Two Key Trends For American Express

American Express (NYSE: AXP) gets nearly 70% of its non-interest income from its card transaction and execution fees business segment. American Express issued cards are issued in four broad ways: inside the U.S., outside the U.S., to corporations and by third parties, who are normally co-branding partners for the company.

Transaction Fees are a product of the number of cards in circulation, average card member spend per card issued and the fee charged for processing each transaction. From the table above, we can see two broad trends driving American Express’ revenue from transaction fees.

1. Competition inside U.S. Driving Down Transaction Fees: Since, payment network services are largely undifferentiated, companies compete on fee charged per transaction. We can see from the table above that American Express charged 1.94% of the size of each transaction as a fee in 2011, but that has declined to 1.75% in 2015. As a result of this, transaction fee on American Express cards in use in U.S. has dropped from 47.7% of overall revenue from transaction fees in 2011 to 43.8% in 2015. Similarly, on third party issued cards, transaction fee has dropped from 3.8% in 2011 to 3.0% in 2015. A much higher rate of increase in cards in circulation for third party issued AmEx cards has ensured that its revenue contribution has stayed in the 22%-23% range. However, this also highlights how important it is for American Express to find co-branding partners for itself, after losing Costco, USAA, Jet Blue Airways and Starwood Hotels in quick succession.
2. Increasing Contribution From International Geographies: The number of American Express issued cards in circulation outside the U.S. did not  grow between 2011 and 2015, but the transaction fee and transaction volume processed have both grown. As a result, the revenue contribution for this segment has grown from 16% in 2011 to close to 19% in 2015. This also highlights the danger weak macro economic conditions in Europe, China and emerging markets pose to American Express, as declining transaction volumes and declining currency values both put downward pressure on an important driver of growth for the company.

Have more questions about American Express? See the links below:

• How Much Did American Express’ Revenue & Net Profit Grow In The Last Five Years?
• How Much Can American Express’ Revenue Grow In The Next Five Years?
• What Is American Express’ Fundamental Value Based On Expected 2016 Results?
• How Has American Express’ Revenue Composition Changed In The Last Five Years?

Notes:

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap |More Trefis Research