Dark Clouds Loom for American Express
It’s business as usual for American Express Company according to its 10-k recently filed with the Securities and Exchange Commission in Washington.
Some interesting facts about Amex according to its filing:
Amex has called out the rapid growth of Alternative Payment Methods systems aggregators Paypal, Square, and Amazon as a competitive threat
Travel and Entertainment spending represents 25% of US billed business
Co-branded cards like Delta represent 17% of billed business globally
The Delta Airlines co-branding partnership represents 8% of billed business globally
The Delta Airlines co-branding partnership represents 21% of members loans
Card member loans grew to US$55bn by the end of 2018
On average, card member borrowers paid 10.7% interest in 2018
However there are dark clouds on the horizon. It’s merchant discount revenue grew by 8% in 2018 to US$24,721bn. This huge chunk of its revenue was 61% of total revenue in 2018 (US$40,338bn) is at risk.
According to extracts from the documents filed, Amex has identified the following risk factors:
“Our business is subject to comprehensive government regulation and supervision, which could adversely affect our results of operations and financial condition” and “Ongoing legal proceedings regarding provisions in our merchant contracts could have a material adverse effect on our business and result in additional litigation and/or arbitrations, substantial monetary damages and damage to our reputation and brand.”
In Europe, Amex is continuing to dodge the regulators despite the ruling from the EU Court of Justice in 2018
“In addition, there is uncertainty as to when or how interchange fee caps and other provisions of the EU payments legislation might apply when we work with cobrand partners and agents in the EU. In a ruling issued on February 7, 2018, the EU Court of Justice confirmed the validity of the application of the fee caps and other provisions in circumstances where three-party networks issue cards with a cobrand partner or through an agent, although the ruling provided only limited guidance as to when or how the provisions might apply in such circumstances.”
The issue seems to boil down to the interpretation of interchange. Merchants (Businesses that accept card payments) are saying that Amex is ignoring the caps that should have been in place since December 2015.
Amex should be warned. The EU Commission has taken a hard line with Visa and Mastercard, recently fining Mastercard for violating merchants’ rights to settle cross-border transactions. Both have paid out large settlements to merchants for historical overcharging.
