AmEx’s Discount Revenues and Profits Rise on Healthy Cardholder Spending

Strong cardholder spending generated higher discount revenue and contributed to a 22% profit increase at American Express Co. in the third quarter.

AmEx late Thursday reported that U.S. card-billed business rose 10% to $194.6 billion from $176.4 billion a year earlier. International volume rose 5% to $100.1 billion, bringing AmEx’s total billed business to $294.7 billion, an 8% increase from $271.9 billion in 2017’s third quarter.

Cardholder spending generated $6.18 billion in discount revenue, up 8% from $5.7 billion a year earlier. Discount revenue accounted for 61% of the company’s third-quarter revenues, with $1.96 billion in net interest income from lending second at 19%. AmEx’s other revenues come from net cardholder fees, other fees and commissions, and other sources.

AmEx, which has been gradually reducing its acceptance costs in order to attract merchants, said its average worldwide discount rate was 2.38% of the sale, up slightly from 2.37% in the second quarter but down 2 basis points from 2.40% a year earlier. The third-quarter change was the smallest year-over-year decline in the past five quarters, when the average discount rates eroded by 5 basis points in all but one. The average fell by 6 basis points in this year’s first quarter.

Facing intense competition from souped-up rewards cards from JPMorgan Chase and Co. and other Visa and Mastercard issuers, AmEx has been revamping its own rewards cards and recently refreshed its longstanding Gold Card. AmEx’s U.S. cards in force jumped by 3.5 million, or 7% year-over-year, to 53 million, but its international card count slipped 2% to 62.1 million.

“We delivered strong results this quarter driven by higher cardmember spending, fee income, and loans,” Stephen J. Squeri, AmEx’s chairman and chief executive officer, said in a statement. “Our progress reflects the four strategic imperatives that we’re focused on—expand leadership in the premium consumer space; build on our strong position in commercial payments; strengthen our global integrated network to provide unique value, [and] make American Express an essential part of our customers’ digital lives.”

On the digital front, AmEx and PayPal Holdings Inc. on Thursday announced a tie-up that will allow AmEx cardholders to use PayPal and PayPal’s Venmo service and add their cards to the PayPal wallet. Users also will be able to spend AmEx Membership Rewards points at PayPal merchants.

AmEx reported third-quarter net income of $1.65 billion, up 22% from $1.36 billion in 2017’s third quarter. Total revenues net of interest expense came in at $10.1 billion, a 9% increase from $9.29 billion a year earlier.