THE CREDIT CARD WARS: AMERICAN EXPRESS

Credit card companies in the U.S. have been engaged for some time now in warring over the credit card rewards that their companies offer.  There’s been some concern that, with the competition that JPMorgan Chase and Citigroup have mounted with their various cards, the rewards offered by American Express (Amex) would come to seem ungenerous.

However, that appears to be an overwrought concern, as the company’s customer loyalty seems to prove.  Amex has a number of things going for it that would make that so, including its strong brand, its good reputation for excellent customer service, and other offerings to customers, such as airport lounges.  These offerings are clearly attractive to customers and seem to render inconsequential, or, to make up for, the lower rate of rewards and/or cash back payouts.  Analysts have recently reported that the company’s rewards costs for 2018 amounted to 1.1% of customer spending. That figure compares very favorably with the larger 1.9% spending for rewards at both JPMorgan and Citigroup.  Amex achieved 11% growth in customer spending in 2018.   The heightened competition between the card companies does shine the focus on Amex’s dependence on transaction fees – and, essentially, on its cards that carry balances from month to month.  The big banks card warriors can afford to give away (that is make less money on) transactions on their credit cards because they can recover those expenditures by the interest charges that they extract, or even by using the rewards for their cards as a way of tying customers into broader banking relationships.  Amex has responded to this competitive onslaught by stepping up its lending.  The company has begun to introduce more traditional credit cards and also to allow holders of its Platinum and Gold charge cards to extend their payment periods.  As a result, Amex’s net income interest rose 19% in 2018, while its fee revenue rose less (8%).  The company forecasts that fees will still account for three-quarters of revenue over the next 10 years, compared with 81% in 2018.  The downside for the company could be the new volatility to earnings that has been introduced through the potential defaults of credit card holders, should economic conditions change.  Should that be the case, one can surmise that the other credit card warriors will be experiencing much the same situation.  And, thus . . . the wars continue.

Companies must be constantly alert to ALL THE MOVING PARTS of the organization – and to those five select areas that make up those moving parts – it appears that Amex is doing a fine job of managing these.

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