Amex Looks Past Costco And Toward Loyalty

While American Express spent much of its first quarter earnings call backpedaling, it spent most of its second quarter earnings call pedaling forward.

For Amex, looking forward means looking to 2016 when the company will end its 16-year deal with Costco. This also means looking toward what the company can do to increase customer and merchant loyalty. During Amex’s earnings call with analysts yesterday (July 22), CFO Jeffrey Campbell gave attention to three items on Amex’s top priorities: building its Plenti loyalty coalition program merchant base, focusing on its OptBlue small business program and promoting its recently rolled out Express Checkout option.

Starting with its move to make digital checkout easier, Campbell provided an insight into how Amex hopes to use its Express Checkout to help merchants realize the value of their services both on and offline. While the program is still in its early days, Amex hopes that by eliminating the friction at checkout, it can enable more Amex cardholders to use the option. 

“The key here that everyone is trying to get to with these products is you’re trying to get to a much higher percentage of people who go all the way through to end and buy what they’ve been looking at on any particular online mobile experience,” Campbell said. “I would say we and the couple of merchants we had doing pilots with us were very encouraged by the results that we achieved in terms of improving those rates of getting people through to the final steps.”

What Amex is hoping to achieve aligns with its similar online checkout counterparts, which Campbell noted was the “real gold pot that everyone is chasing.” The gold at the end of that rainbow, of course, is to boost consumer conversion rates to the point you can prove the service is of value to merchants.

“Then the economics take care of themselves for everyone,” Campbell said about Express Checkout. 

Moving onto OptBlue, he also offered a few stats to show how that program has continued to grow for Amex. To date, Amex has signed up more than 700,000 new merchants in the U.S. through OptBlue, and it remains a focus for the company to drive up cardmember spending. Amex is also focused on enhancing its small merchant coverage in markets around the world, Campbell said.

While Amex continues to push its OptBlue toward merchants, on the consumer and merchant side, it’s all about Plenti. This involves everything from on-the-ground work with merchants to remind them to put up Plenti stickers to educating cardmembers. Campbell said all of this is about balancing how to promote the product to consumers without overly alerting them every time a new merchant joins. 

Over the next few years, Amex expects Plenti to add handsomely to the bottom line, he added. As of now, Plenti has more than 20 million total customers, Campbell said during the call, which has helped Amex remain encouraged about its potential.

Campbell kept the focus of the call looking forward, but that didn’t mean he could avoid talking about what most analysts care about: the soon-to-be severed relationship with Costco — both in Canada and the U.S. He noted that the situations in Canada versus the U.S. are very different, in large part because there is no portfolio sale in Canada.

Because the potential portfolio sale of the Costco co-brand deal with Citi is underway and in the negotiation process, Campbell couldn’t get into specifics other than to say the deal is “very complex.” He did, however, provide some color about how the deal impacts Amex.

“If you assume there is a portfolio sale in the U.S., it would have a profound impact on the ability to capture the spend and lend of the Costco cardmembers in the U.S. Obviously, the sale itself automatically boosts a cardmember relationship. In addition, as you might likely expect, when a portfolio is sold, there are likely to be contractual restrictions on what types of marketing activities the seller is permitted to engage in,” Campbell said. 

For the quarter, the Costco co-brand card rate slowed well below the segment average as a result of new card acquisitions. That was expected because of the agreement with Costco for Amex to reduce its joint marketing efforts during what he called the “slowdown period.”

Amex CEO Ken Chenault was absent during the earnings call with analysts, but he did offer his thoughts on the quarter in the prepared earnings release about expense control and card spending. 

“Disciplined expense control and a substantial return of capital to shareholders through share repurchases together with higher cardmember spending and loan volumes helped to mitigate the negative impact of a strong U.S. dollar and the year-ago benefits from Global Business Travel, which now operates as a joint venture,” Chenault said. 

“Against the backdrop of an uneven global economy, cardmember spending grew 6 percent, adjusted for FX, with strong performance in most international regions. Our credit metrics remained at, or near, historically low levels … Lower operating expenses this quarter largely offset the higher costs related to previously renewed co-brand partnerships,” he added. 

Overall, Amex posted a net income of $1.47 billion, which was down from $1.53 billion a year ago. Total revenue fell 4 percent to $8.28 billion, which was brought down by a 9.6 percent decline in revenue from card services from markets outside the U.S. U.S. Card Services posted a net income of $886 million, up 15 percent from $770 million a year ago.


New PYMNTS Report: Preventing Financial Crimes Playbook – July 2020 

Call it the great tug-of-war. Fraudsters are teaming up to form elaborate rings that work in sync to launch account takeovers. Chris Tremont, EVP at Radius Bank, tells PYMNTS that financial institutions (FIs) can beat such highly organized fraudsters at their own game. In the July 2020 Preventing Financial Crimes Playbook, Tremont lays out how.

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