He is leaving with the share price rising and the October 18 announcement of earnings that were largely well received. Better still, Kenneth Chenault, American Express’s chief executive for 16 years, accomplished a feat rare in the upper reaches of American finance: to step down without an obvious helping shove. No grandstanding senators hounded him out, unlike at Wells Fargo. No boardroom coup hastened the end, unlike at Citigroup. The financial crisis left him untouched, unlike at…well, take your pick. His successor, Stephen Squeri, promoted from within and apparently groomed for the job, will take over in February.
For all that, Chenault’s long tenure has not been an unequivocal triumph. Though generating strong returns on assets and equity, American Express has continued its slide within the fast-changing and competitive payments industry. According to Nilson, an industry bible, in 1974 the amount of money for purchases channeled through American Express was equivalent to 50 percent of what went through Mastercard and 70 percent of what went through Visa. By 2016 those ratios had shrunk to 30 percent and 14 percent.
American Express has grown nonetheless, as credit-card usage has surged, but its best days may be over. Its share price, revenues and profits all peaked in 2014. Buried in the details of its latest earnings release are hints that raise questions about how strong its numbers are, as well as suggestions that its strategy—which increasingly relies on lending to replace diminishing transaction fees—may be heading into more turbulent conditions.
Competitive pressure looms on all sides. Mastercard’s market capitalization is twice that of American Express, and Visa’s is three times as big. Paypal, spun off from eBay in 2015 and run by a former American Express executive, has a tiny fraction of Amex’s revenues and profits but, on the eve of the earnings announcement, passed it in market value. Its sales and profits have grown much faster, and it was born online.
Rather than a card, Paypal provides a payments platform for individuals, on smartphones or computers, using accounts at their bank or tied to American Express, Visa or Mastercard. In the process it collects a fee. It also offers systems such as Venmo, intended for payments between individuals but sometimes also used by businesses, Braintree—a financial link used by Uber and Airbnb—and Xoom, a remittance service.
Competition abroad is equally keen. American Express entered Asia early and once had an enviable position there, but its presence has faded. In 2007 it sold to Standard Chartered a private bank it had created there almost a century ago that had languished from inattention. Japan’s JCB has issued almost as many cards, but still accounts for far less in transactions. China’s Union Pay boasts the world’s biggest transaction volume, eight times that of American Express, and 55 percent of all cards issued globally.
These conventional competitors may matter less than electronic networks such as Alibaba’s Alipay, Tencent’s Tenpay and a profusion of still-little-known startups. The entire mechanics of payments are being rethought, with cards being replaced by QR codes, biometrics and more.
© 2017 Economist Newspaper Ltd., London (November 4). All rights reserved. Reprinted with permission.