The most anticipated question of folks is- How does Amex make money! Reason? Amex is one of the big banks in the United States. It’s so big that it’s number 77 on the Fortune 500 list, which ranks the biggest companies. People also really trust the Amex brand. Forbes, a big business magazine, ranks it as the 28th most valuable brand.
All these success stories make you wonder how does Amex make money… Stick to this write-up and you will find out soon!
(A) What is American Express (Amex)?
American Express, often called Amex, is a big American company that deals with money. They make special cards for paying for things. You might have heard of their cards like Green, Gold, Platinum, and Black (Centurion). The company started way back in 1850, not as a card company, but helping move things around.
Now, they’re known for their fancy cards. Their logo is a picture of a fighter, like a gladiator, and you can find it on their traveler’s checks and cards.
Lots of people use Amex cards. In fact, by the end of 2022, there were about 133.3 million Amex cards around the world. On average, each card gets used to buy things worth about $23,496 every year.
That’s a lot of shopping!
Overall, in 2022, all those cards were used to buy stuff worth over $1.6 trillion. Amex has been around for a long time. They started doing financial stuff back in the early 1900s. They made their first special card in 1958, and since then, they’ve come up with more like the gold card, green card, platinum card, and Centurion Card. They’ve also been famous for their ads, like the “Don’t Leave Home Without It” campaign.
In 2022, Amex had a 4.61% share of the world market when it comes to buying things with cards. Visa and Mastercard are much bigger, though. In the U.S., almost all shops that take cards also take Amex, except for one big store, Costco. But in other places like Europe and Asia, not as many stores accept Amex cards.
(B) American Express ( Amex): Profile Overview
Now, let’s look at the profile of American Express ( Amex)-
| Name of the Company | American Express ( Amex) |
| Type of Company | Public |
| Traded as | NYSE: AXP DJIA component S&P 100 component S&P 500 component |
| Operating Industry | Banking, Payment, Card Services |
| Predecessor | Livingston, Fargo & Company Wells, Butterfield & Company Wells & Company |
| Founded | March 18, 1850; 174 years ago, in Buffalo, New York, U.S. |
| Headquarters | 200 Vesey Street, New York City, United States |
| Area Served | Worldwide |
| Key People | Stephen J. Squeri (Chairman & CEO) Jeffrey C. Campbell (Executive VP & CFO) |
| Products | Charge Cards, Credit Cards, Debit Cards, Traveler’s Cheques, Corporate Banking |
| Services | Payment Card Services, Insurance, Travel |
In the upcoming sections, we will dive into the American Express business model in detail. Also, we will see how does Amex make money!
(C) Working Strategy: How does Amex work?
As you have read above, American Express ( Amex) is a globally recognized financial services company that issues and processes electronic payment cards.
In other words, you get various offerings including financial and travel services depending on your requirements.
So, when it comes to cards, there are two main types- credit cards and charge cards.
(C.1) How does Amex work?
Imagine you’re getting a credit card from Amex. This means they’re giving you a sort of loan, but it’s for buying things. You can spend money up to a certain limit, and then you pay it back later. When you pay it back depends on the agreement you have with Amex and the type of card you have.
Now, to get a credit card, you have to apply. If they say yes, they’ll tell you how much money you can spend, which is your credit limit. You have to pay back what you spend, plus any interest, before a certain deadline, or else your credit score could take a hit.
But that’s not all Amex does. They also have an amazing rewards program. Basically, if you use your Amex card a lot, they give you rewards. And these rewards can be pretty sweet, especially when you’re traveling. You can use them to get things like free flights, hotel stays, or even travel insurance.
Plus, Amex offers all sorts of travel services. If you need to book a flight, rent a car, find a hotel, or get travel insurance, they’ve got you covered. It’s like having a personal travel assistant in your pocket!
(C.2) Target Audience of Amex
American Express (Amex) mainly aims at rich folks and successful businesses.
| Age Distribution | Percentage (%) |
| 18-24 | 13.89% |
| 25-34 | 26.77% |
| 35-44 | 22.48% |
| 45-54 | 16.36% |
| 55-64 | 12.02% |
| 65+ | 8.49% |
They’re famous for their fancy credit cards and top-notch travel services, meant for people and companies with lots of money and really good credit scores. So, the folks Amex targets are usually-
- Rich people
- Business owners
- People who travel a lot
- Experienced professionals
- Folks who like luxury stuff
(C.3) Types of American Express Cards
Let’s look at three main types of cards offered by American Express ( Amex)-
| Card Types | Details |
| Charge Cards | These cards require the cardholder to pay the entire balance in full each month. They don’t have a preset spending limit. |
| Credit Cards | Similar to other credit cards, Amex credit cards allow users to carry a balance and pay it off over time. They have a credit limit. |
| Prepaid Cards | These cards are loaded with a specific amount of money in advance and can be used until the balance is depleted. |
| Black Card | The exclusive Centurion card, often referred to as the “Black Card,” is offered by invitation only and provides premium benefits. |
(C.4) Perks
Now, we will go through the rewards that you can get through American Express ( Amex)-
| Perks (Rewards) | Description |
| Rewards Points | Amex cards often offer rewards programs, allowing users to earn points for every dollar spent. These points can be redeemed for travel, merchandise, or cash back |
| Travel Perks | Some Amex cards provide travel benefits such as airport lounge access, travel insurance, and concierge services. |
| Cobranded Cards | Amex partners with airlines (like Delta) and hotel chains (like Hilton) to offer co-branded cards with specific perks related to those brands. |
(C.5) Unique Position in the Industry
- Issuer and Processor: Unlike Visa and Mastercard, which only process transactions, Amex both issues cards and have its own processing network.
