American Express is a major player in the points and miles universe. It offers a line of charge and credit cards that earn its proprietary Membership Rewards and has co-brand partnerships with Hilton, Marriott and Delta.
Dealing with the bank can be a love-hate relationship. AMEX cards offer generous sign-up bonuses and unequaled travel benefits, and the AMEX Offers program can be lucrative.
However, AMEX has a restrictive “once per lifetime” sign-up bonus limitation on its cards. The AMEX RAT (Rewards Abuse Team) is notorious for claiming back bonuses or closing accounts for seemingly minimal infractions.
Finally, the American Express Platinum card, which used to be one of the best travel cards, is now a coupon book that requires cardholders to redeem endless rebates to make the card worthwhile.
But that’s how we see things from the travel rewards point perspective. While we think we’re AMEX’s main customers, we’re not. Once you see things the way AMEX does, things make more sense.
That’s why I found this video from CNBC about American Express so interesting:
While the article’s title is about why wealthy Americans love American Express, it covers a lot more topics.
They explain that AMEX is different from other credit cards. Although AMEX only has 7.5% of the cards in circulation in the US (even Discover has more, at 8.1%), its stock price and earnings have continued to grow.
This is because American Express is both the lender and the processor. This is different from Visa or Mastercard, where those networks process the transactions, but the lender is a bank like Wells Fargo, Chase or Capital One.
For those cards, Visa or Mastercard gets the swipe processing fee and the bank makes money on interest and other payments like annual fees.
American Express keeps the processing fee, interest payments, late fees, and annual fees. In 2022, AMEX earned $9.9 billion in interest fees, but it earned $30 billion in merchant fees.
While the common wisdom is that banks want you to carry a balance because that’s how they make money, AMEX doesn’t use that business model.
American Express is comfortable with customers who spend a lot and pay their full balance each month. In reality, the more you spend with the card, the better it is for AMEX because the company earns most of its profit from swipe fees rather than interest on debt. American Express is willing to pay for premium perks to attract that customer. In 2022, AMEX paid $17 billion for services and rewards for cardholders. This includes rewards points, lounge access, special events and other perks.
It’s working because the average AMEX cardholder spends 3X more on their cards than customers from the other banks.
AMEX’s closed-loop model, where it’s both the processor and the lender, allows it to gain increased insight into its customers’ spending patterns. While Chase and Citi may know how much you spent and where you spent it, AMEX goes one further and knows exactly what you purchased. This is how the RAT team determines if you bought a gift card at the supermarket to meet a spending requirement.
On a more positive note, this granular data allows AMEX to tailor offers to its customers more personally than the other banks. Ever wonder why AMEX Offers are so much better than similar programs from Chase and Citi? It’s because AMEX knows what people are spending money on and can follow those trends. This also means that AMEX Offers feel more personalized, thereby nurturing the relationship between AMEX and its cardholders.
In addition, AMEX can directly negotiate with merchants for special offers, and merchants are willing to make deals because AMEX brings in high-spending customers.
It’s a positive feedback loop. AMEX customers spend more money, so merchants want AMEX customers and will pay higher fees to AMEX, which allows AMEX to provide better benefits to those high-spending customers.
That could be why we might think the AMEX Platinum card isn’t what it used to be. While we complain about the $75,000 minimum spend required to get a guest into a Centurion lounge, that’s a drop in the bucket for the high-net-worth cardholders who love AMEX. And they’re the cardholders AMEX wants to keep happy.
Want to comment on this post? Great! Read this first to help ensure it gets approved.
Want to sponsor a post, write something for Your Mileage May Vary, or put ads on our site? Click here for more info.
Like this post? Please share it! We have plenty more just like it and would love it if you decided to hang around and sign up to get emailed notifications of when we post.
Whether you’ve read our articles before or this is the first time you’re stopping by, we’re really glad you’re here and hope you come back to visit again!
This post first appeared on Your Mileage May Vary
3 comments
I guess they don’t like us. Opened a mountain of cards during COVID and been closing them ever since. We will probably continue to carry a few of their cards for specific benefits (AMEX Plat, DL Reserve, and Hilton Aspire) but there is a deep dislike for them on our part.
Interesting video. Thanks for the information. I do find it a little puzzling how Amex is going for the coupon book approach on higher end cards, as that seems to directly contradict most of what the video said about being a premium to ultra-premium card. I’m not sure a big spender cares all that much about a $7 donut credit every month and the mental bandwidth required to assure that they’re using credits properly.
Exactly – I’ve been a member since 86 and won’t ever leave Amex. IMHO to compare them to a bank or credit card processor is Apple to oranges and I, as a high net worth individual, appreciate some of the offerings and benefits that many “points and miles” credit card holders never use or appreciate.
Don’t get me wrong, I have a number of Chase cards (including the CSR) and others from Citi and Bank of America but my relationship with Amex is different from any other