Will Flyers Bail out American Express?
Joe Cortez March 21, 2018
After American Express announced that they will lower reduced fee schedules for merchants, who will the revenue burden be passed to? One analyst believes cardholders will feel the biggest blow, with reduced rewards for their loyalty and higher annual “membership fees.”
Could flyers who hold American Express cards be forced to pay for their own rewards? A Forbes contributor opines that this exact scenario could come true, as the credit card begins numerous changes to their overall programs.
In previous years, the Centurion made an estimated $60 per year per account in transaction fees for their cards – double that of the competition. In turn, American Express would return some of the profits back to cardholders in the form of their rewards program, Membership Rewards.
While they made more per swipe, they were also accepted at around 1.3 million less merchants than their competition. With the loss of Costco as an exclusive credit card partner, American Express will try a different direction: reduce their interchange fees, with the goal of adding more locations willing to accept their cards.
According to the Forbes contributor, this could play out as an educated risk for American Express. If more merchants opt to accept American Express cards – especially smaller merchants that have traditionally shied away from the high fee structure – the revenue could balance out and Membership Rewards could go unchanged. But if cards do not gain higher acceptance rates and cardholders aren’t more willing to use their cards, then Membership Rewards could be at risk.
“Thanks to the increasing fee revenue, American Express was able to compete in the intense rewards wars that have been raging among credit card issuers for the last five years,” Robert Harrow writes for Forbes. “This is why the new strategy — as laid out by Squeri — is a big gamble. Whether AmEx cardholders will feel the sting of a failure will ultimately depend on how the company chooses to react.”
While Membership Rewards could be in the limelight, American Express continues to grow alongside their partners. In 2017, the financial services company launched a new card with Delta Air Lines and secured a contract to be the exclusive co-branded credit card for Hilton Hotels.
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Only $60/year per centurion member seems a little low to me? That would imply an average spend of $3518/year at 1.9%. Maybe that should be per month or week?
Why would Membership Rewards be at risk if Chase has been getting by fine with Ultimate Rewards on Visa cards for years? I would think only certain more-specific things might be at risk, like the 2x Membership Rewards points on EVERYTHING Blue Business Plus card. But hey, if Citi can get by on MasterCard with 2% cashback with no annual fee with its DoubleCash card, why should 2x MR on everything necessarily be a problem for Amex on a business card?
FYI Amex has lower merchant fee 1.9% while Visa and MasterCard have a fee of 2.1% in Europe. Please do a research before paraphrasing someone else article
Amex needs to be careful here... if they gut the rewards program, with higher annual fees and/or reduced earning structure, many holders will simply dump their cards for other offerings with better return.