion in 2028 as an increasing number of phones incorporate near-field communication (NFC) chips to facilitate mobile payments. Further, the percentage of smartphone users making payments through mobile phones was more than 43% in 2022 and is expected to touch 50.1% by 2025.
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.
