How American Express Makes More Money



A premier network

American Express (AXP) is an established, premium network for high-spending card members. Its annual charge volume exceeded $1 trillion in 2014. Visa’s (V) annual charge volume was $7.3 trillion and MasterCard’s (MA) was $4.5 trillion in 2014.

AXP forms ~2.6% of the Financial Select Sector SPDR Fund (XLF).

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Discount fee accounts for 60% of revenues

American Express’s chief source of revenue is its discount fee, which accounts for ~60% of total revenues. The discount fee is what it charges merchants for processing card transactions.

American Express generally deducts the discount fee from the payment it makes to the merchants for card member purchases. It charges discount fees as a percentage of the charge amount processed on behalf of the merchant. The more the customer spends, the more revenue American Express earns.

This is why American Express targets affluent customers. And, it explains why its revenues are higher than Visa’s, despite a lower volume of processed transactions.

With a MasterCard or a Visa card, the issuing and acquiring bank is a different entity, such as J.P. Morgan (JPM). American Express’s presence across the payment chain means that it gets the acquirer and issuer share of the fee as well. This further increases its revenue per transaction.

Other sources of revenues

Net interest income contributed 18% to American Express’s total revenue in the first quarter of 2015. The above graph shows a breakdown of the company’s various sources of revenue.

Net card membership fees account for 8% of the company’s total revenues. It’s usually charged annually. Some cards don’t charge a membership fee.

Travel commissions are earned on the total dollar amount of travel transaction volume for airline, hotel, car rental, and other travel arrangements made for consumers and small businesses.


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