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As the economy registers a tentative recovery from the deep recession caused by Covid-19, payments networks are doing likewise. This is probably no more true than with American Express Co., whose concentration in the travel-and-entertainment market caused the company’s financials to nosedive earlier this year as the pandemic grounded airlines, shuttered restaurants, and ravaged hotel bookings.
But AmEx on Friday announced some hopeful signs of a comeback, with global billed business down 20% for the third quarter compared to a 33% dive in the June quarter. In the latest quarter, while T&E dollar volume on the company’s proprietary cards swooned 69% compared to 2019’s third quarter, volume outside of T&E squeaked out a 1% increase. “Non-T&E spending has recovered to pre-Covid levels and is starting to show some growth,” chief financial officer Jeffrey Campbell told equity analysts on a conference call to discuss the third-quarter results. Outside of its proprietary business, AmEx also has arrangements with banks to issue AmEx-branded cards.
Volume on proprietary cards used in markets other than T&E totaled $188 billion in the quarter, just over three-quarters of the total proprietary volume and up slightly from $185 billion in the same quarter last year. By contrast, proprietary non-T&E volume a year ago accounted for 60% of the total proprietary business.
Results like these stirred tentative optimism among top AmEx executives. “We continue to be cautious about the pandemic’s impact on the economy,” chief executive Steve Squeri said during the call. “While we hope the worst is behind us, we don’t know that’s the case.” But, he added, “We are in the early stages of rebuilding our growth momentum.”
With the plunge in T&E volume, AmEx’s average discount rate and discount revenues have taken a hit. It’s average discount rate registered at 2.27% in the September quarter, having inched up from 2.23% in the second quarter. But it was still well below the 2.39% earned in 2019’s third quarter. Discount fees, by far AmEx’s largest source of revenue at 57% of the total, came to $5 billion for the quarter, down 24% year-over-year.
But Squeri indicated discount-fee revenue is headed in the right direction. “Any discount-rate erosion has been done. We’re beyond that,” he said. In part, this is because he expects “steady improvement” in the lucrative T&E sector in coming months. “T&E will improve faster because it was down so much,” he said. Also, the company is working to increase coverage of key merchants in the largest cities overseas, he added.
Overall, AmEx logged $8.75 billion in revenue for the quarter, down 20% year-over-year, but up 14% from the second quarter. Net income fell 39% to $1.07 billion, but that number represented a robust improvement from the $257 million recorded in the June quarter.
