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Amex’s Global Network and Merchant Services Segment in 2Q16

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Global Network and Merchant Services segment

Amex’s (AXP) Global Network and Merchant Services segment formed 14% of the company’s total revenues. The segment’s total revenues, net of interest expense, fell by 3% to $1.1 billion in 1Q16.

On a constant dollar basis, revenues remained flat. They were impacted by a lower net merchant discount rate, which offsets the benefit of higher card member spending. In the June quarter, revenues are expected to rise in this division on higher spending by existing and new card members.

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The division’s net income stood at $357 million, a decline of 3% from $369 million in the prior year’s quarter. The decline reflected the impact of the stronger US dollar. American Express achieved net profit margins of 11% in the last fiscal year. Here’s how some of its peers in the payment processing industry fared with their net margins in the last fiscal year:

  • Mastercard (MA): 38%
  • Visa (V): 43%
  • Discover Financial Services (DFS): 27%

Together, these companies account for 1.9% of the iShares Core S&P 500 ETF (IVV).

Billed business

The division’s total expenses fell by 3% to $521 million in 1Q16 compared to $537 million in 1Q15. On a constant dollar basis, expenses declined by 2%. The decline reflected lower merchant acquirer payments related to OptBlue, the company’s initiative to expand merchant coverage in the United States.

Billed business for the Global Network and Merchant Services division rose by 5%. On a constant dollar basis, the business grew by 13%, reflecting its continued strong growth.

Billed business includes activities related to proprietary cards, cards issued under network partnership agreements, corporate payments, and insurance fees charged on proprietary cards.

Global payments network

The division operates a global payments network that processes and settles proprietary and nonproprietary card transactions. The division acquires merchants and provides point-of-sale products, multichannel marketing programs and capabilities, and services and data. These products and services leverage the company’s global closed-loop network.

Next, let’s see how American Express continues to reward its shareholders.

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