Amex striving for growth
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In September, a federal appeals court ruled that Amex merchants will no longer be able to discourage consumers from paying with Amex or incentivize them to use a different card, like Visa or Mastercard, with lower fees.
Last week, the Department of Justice (DOJ) requested that the appeals court reconsider that notion, paying more careful attention to the impact that the policy has on merchants alone, according to Reuters.
The appeals court’s ruling reinstated what Amex calls an “anti-steering” policy, which means that merchants can’t try to avoid Amex’s higher fees by pushing customers to pay with another card product through discounts. Amex justifies these high fees because its affluent customer base tends to make higher-value and more frequent purchases, which could help mitigate the additional cost the firm’s fees pose relative to other card networks. The DOJ is pushing for reconsideration because merchant price competition isn’t “for Amex to decide,” but it’s unlikely a new hearing will occur.
Keeping the policy in place is important for Amex, which likely relies on its high fees to remain competitive in the current state of the industry.
- Amex’s interchange income likely helps fund rewards. Amex has stated that the money it makes from those higher fees helps it offer robust rewards and strong perks to its cardholders – a program that’s attractive to customers and likely serves as a key acquisition channel for the firm.
- And rewards are at the forefront of the competitive card industry right now.Increased interest in credit has led to intense competition between networks to acquire customers new to the ecosystem. Rewards are one such tool – all four major card networks noted that investing in robust perks without overspending is and will remain a key issue and priority. It’s likely that Amex will place an exceptionally high value on these rewards programs, particularly in light of the firm’s losses related to the Costco sale and its focus on new customer acquisition. It’ll therefore try to fight to keep its fee structure and anti-steering policies in place.
Regardless of how this situation plays out, American Express is just one piece of the broader payments ecosytem, which now includes processors, issuers, merchants, acquirers, networks, and more.
Evan Bakker and John Heggestuen, senior research analysts at BI Intelligence, have compiled a detailed report on the payments ecosystem that drills into the industry to explain how a broad range of transactions are processed, including prepaid and store cards, as well as revealing which types of companies are in the best and worst position to capitalize on the latest industry trends.
Here are some key takeaways from the report:
- 2016 will be a watershed year for the payments industry. Payments companies are improving security, expanding their mobile offerings, and building commerce capabilities that will give consumers a more compelling reason to make purchases using digital devices.
- Payments is an extremely complex industry. To understand the next big digital opportunity lies, it’s critical to understand how the traditional credit- and debit-processing chain works and what roles acquirers, processors, issuing banks, card networks, independent sales organizations, gateways, and software and hardware providers play.
- Alternative technologies could disrupt the processing ecosystem. Devices ranging from refrigerators to smartwatches now feature payment capabilities, which will spur changes in consumer payment behaviors. Likewise, blockchain technology, the protocol that underlies Bitcoin, could one day change how consumer card payments are verified.
In full, the report:
- Uncovers the key themes and trends affecting the payments industry in 2016 and beyond.
- Gives a detailed description of the stakeholders involved in a payment transaction, along with hardware and software providers.
- Offers diagrams and infographics explaining how card transactions are processed and which players are involved in each step.
- Provides charts on our latest forecasts, key company growth, survey results, and more.
- Analyzes the alternative technologies, including blockchain, which could further disrupt the ecosystem.
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