American Express announced a 34% jump in its Q1 profits, fueled in large part by customers keeping a balance on their cards, as opposed to the fees that were its bread and butter for so many years. The company’s reputation continues to serve it well, even as Amex has completed its transition from charge cards to credit cards.
Amex reported a total of $15.8 billion in revenue for Q1, and the company said that more than $5 billion of that was interest income on loans to cardmembers. Roughly a third of its revenue now comes from interest income.
Overall, Amex customers spent $419.2 billion on their cards in Q1, up just 5% from a year prior. The company added 3.4 million new cardmembers in the quarter, with 70% of the new customers choosing a credit card with an annual fee. While Amex does offer a Blue Card without an annual fee, its flagship Green Card charges $150 annually, its Gold Card charges $250, and the Platinum Card comes with a whopping annual fee of $695.
The Shift to Credit
For decades, American Express cards were known as charge cards, functioning like traditional credit cards for purchases and rewards, but without the option to carry a monthly balance. Cardholders were required to pay charges in full each billing period.
The company’s profits primarily came from a small percentage of each transaction spent on their cards, collected as a fee from merchants, and from annual fees paid by cardholders. Now, all of its cards offer revolving credit options, similar to other credit cards, resulting in an influx of interest income.
American Express still has a significant amount of cachet, attracting a more affluent consumer base. Like many other card issuers, the company has seen gradual increases in charge-offs and 30-day delinquencies since the pandemic. However, its charge-off rates remain approximately half that of its competitors such as Capital One, Discover, and Chase.
“Amex continues to benefit from increased interest income being generated by strategic growth in revolving balances from their cardholder base,” said Don Apgar, Director of Merchant Services at Javelin Strategy & Research. “Their focus on the upscale market has also produced lower delinquencies and charge-offs compared to their competitors, resulting in a further boost to earnings.”
