This is about double Amex’s usual decline, and marks the biggest cut since 1998. It’s also worth noting that the move comes as card fees are top-of-mind in the industry, with numerous clashes between leading card networks and major retailers like Home Depot, Kroger, and Walmart.
The move follows an extended push on Amex’s behalf to recover from a few tough years. Amex officially sold its Costco portfolio in 2016, which comprised 8% of its $1 trillion billed business in the prior year, forcing the firm into a downturn that required it to find new ways to grow its business and incur new revenue. Since then, the firm’s billed business has returned to growth thanks to concerted efforts on Amex’s part to find new cardholders, as well as a push to get all customers to spend more with Amex cards by making it simpler and more enticing to do so.
Cutting fees could further those growth efforts, and help the firm in two more ways:
- Increasing parity: Amex’s acceptance network is much smaller than other networks — it’s accepted at 1.3 million fewer locations than Visa and Mastercard in the US, according to the Financial Times. The firm has been working on initiatives to increase acceptance over the past few years, like small business partnerships and programs, which have been met with relative success — the firm has halved the gap. A more drastic cut in fees could entice more merchants, especially smaller players that previously couldn’t afford Amex’s higher fees, to give the network a try. That, in turn, could help attract more cardholders, since they might be looking for a card they can use regularly, and also give existing customers an easier way to spend using Amex on a more regular basis.
- Limiting legal risk: The US Supreme Court heard an anticompetition lawsuit last month related to Amex’s “anti-steering” policy, which prohibits merchants from discouraging Amex use or pushing consumers to use a different card with lower fees. Though shaving fees doesn’t change that policy, it could make merchants less inclined to steer customers to other cards, which could help the firm double down on the gains it’s hoping to make.
But it’ll be interesting to see the shift’s impact. Amex uses its fees to help fund its robust rewards program, which is one of its biggest legacies and strongest growth drivers — the firm finished 2017 with its highest-ever number of Platinum cardholders, record spending, and larger-than-ever benefits engagement. Amex expects the fee cut to impact margins by up to $585 million, but it will be critical to watch how it impacts the firm’s rewards program. It’s likely Amex is hoping that the cut will garner enough increased business, through new merchants and increased usage, to overcome any hits it might take. But to fully assess if the move pays off, it’ll be important to watch its parity progress, margins, and rewards results in the next few quarters.