American Express Co.’s near-term forecast is looking rosier because of improving economic trends plus its role as the lone payment network escaping nearly unscathed from the latest round of card-industry regulations, one analyst says.
AmEx was “probably the bigger winner” in payments industry regulatory developments emerging this month that likely will cause far more pain to its peers, Sanjay Sakhrani, an equity analyst with New York-based Keefe, Bruyette & Woods, wrote in a June 28 statement.
The Federal Reserve Board on June 15 issued its final set of rules related to the Credit Card Accountability, Responsibility and Disclosure Act, this time capping late-payment and other penalty fees. The new rules, which go into effect Aug. 22, will have a “relatively modest” effect on AmEx, given its relatively lower exposure to revolving-credit lines versus charge card lending, Sakhrani said.
The Fed in June announced that credit card late-payment fees cannot exceed $25 for the first offense and $35 for additional late payments within the next six billing cycles (see story).
AmEx’s credit card late-payment fees range from $19 to $38, depending on the balance owed, according to AmEx customer-service representatives.
The Fed also decreed that a charge card issuer that has not received the required full payment for two or more consecutive billing cycles may impose a late-payment fee that does not exceed 3% of the delinquent balance.
AmEx has a relatively lower percentage of late and delinquent cardholders than do its peers, according to recent industry data. Moody’s Investors Service on June 22 pegged the average U.S. consumer credit card charge-off rate at 10.71%. AmEx’s charge-off rate for the first quarter ended March 31 was 7.2%, down 130 basis points from 8.5% at the end of 2009.
Sakhrani predicts AmEx’s charge-off rate for the second quarter ended June 30 will be even lower, at around 6.5%, as the economy improves. AmEx plans to release its second-quarter earnings next month.
AmEx also would be unaffected by debit-interchange legislation included in the financial-reform bill, dubbed the Dodd-Frank Act, which the House and Senate may vote on this week. The death early Monday of Sen. Robert Byrd, D-W.Va., prompted some experts to believe the Senate might lack the votes to prevent a Republican filibuster.
AmEx is the only one of the four major payment networks that does not derive revenue from debit card payments attached to demand-deposit accounts.
One provision of the financial-reform bill could have a slight effect on AmEx, in which merchants would be allowed to refuse to accept credit card payments under $10. But that rule will have little effect on most credit card issuers, including AmEx, because most merchants already have established policies surrounding low-balance credit card transactions that networks accept, Sakhrani says.
An AmEx spokesperson tells PaymentsSource that the company already allows merchants to set minimum credit card transaction amounts for AmEx acceptance, as long as the same rules are applied to all card brands. “We continue to see positive growth in small and micro-transactions,” the spokesperson says.
AmEx’s upscale market positioning should provide an advantage over competitors as the nation begins to crawl out of the recession, Sakhrani contends. “We believe a cyclical rebound in spending, particularly among more affluent individuals and businesses, should assist the company” to see stronger growth trends “relative to the industry,” he wrote.