Morningstar | American Express can capitalize on market growth despite increased competition.
The payment industry is changing as both merchants and issuers vie for control of rewards and loyalty. Over the past decade, merchants have won lower fees from payment processors, driving interchange fees down across the globe. Banks burned by losses produced by lending to subprime borrowers decided to target high-end customers and the fees they generate. We believe digital payments will increase the number of payment options available to customers, increasing competition for market share. Competitors seem willing to bid aggressively for business by offering ever-higher levels of rewards (as in the case of JPMorgan's Sapphire Reserve card) or rock-bottom pricing.That said, American Express' competitive advantages--a reputation for superior service, a network of attractive customers and merchants, and a corporate business with high switching costs--remain intact, and we think the closed-loop network's close ties to cardholders and merchants provide a solid base for the next phase in the company's history. We think there will be a huge opportunity to connect merchants with individual customers based on individual preferences and spending patterns, and that closed-loop networks provide the best opportunity to do this. American Express highlighted its efforts in this area at its 2018 investor day--it provided 15 million customers with information on local merchants in 2017. Industry experiments in this area are in the early stages, and we think successful efforts offer big growth opportunities. We like that American Express is accelerating its investments in this realm, and we think the company may be reinvigorated under a new CEO as the payment industry experienced the most significant changes in decades.We also believe the company's corporate business is an underappreciated crown jewel. American Express is a dominant force in corporate spending and is leveraging its data into additional services for its business customers, from lending to expense management. Furthermore, the increasing sophistication of small business will provide a tailwind as these companies begin to utilize various services long used only by larger corporations.American Express is a payments company. The company is engaged in providing credit and charge cards to consumers, small businesses, mid-sized companies and corporations. The company's reportable operating segments are: Global Consumer Services Group, which provides services to consumers, including travel and lifestyle services; Global Commercial Services, which provides payment and expense management services, as weel as commercial financing products; and Global Merchant and Network Services, which operates a global payments network that processes and settles card transactions, acquires merchants and provides multi-channel marketing programs and capabilities, and services and data analytics.
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