American Express' payment processing operations in China are giving it a foundation upon which to expand its debit offering to new countries.
The New York-based card brand spent eight months
While continuing to monitor the impact of the coronavirus, Amex is optimistic that consumer spending in travel and entertainment will continue its recovery.
"When it comes to building momentum, we aren't just focused on the near term; we are also focused on scaling next-horizon opportunities over the long term. China represents an exciting opportunity in this regard," Stephen J. Squeri, chairman and CEO of Amex, said Friday during the company's first-quarter earnings call.
Amex is seeing the payoff in its two-plus years of pursuing a place in the Chinese market through its joint venture with Express Hangzhou Technology Service Ltd., Squeri said.
"Developing our core processing network in mainland China has been a priority for us, and since getting the green light to start processing payments in China eight months ago, we have received mobile wallet parity coverage with our partnerships with China's major mobile wallet providers," Squeri added.
The 14 million new merchants in China are just the beginning, with more slated to be added in the coming months, according to Squeri. "A key enabler of our coverage growth in China is the progress we are making to modernize our network, particularly in adding the capability to process debit transactions globally."
Debit processing is "an essential need for customers in China and helps us prepare for additional debit applications elsewhere," Squeri said, in noting Amex has established 16 key issuing partnerships in China as well.
In a similar pursuit for advancing debit,
This was Amex's answer to the challenge in Europe of not having a major debit card presence, like Visa and Mastercard do. Pay with Bank establishes e-payments through a linked bank account, targeting both merchants and consumers.
Amex changed its financial reporting this quarter to more clearly show how China joins its revenue mix. For the first quarter of 2021, Amex had $44 billion in process volumes and $225 billion in billed business.
"Over time, we expect that volume to be significant and want to be sure we are providing the right level of insight," Squeri said. "In China, it will be charge-credit and debit cards and as we build that (debit) capability for our network, we will evaluate over time where that makes sense to roll that out."
Because of the addition of debit and various processing regulations in China, Amex's business model in that country is "unique and different" from what the company does with global network services partners in other regions, Chief Financial Officer Jeffrey Campbell said.
Amex reported $2.2 billion in net income in the first quarter of 2021, compared with $367 million in the first quarter of 2020. The numbers reflected the impact of $1 billion in credit reserve releases driven by improvements in the macroeconomic outlook and strong credit performance, the company stated. Amex also reported 2.1 million new card acquisitions.
Amex reported revenue for the first quarter of 2021 at $9 billion, a 12% dip from the previous year's first quarter at $10.3 billion, driven by declines in cardholder spending and loan volumes and a lower average discount rate. But revenue in March was up 7%, an indicator that card spending is increasing, Campbell said.
Amex is also benefiting from the
"A key driver is to deepen our relationships with current customers and attracting new ones by offering a range of supplier payment and cash flow and management solutions both on and beyond the card, giving business owners more tools to help them manage their business," Squeri said. "Kabbage is one example of how we plan to bring this strategy to light."
In focusing on integrating Kabbage into the Amex platform, the company is now offering a business checking account and working capital solutions for small businesses.
As for Amex cards, the company has engaged in a strategy to
The 2.1 million new cards for the quarter brings Amex closer to what it used to average in 2019 at about 2.5 million new cards per quarter.
"When you look at the consumer cards, 60% of the cards we acquired were millennial or Gen Z," Squeri noted. "In the pandemic, you saw more cash-back cards being acquired; in this particular quarter we saw a 35% jump in premium cards and acquisition of platinum and gold cards was well above pre-pandemic levels."
Amex continues to monitor the slow increase in domestic travel and the likely later increase in cross-border travel, both of which have always been critical to the company's bottom line.
Discussing travel and entertainment spend, Squeri said the company is seeking an increase in bookings, up 50% over the fourth quarter of 2020. He said he expects those numbers to keep rising, but suggested that T&E spend on corporate business cards will continue to be lower likely through much of 2021.
