Amex finds growth in refreshing older products

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American Express has focused the past few years on overcoming a couple of its stigmas — that not all U.S. merchants accept Amex cards, and that younger cardholders were not intrigued by the status of holding an Amex card.

Targeting those areas with what Amex executives termed a "fundamental change" in the company's business approach, the card brand says it has finally overcome those hurdles in a sustainable way.

Based on its own tracking records and industry reports, Amex said it has reached "virtual parity coverage" in that 99% of credit card accepting merchants in the U.S. are now able to accept the Amex card.

"We had set a goal in 2016 of reaching merchant parity across the U.S. in 2019, and setting this goal was the recognition of the fundamental importance our network plays in driving revenue," Stephen J. Squeri, chairman and CEO of Amex, said during the call.

For the fourth quarter, Amex reported total revenues of $11.4 billion, up 9% from the $10.5 billion a year earlier. Net fourth-quarter income was $1.7 billion, down from the previous year at $2 billion.

Over the course of 2019, Amex added 11.5 million new proprietary cardholders to its customer base, with approximately 70% of new customers selecting fee-based products.

Amex made a concerted effort, starting six years ago, to get more small businesses involved in accepting its cards through the OptBlue program. As a result, far more small businesses and acquirers got on board, and those acquirers were able to negotiate lower rates for qualifying small businesses.

Much of the current revenue generation, along with an increase in millennial card members and merchant acceptance, has been fueled through card product refreshes. These generally involve enhancements in rewards and services or attachments to digital advancements and lifestyle programs.

It's not something Amex was known for in the past, Squeri admitted.

"Our approach has been a change to fee-based products, and we were not in the business of refreshing the products," he said. "We had a fundamental shift on how we approach our business with this major focus on card refreshment."

By adding value, Amex was also able to raise fees, Squeri added. "But it is not just about fees, it is about getting people to spend and revolve that spend, and it's about more engagement."

In attempting to attract younger cardholders, Amex established more mobile and online features to help consumers and businesses manage their money and lives.

As a result, as much as 81% of active card members now engage with Amex via its mobile app or website, and the card brand reports a 26% increase in the fourth quarter year over year in the number of card members using the mobile app daily.

Squeri said this effort was not the "early innings" of a strategy, but more like entering an entire new baseball season.

"We have to look at product refreshes as something that happens on a three- to four-year basis, so we get to play the season all over again," Squeri said.

Amex has completed 50 refreshes of card products in the past two years, citing a refresh on its Platinum Card as one that triggered a 60% increase in the number of those cards adopted in a year's time.

"Before our refresh, the Platinum Card was not as attractive to millennials as it is today," Squeri said. "Most of our growth on the card has been from millennial uptake, as more than 50% of those new cards are acquired by millennials."

Even though competitors like Visa and Mastercard have aggressively expanded markets and tech capabilities through acquisitions, Amex looks at its focus on refreshing its products and accelerating fee growth as a strategy that allows it be more calculated in its acquisitions and other initiatives such as faster payments.

Late in 2019, American Express established a program allowing its credit card customers to use Membership Rewards points to pay at PayPal merchants, a move that expanded the use of the rewards program and allowed more mobile engagement.

"I really don't see faster payments impacting credit and charge growth," Squeri noted. While the company is interested in integrating payments with the procurement process, Amex predicts it "can achieve the same things today (in faster payments) with the network and connectivity we have," Squeri added.

Amex is encouraged by the recent formal acceptance from the People's Bank of China for Amex to do business in the country, but it is far from certain how the card brands will operate in China.

Things have not changed dramatically from a year ago, when Amex was one of the first American card brands to get on the radar for Chinese banks and regulators.

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