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Assessing Amex’s Global Merchant Services Segment’s Performance

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Performance drivers

The performance of American Express’s (AXP) Global Merchant Services segment largely depends upon spending by end consumers and the discount rate the company charges to its merchants. Consumer spending primarily depends on the overall economic and business environment.

Moving forward, the segment is expected to witness a boost in spending volumes by end consumers primarily due to the strong US economy.

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Consumer financial companies (XLF) such as Mastercard (MA) and Visa (V) believe the United States to have strong growth potential when it comes to digital payments. American Express’s Global Merchant Services segment’s performance is also affected by higher unemployment rates, as this could restrict the growth of the economy, which would limit spending.

A look at Q1 2018

The Global Merchant Services segment’s total revenue (after deducting interest expenses) amounted to $1.2 billion in the first quarter, reflecting a rise of 10% on a YoY (year-over-year) basis. This rise was mainly attributable to increased spending. The segment’s net income stood at $472 million in the first quarter, reflecting a YoY rise of 32%.

Amex’s total loans

American Express’s total loans amounted to $75.8 billion in the first quarter, implying a rise on a YoY basis. The company’s net interest yield stood at 10.8% at the end of the first quarter, which implied a sequential increase as well a YoY increase. In Q1 2017 and Q4 2017, its net interest yield stood at 10.3% and 10.5%, respectively.

The demand for loans is directly related to spending patterns. Thus, higher spending could increase the demand for loans, which would benefit American Express and Discover Financial Services (DFS).

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