how to get around paywall?
Amex to woo retailers with biggest fee cut in 20 years
New chief pushes for higher revenues by opening up more venues for customers
Alistair Gray in New York YESTERDAY 14
American Express is planning to cut the fees it charges retailers and other businesses by more than it has done in two decades, as its new chief executive pushes more outlets to accept its cards.
About 1.3m fewer locations in the US allow consumers to pay with Amex than Visa and MasterCard, mainly because it takes a bigger cut of customer payments. The gap is even wider overseas.
Meanwhile, authorities from Europe to Australia have taken a tougher line on card charges. In the US, the Supreme Court is considering an antitrust complaint. The company denies its practices breach antitrust rules.
At a presentation for investors in New York last week, the company said the global average of the fees it charges merchants — known as its discount rate — would decline five or six basis points this year, to about 2.37 per cent.
Each basis point is equivalent to about 11 cents of earnings per share, said Don Fandetti of Wells Fargo Securities.
A fall of six points this year would be the steepest since at least 1998, company filings show. The typical decline in previous years has been between one and three points.
Stephen Squeri, who became chief executive last month, is prepared to forgo as much as $585m in margins this year, according to Financial Times calculations based on analyst projections, as he pushes for higher revenues by opening up more venues at which customers can spend.
The fee cuts for 2018, which are about double previous guidance, are the latest sign of competitive and regulatory pressures on the biggest US consumer finance company by market value.
American Express is facing questions from Wall Street about competition from US banks, which use the rival payment networks Visa or MasterCard. Big-spending Americans have flocked to premium cards issued by banks.
While Amex’s fee margins have eroded steadily for years, the more aggressive reductions suggest the group is breaking from the era of Kenneth Chenault, the company’s 17-year veteran chief executive. Mr Squeri has told investors he is willing to make “conscious trade-offs” to encourage more businesses to take Amex.
Lower charges would be welcomed by consumer-facing businesses, but retailers remain sceptical. Smaller merchants that lacked bargaining clout were particularly reluctant to accept Amex, said Doug Kantor, partner at the law firm Steptoe & Johnson, who represents the Merchants Payments Coalition.
“Any reduction in the fees help — but American Express, and all the major networks, have a long way to go,” he said.
John Hecht, consumer finance analyst at the investment bank Jefferies, said: “Retailers have become really aggressive at pushing back.”
Amex’s corporate partners — the company has tie-ups with Delta, Hilton and other brands — are also demanding more favourable terms, he added.
Mr Squeri has suggested that further declines are on the horizon. “Is five to six the new norm? Or is it two to three? That may go year to year, depending on the opportunities that present themselves.”
“If I put my optimistic hat on, it’s a lever to drive more business, and that’s good,” Mr Fandetti said of the lowered fees. “The bearish case is that they’re in secular decline … and it will be a headwind to revenue growth.”
American Express has long operated a different model to banks. It is more reliant on merchant fees while banks collect more from interest on customer balances.
However, Mr Squeri made clear that he planned to do more lending. Interest generated almost a fifth of the group’s $33.5bn revenues in 2017.
“More places for our card members to use our products means more revenues — from both spending and lending,” he said.
American Express said it was already shrinking the coverage gap with other networks. About 1.5m more places in the US started accepting its cards last year.
Executives are pursuing utilities, healthcare companies and public sector bodies, which are less likely to allow consumers to pay with Amex cards