Digital Transactions Authoritative, insightful and timely information for payments professionals
By Jim Daly
Coming off a winter of discontent, American Express Co. late Thursday reported some respectable financial results for the first quarter. The loss of its relationships with Costco Wholesale Corp. in Canada, however, affected charge volumes, a prelude to the loss of Costco as a merchant acceptor and big cobranded card partner next year in the United States.
New York City-based AmEx reported net income of $1.53 billion, up 6% from $1.43 billion in 2014’s first quarter. The strong U.S. dollar took a bite out of revenues, which fell 3% to $7.95 billion, net of interest expense. Adjusted for currency fluctuations, revenues increased 1%.
U.S. card-billed business grew 6% to $169.2 billion. Overseas charge volume slipped 3% to $76.4 billion but rose 8% after accounting for currency changes. In all, AmEx’s card-billed business grew 3%, and 7% adjusted for currency fluctuations, to $245.6 billion.
Growth in discount revenues, however, did not keep pace with charge-volume growth. AmEx posted discount revenues of $4.66 billion, up 1%. The slower growth was partly a result of lower merchant pricing: AmEx’s worldwide average discount rate was 2.49% of the sale in the first quarter, down 2 basis points from 2.51% a year earlier.
Travel-and-entertainment spending, AmEx’s original franchise but which now accounts for only 27% of U.S. cardholder spending, increased 5%, excluding airline charges. Airline volume, 9% of U.S. billed business, was flat. Non-T&E U.S. charge volume grew 6%.
Some of the slippage in international charge volumes came from currency fluctuations, but part of it also reflects the loss of AmEx’s relationship with Costco in Canada. Costco stopped accepting AmEx on Jan. 1, and it has replaced its cobranded card from AmEx with a MasterCard issued by Capital One Financial Corp.
“We are now seeing that full impact from the termination of this relationship on billed business,” chief financial officer Jeffrey C. Campbell told analysts Thursday afternoon, according to the Seeking Alpha transcript service. AmEx is attempting to keep as much business as possible from its Canadian Costco cardholders by offering them different card products, including a new cash-back card.
The loss of Costco in Canada is a prelude to what will happen next April in the United States, when AmEx cards no longer will be accepted at Issaquah, Wash.-based Costco’s 474 U.S. stores and a new Visa-branded cobranded card issued by Citigroup Inc. will replace the existing AmEx-Costco card. The U.S. Costco relationship is a major volume generator for AmEx: the 11 million Costco cardholders charged about $82 billion last year—8% of AmEx’s global billings—with 70% of that volume outside of Costco stores. (In contrast, the former Costco cardholders in Canada did about 60% of their AmEx spending within Costco, according to Campbell.) Another 1% of AmEx’s billings came from non-Costco AmEx cards used at Costco.
As in Canada, AmEx is working on alternative products to retain as many Costco cardholders as possible. Other new initiatives include the Plenti multi-merchant rewards program, and a wearable fitness tracker called the UP4 from Jawbone that facilitates contactless AmEx payments.
Meanwhile, Campbell said 14 of the top 15 U.S. acquirers now participate in AmEx’s OptBlue program for signing small retailers and other businesses as AmEx acceptors. He confirmed that 400,000 merchants signed up for OptBlue last year, a figure first reported by Digital Transactions News
AmEx will be ramping up the program this year. “As we get into the latter part of 2015 … we should begin to see a meaningful benefit from OptBlue and we remain very encouraged by it,” Campbell said, according to Seeking Alpha. Acquirers set merchant pricing—a phenomenon that contributed to the decline in the overall discount rate, Campbell said.
