AmEx Makes Headway with Banks

  American Express Co. continues to maintain growth in the card business, analysts say, thanks to its steely spend-centric business model that relies on relatively high customer spending and interchange rates and less on lending.
  Gwenn Bézard, research director at Boston-based consultancy Aite Group, says AmEx's high fees and high rewards for cardholders have kept the card company at the top of its game in the market.
  AmEx's U.S. Card Services unit reported 2006 revenues of $13.95 billion, up 17% from $11.97 billion in 2005. Average basic cardholder spending in 2006 was $11,521, up 5% from $10,996 in 2005.
  Revenue within AmEx's International Card & Global Commercial Services unit in 2006 totaled $9.46 billion, up 6% from $8.9 billion in 2005. Average basic cardholder spending outside the United States last year was $10,681, up 11% from $9,641 in 2005.
  The AmEx "business model is working very well," says Bézard.
  AmEx is starting to build revenue from its new banking partnerships, Bézard notes. The company continued its efforts to enlist bank partners to issue its cards in 2006, most notably with Bank of America, which announced its Bank of America American Express Rewards card in June.
  AmEx CEO Kenneth Chenault cited in the company's annual report that a major initiative in 2006 was strengthening the Membership Rewards program, noting that average spending on cards linked to the program was up to four times higher than on non-rewards cards.
  Two efforts included the introduction of First Collection, a luxury rewards tier for U.S. Platinum and Centurion Card members with partner retailers such as Tiffany & Co., and the Bonus Points Mall, an online site involving more than 100 retailers where cardholders can earn double points.
  In the worldwide market, AmEx targeted affluent consumers in regions where incomes are growing rapidly. For example, it introduced American Express Platinum credit cards in India and Argentina, and it rolled out Centurion in Singapore. To cater to affluent travelers, AmEx also launched or enhanced premium card programs with several large airline and loyalty partners, including AeroMexico, Qanta and Thai Airways International.
  To attract more customers to its brand, AmEx continued its massive marketing machine in 2006, creating high-profile commercials featuring comedienne Ellen DeGeneres and film director M. Night Shyamalan.
  AmEx, clearly known for its targeting of affluent customers and maintaining its card brand as a chic status symbol, introduced several high-profile card products in 2006. In June it began testing a new credit card called the Butterfly card that folds up into a metal case and can be hooked onto a key chain. The card is linked to a Gold Card account.
  As part of the Project Red effort to support AIDS funding in Africa, AmEx introduced in the spring the Red credit card, which contributes 1% of a cardholder's annual charges to assisting AIDS victims in Africa. Singer and activist Bono and talk-show mogul Oprah Winfrey helped promote the card in a Chicago shopping spree in October.
  Early in the year, AmEx put some muscle behind its contactless Blue card products, which by February 2007 had more than 2 million cards issued. In January, McDonald's announced it would accept AmEx's ExpressPay contactless cards at more than 12,000 locations, part of the total 30,000 locations that accept the payment option.
  In the U.S., the company spent $4.5 million on marketing, rewards and cardmember services in 2006, up 15% from $3.9 million in 2005, according to AmEx's annual report. Outside the U.S., AmEx spent $1.42 million, up 13% from $1.26 million in 2005.
  "Amex had been riding the tailwinds of lower interest costs," says Moshe Orenbuch, a research analyst at Credit Suisse. "They used that money to fund marketing and brand advertising."
  All in all, AmEx reported a steady year last year.
  For all of 2006, AmEx reported net income of $3.71 billion, a 0.5% decrease from $3.73 billion in 2005. Revenues for the year totaled $27 billion, up 12% from $24.1 billion in 2005.
  AmEx's card billed business, or annual charge volume, last year in the U.S. was $407 billion, up 15% from $355 billion in 2005. Outside the U.S., card billed business last year totaled $155 billion, up 19% from $130 billion in 2005.
  At the end of 2006 in the U.S, AmEx had 48 million cards-in-force, a 12% jump from 43 million cards in 2005. Outside the U.S., there were 30 million AmEx cards issued, up from 7% from 28 million in 2005. AmEx overall added a total of 7 million cards-in-force in 2006, bringing the total to 78 million cards issued worldwide, a 10% increase from 71 million in 2005.
  Worldwide receivables were $37.4 billion at the end of 2006, up 9% from $34.2 billion in 2005. Total loans on a managed basis in 2006 were $63.5 billion, up 17% from $54.3 billion in 2005.
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