AmEx: So Far So Good with MBNA, Though It’s Still Early in BofA Deal

American Express Co. has so far seen no change in its relationship with MBNA Corp., which last year began issuing cards on AmEx's network in the U.S. but is now in the process of being acquired by Bank of America Corp. in a $35 billion deal that was announced late last month (Digital Transactions News, June 30). “We continue to work very closely with MBNA,” said Gary Crittenden, chief financial officer at AmEx, in a conference call held today with analysts to discuss the New York-based T&E giant's second-quarter results. “We just had a very successful quarter with MBNA.” Crittenden added AmEx has “no reason” to think the current arrangement with MBNA, which was the first U.S. bank to issue cards with AmEx, won't continue. It is, however, early, he cautioned. “They're in the early stages of thinking through [what they will do as part of BofA],” Crittenden said. “Over time we'll learn more. It's too early to know how that will shake out.” Since the MBNA deal, AmEx has reached agreements with three other banks to issue cards on its network, including Citigroup Inc., USAA, and Juniper Bank, part of the Barclay Group, which plans to issue both AmEx and Visa Signature cards for clients of UBS Financial Services Inc. But the acquisition of MBNA by BofA, the founder of Visa, a bitter rival of AmEx, has shrouded the future of the MBNA-AmEx relationship in doubt. In answer to analysts' questions, Crittenden said the deal with Citi is progressing on plan and should launch in the fourth quarter with “an attractive palate of products.” He also insisted AmEx's cards are gaining market share at the expense of debit cards, for which transaction volume is growing much faster than for credit and charge cards generally. “Debit is gaining share relative to credit cards, but it just doesn't happen to be gaining relative to us,” he said, without citing numbers. “We've been gaining share at both debit's expense and at the expense of cash and checks.” In its release of second-quarter financials today, AmEx revealed that its worldwide discount rate ticked down to 2.54% from 2.56% in the year-ago period. The company doesn't break out its discount rates or revenues regionally. The company said the decline reflects a “changing mix of merchant segments” as well as volume pricing discounts and “selective” repricing. It said as a result of these trends its average discount rate will probably continue to dip. Nonetheless, at $2.94 billion in the second quarter, the company's discount revenue represented 49% of the total revenue of Travel Related Services (TRS), the AmEx card unit, compared to 47% a year ago. AmEx reported 41 million cards in the U.S. and 67.3 million worldwide, up from 37.5 million and 62.5 million a year ago. Spending per card in the U.S. rose 10% in the quarter, to $2,947, while charge volume grew 17% to $88.5 billion. TRS reported $5.97 billion in second-quarter revenue, with net income of $808 million, increases of 11% and 10%, respectively.