American Express Posts a 10% Gain in Card-Billed Business in the Second Quarter

Fresh from its victory in the U.S. Supreme Court, American Express Co. on Wednesday said card-billed business in the more mature U.S. market and its international markets both grew by 10% in the second quarter.

New York City-based AmEx reported a total of $296.5 billion in card-billed business versus $269.6 billion in 2017’s second quarter. U.S. volume hit $195.4 billion while international billed business came in at $101.1 billion.

Most of AmEx’s major customer segments posted double-digit volume gains. U.S. small and mid-sized enterprises, which AmEx defines as merchants with $300 million or less in annual revenues, posted a 10% increase. U.S. SMEs generate 26% of total billings. The biggest percentage gainers were international SMEs, which account for only 5% of total billings but posted a 25% year-over-year volume increase.

AmEx is eyeing foreign small and mid-sized businesses for future growth. “It’s really an open playing field,” chairman and chief executive Stephen J. Squeri said on a late-afternoon conference call with analysts, adding that the market is “only a couple of percent” penetrated. “We believe it’s a huge opportunity.”

The only loser was the Global Network Services unit, where billings shrank 3% thanks in large part to new payment regulations in the European Union and Australia. 

The spending generated $6.19 billion in discount revenue, up 8% from $5.74 billion a year earlier and representing 62% of AmEx’s total revenue. At the same time, the average worldwide discount rate fell 5 basis points to 2.37% of the sale from 2.42% in 2017’s second quarter. AmEx has said it would somewhat accelerate its gradual reductions in the discount rate in order to win new merchant business and further its goal of getting its U.S. merchant base at parity with the Visa/Mastercard networks.

But AmEx isn’t giving up profitability, according to chief financial officer Jeffrey C. Campbell. “Our focus is on driving discount-revenue growth, not on managing the average discount rate,” he said on the call.

The higher volumes came as AmEx spent more on cardholder rewards—up 11% to $2.43 billion—and marketing—up 14% to $1.66 billion—to drive cardholder spending. The company recently refreshed its Platinum card line, issued new cards for Marriott’s Starwood hotels, and announced new cobranded cards with Amazon.com Inc. and Wells Fargo & Co.

Squeri only briefly mentioned AmEx’s June 25 win in the Supreme Court. In a case dating back to 2010, the court disagreed with antitrust allegations from states and the U.S. Department of Justice and upheld the network’s rules that ban merchants from steering AmEx cardholders to cheaper forms of payment. “The court found that our differentiated business model has spurred innovation in the payments industry,” Squeri said. “Their ruling was a welcome end to a long legal battle with the Department of Justice.”

AmEx reported second-quarter net income of $1.62 billion, 21% higher than $1.34 billion a year earlier, on $10 billion in revenues net of interest expense, up 9% from $9.17 billion.