“The eye sees only what the mind is prepared to comprehend.” ― Robertson Davies


AMEX Says Goodbye to Kenneth Chenault


The last decade may have been the tail end of American Express’s hold on the niche of earning transaction fees. The last 16 years have been quite profitable for Amex while being headed by chief executive Kenneth Chenault, as credit-card usage has surged in the last decade.

Even with such growth, American Express is not doing so well in the rapidly evolving payments industry. Over 40 years ago, the amount of money for purchases channeled through AmEx was equal to 50% of what went through MasterCard and 70% of what went through Visa. In 2016 the ratio dropped to 30% and 14% respectively. MasterCard’s market capitalization is now two times that of American Express’s and Visa’s is three times as big.

PayPal is also gunning for AmEx because although they only have a tiny fraction of AmEx’s revenues and profits, they have surpassed them in market value. PayPal does not use cards, rather they give their customers a platform on their smartphones or computers tied to their bank accounts or MasterCard, Visa, or American Express. PayPal collects a fee for each payment processed. PayPal also offers Venmo (primarily for payments between individuals) and BrainTree (used by Uber, AirBnB, and Xoom).

The big banks are now targeting the customers that were well-off enough to be willing to pay for American Express transaction fees. They have also taken advantages of some of the co-branding deals that AmEx used to easily acquire which carried exclusive rewards for customers. For instance, they lost one of these types of deals with Costco to Citigroup. Costco accounted for 10% of its transaction volume. To counter these types of losses, AmEx has taken on bank-like characteristics and is lending more. Nomura/Instinet, a brokerage, predicts that interest income should bring in 28% of revenues for American Express.

Although the business has changed American Express may very well be here for the long hall. In my opinion, we are all probably going to switch over to some form of cryptocurrency in the future and make most of these financial institutions obsolete. But hey, I could be wrong.


(The Economist)


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