More Consumers and Merchants Turning To American Express Credit Cards

Amex's latest financial release shows the company is becoming more popular among consumers. We explore whether business owners in the U.S. keeping up with the increasing number of American Express cardholders.

American Express (NYSE:AXP) released their Q2 2017 earnings, showing strong growth in new cardmember accounts. Basic consumer cards in force were up 7% YOY. Card member spending was up 8% over that same period. Though Amex still lags behind Visa and Mastercard in terms of acceptance, both globally and in the U.S., this continued growth is allowing it to make headway with both consumers and small business owners.

In April, it was announced that American Express signed 1 million small merchants onto their OptBlue credit card processing program, greatly expanding their reach in the U.S. Kenneth I. Chenault, Amex's Chief Executive Officer, stated his goal is to reach merchant base parity with Visa and Mastercard by 2019.

The popularity of Amex cards among consumers has been largely driven by an increased emphasis the company placed on reward programs. The New York-based American Express had to do this to make sure its more affluent cardmembers wouldn't jump ship to new premium card offers from JPMorgan Chase and Citigroup. According to their 8-K financial statement, American Express spent $1.93 billion on card member rewards in Q2 — a 9% jump over the previous year.

American Express' discount revenue, the fees it collects from merchants whenever they accept an Amex-branded credit card, was down slightly this quarter. The company collected $4.815B from merchants, compared to $4.824B in 2016. The average discount rate the company charges merchants held steady at 2.44%, though it's slightly lower than it has been in previous years. While this shows Amex cards are becoming more affordable to accept, they still carry significantly higher costs than their competitors, like Visa and Mastercard.

Despite the higher costs, many merchants continue to turn to Amex for their customer base. Historically, American Express has attracted more business customers, and high net worth individuals than their competitors. These users tend to purchase more goods than the average consumer. Amex has used this fact as part of its justification for charging more per transaction than other card networks. Though American Express has faced some strong competition recently on the premium-card front, their cardmember portfolio continues to shine. Average basic card member spending in Q2'17 was $5,128 — a 10% increase over where it was in 2016.

A graph showing how much the average Amex cardholder charges to their card each month.

Another way Amex is working on increasing integration is by making it easier for merchants to process their cards. In April, American Express announced that it signed on 1 million more small business owners to its OptBlue program, which included over 100,000 restaurants, 58,000 salons and spas, 42,000 clothing stores, and 36,000 grocery and specialty food locations. OptBlue is a way of processing American Express transactions, by bundling them along other payments. To that end, Amex has partnered with some of the largest credit card processors in the nation, including Chase Paymentech. The program has thus far proven to be very successful for Amex in terms of onboarding more businesses and growing acceptance rates. When OptBlue first launched in 2013, American Express was accepted at approximately 6.4 million locations. Since then, that number grew by over 33%.

Robert Harrow

Robert is the head of the Credit Card vertical at ValuePenguin and has been covering the card industry since 2014. His work has been featured in Reuters, Marketwatch, the New York Times and more.

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