EUR 850.00 For Business Accounts Only

Morningstar | AXP Updated Forecasts and Estimates from 09 Apr 2019

We believe American Express’ greatest challenge over the next decade will be adapting to the changing technological landscape within payments while targeting a new generation of millennial consumers who don’t place as much importance on AmEx’s brand when selecting a credit card. We feel millennials place much more emphasis on rewards and merchant acceptance when deciding how to pay. American Express has always rationalized that it can charge merchants the highest rates because its cardholders spend the most, but we question what factor that will play as AmEx’s brand slowly loses relevance and the company targets consumers outside its core segment, the high-spending, low-risk business traveler.In recent years, American Express has increasingly tried to target consumers who are willing to hold a balance, atypical of traditional AmEx cardholders, who usually pay off their balance each month. Only one fifth of AmEx’s net revenue is derived from net interest income. Meanwhile, the company has grown loans at elevated rates in the low teens. Though we have seen no evidence of relaxed underwriting, we worry how American Express is managing this growth this late in the cycle.More importantly, given the expensive interchange rates charged by American Express, and others, merchants will go to great lengths to lessen this burden, including incentivizing customers to use alternative payment channels, like smartphones. We anticipate that partnerships between retailers and financial institutions will help create additional closed-loop networks that will gradually pressure the moats of payment providers. Finally, AmEx’s greatest strength is its relationship with corporations managing their travel spending, which typically have high switching costs. Increasingly, commercial clients will require technology solutions to manage their costs. Given AmEx’s entrenched position within many corporate travel departments, the company has the ability to develop additional software products to deepen these relationships, raise switching costs and create additional revenue streams.