B2B Payments

Amex’s Commercial Card Strength In Question


American Express’ rocky travels through 2015 have spilled over into this year. Last week, the company released its quarterly figures, a mixed bag with plans to cut nearly $1 billion in expenses over the next two years.

Last year, MPD CEO Karen Webster had a wild idea: Perhaps, American Express could save itself by dumping everything except its commercial card portfolio, the side of the business with high transaction values, less regulatory pressure and fewer acceptance limitations.

Sure, it’s a drastic proposal, but it was based off of the successes that Amex’s corporate card portfolio had brought to the company. American Express’ newest quarterly report, however, calls into question the strength of that commercial card security net.

Earnings Results

The Jan. 21 numbers that were released revealed a 38 percent year-over-year decline in net income; earnings per share beat out expectations, but revenues missed the mark. The dollar’s recently bolstered strength against foreign currencies has also proven unkind to American Express as its non-U.S. operations take a hit.

Also in the mix were revelations that its U.S. operations are doing quite well, and annual fees seems to have balanced out the recent interest rate hike by the Federal Reserve.

There is a lot at play here: foreign exchange volatility, regulatory impacts and a struggle to continue to innovate and usher in new payments technologies. Amid this sea of factors are the commercial cards, and as it turns out, this product portfolio may not be as resilient as previously thought.

Corporate Card Struggles

Analysts from multiple news outlets on Thursday (Jan. 28) took to highlighting American Express CEO Ken Chenault's remarks on commercial card operations during last week’s conference call.

“We’ve been very clear throughout [2015] that the segment I’ve been most disappointed in has been the corporate segment,” he stated frankly. He pointed to one key perpetrator for disappointing numbers.

“The easiest expense category to cut is T&E,” he said. “What we’ve seen in my 30-plus years’ experience with the company is: Cutbacks in T&E is an early indicator for a slowdown.”

The firm’s Global Commercial Services unit saw a 3 percent drop in card-billed business year over year in Q4 2015, hitting $45.5 billion, the company reported. According to reports, this marks the fourth quarter in a row that such volume declined.

Net income for the unit in 2015 reached $666 million, Amex said, down from $1.5 billion in 2014. Plus, reports noted, revenue net of interest declined 32 percent to $3.5 billion between 2014 and 2015.

Global Commercial Services saw a net income of $132 million for Q4, a 78 percent decline from the same period one year prior, though Amex noted that that 2014 statistic included gains following its investment in T&E firm Concur. 

Earlier remarks by Amex CFO Jeff Campbell had pointed to the U.S. market as the driving force behind the downward slope of spend on Amex commercial cards. During the company’s Q3 2015 earnings call, Campbell also pointed to dropping fuel and travel costs as also playing a part in the decline, though reports noted that Chenault seemed to place more emphasis on T&E spending cuts among corporations.

What’s Next

The disappointing figures for American Express could spark even more worry among investors and analysts that view commercial cards as a strong point for the company. But Amex rolled out new features for its corporate card products in recent months, so the unit is far from dead weight.

In Q4, American Express expanded its support of Apple Pay for commercial cards to new markets, including Canada and Australia, with additional markets across Europe and Asia getting on board this year.

Last month, the company added Apple Touch ID capabilities for its commercial card accounts, and just last week, it launched a new small business card product, the SimplyCash Plus Business Credit Card, which allows SME owners to use the card beyond their credit limit.

With renewed pressure to stop the bleeding, so to say, American Express could continue to roll out new commercial card products and features in the coming months. We’ll have to wait and see.



About: Accelerating The Real-Time Payments Demand Curve:What Banks Need To Know About What Consumers Want And Need, PYMNTS  examines consumers’ understanding of real-time payments and the methods they use for different types of payments. The report explores consumers’ interest in real-time payments and their willingness to switch to financial institutions that offer such capabilities.