AmEx Discount Revenues Grow, but Rate Continues To Slip

Boosted by higher charge volume on its cards, American Express Co. on Monday reported in its first-quarter financials that discount revenue grew 13% to $2.97 billion, up 13% from $2.64 billion in 2005's first quarter. The travel-and-entertainment giant however, warned of “some erosion” in the average discount rate in the future. New York City-based AmEx said its worldwide average discount rate, excluding AmEx-accepting merchants signed by partner financial institutions in some countries, was 2.58% of the sale in the first quarter compared with 2.61% a year earlier. “The decrease versus last year continues to reflect selective repricing initiatives and ongoing changes in the mix of spending between various merchant segments,” AmEx said in an overview of its quarterly report. AmEx, which traditionally has had the payment card industry's highest acceptance costs, said it believes its “merchant value proposition is strong. However, as indicated in prior quarters, selective repricing initiatives, continued changes in the mix of business and volume-related pricing discounts will likely continue to result in some erosion of the average discount rate over time.” AmEx today reported $127.2 billion in worldwide card-billed business, up 16% from $109.3 billion a year earlier. U.S. charge volume hit $92.9 billion, up 17% from first-quarter 2005's $79.6 billion. AmEx reported a total of 72.5 million cards in force worldwide, up 10% from 66.1 million a year earlier. The first-quarter report indicates that AmEx's decade-old program in which banks issue AmEx-branded cards and their transactions go over AmEx's merchant network is taking on increased importance. AmEx's Global Network Services unit reported that cards issued by the company's bank partners worldwide grew 24% in the first quarter to 11 million, up from 8.9 million in the first quarter of 2005. Quarterly GNS charge volume hit $6.6 billion, up 25% from $5.3 billion a year earlier. At the end of 2005, GNS had 50 issuing arrangements in place worldwide, along with another 40 in which an international partner acted as both issuer and merchant acquirer for AmEx in some countries. U.S. issuing partners now include Citibank, Bank of America Corp. and General Electric Co.'s GE Consumer Finance unit, among others. AmEx also has joint ventures with financial institutions in several countries. Total first-quarter income from continuing operations came to $876 million, up 18% from $745 million in the year-ago quarter. Revenues increased 12% to $6.33 billion from $5.64 billion a year earlier. Net income fell 8% to $873 million from $946 million in first-quarter 2005 chiefly because of last September's spin-off of AmEx's Ameriprise Financial Inc. financial-planning subsidiary.