- Revenue Model: Amex generates revenue from both interest-earning products (like credit cards) and transaction processing services.
(C.6) Transaction Process
When a merchant accepts an Amex card, the acquiring bank communicates with Amex as both the processor and the issuing bank. Merchants pay transaction fees to offer Amex as a payment option due to the advantages it brings.
(C.7) Products & Services of American Express (Amex)
| Products & Services | Details |
| Credit Cards | Amex offers various credit cards with different features like rewards, cashback, and travel benefits. |
| Charge Cards | Similar to credit cards, these require full payment each month, often with higher credit limits and exclusive perks. |
| Traveler’s Cheques | Secure payment method for travelers. |
| Corporate Card Programs | Tailored programs for businesses to manage expenses, track spending, and earn rewards. |
| Small Business Services | Range of services including loans, savings accounts, and insurance for small businesses. |
| Global Payment Services | International payment services for businesses, including currency conversion and fraud protection |
| Online and Mobile Services | Convenient access to accounts and services through online and mobile platforms, enabling management on the go. |
| Customer Service and Support | 24/7 support for account management, fraud protection, and issue resolution. |
In short, Amex operates a closed-loop model, competes across the payment services value chain, and serves a diverse customer base. Its customer base includes consumers, small businesses, and large corporations globally.
(D) Revenue Sources: How does Amex make money?
American Express has three big parts to its business: one for regular people like you and me (Global Consumer Services Group), one for businesses (Global Commercial Services), and one for the stores and places where you use your Amex card (Global Merchant and Network Services).
Now, let’s briefly look at how much Amex earned in the year 2023-
| Financial Aspects (2023) | Details |
| Revenue | $60.52 billion |
| Operating Income | $10.51 billion |
| Net Income | $8.374 billion |
| Total Assets | $261.1 billion |
| Total Equity | $28.06 billion |
How did Amex make such a whopping dollars? You may ask. Well, through the following revenue sources-
| Revenue Sources | Details |
| Merchant Discount Revenue | This is how Amex makes most of its money. Imagine you go to a store and use your Amex card to buy something. The store has to pay Amex a small fee for handling the transaction. These fees add up and make up a big part of Amex’s income. |
| Cardholder Fees | When you have an Amex card, you might have to pay a fee every year just for having the card. The amount depends on the type of card you have and the cool stuff it offers, like rewards or travel perks. |
| Interest Income | Sometimes, if you don’t pay your credit card bill in full each month, you have to pay extra money called interest. Amex makes money from this extra money people pay. |
| Conversion Fees (Foreign Exchange Fees) | If you use your Amex card to buy something in another country using a different currency, Amex charges a small fee to change the money. This fee also adds up and helps Amex make money. |
| Processed Revenue | Sometimes, businesses use Amex’s payment systems to handle their transactions. Amex gets a fee for helping with these payments. |
| Annual Fees | Some Amex cards have fees you have to pay every year, just for having the card. These fees can be different based on the card and what it offers. |
Now, why do stores accept Amex even though they have to pay these fees?
Well, because Amex cardholders tend to have more money to spend, and they’re willing to spend it. Plus, Amex has this reputation for being a bit fancy, so having their card can attract more well-off customers. And even though Amex charges higher fees compared to other card companies, it’s worth it for stores because Amex customers tend to buy more stuff.
In the past, most Amex cards didn’t let you carry a balance and pay interest. You had to pay off your bill in full every month. But now, they’ve got some cards with features like Blue Cash and Pay Over Time, so they’re trying to get us to use our cards even more.
So, even though each transaction might only bring in a tiny bit of money for Amex, when you add up all those tiny bits from the $870 billion we spend each year, it turns into a big profit for them.
In short, Amex makes money from both people who have their cards and the stores that accept them. They try to get people to use their cards more by offering alluring perks, which also help them earn more money. Even though they give out lots of rewards and services, they still make a profit by finding the right balance between giving and earning.
(E) Marketing Strategies of American Express (Amex)
In this section, we will dive into the marketing strategies of American Express (Amex). As a global travel, banking, and network services firm, Amex has successfully employed various marketing tactics to catch your attention as well as to position itself as a leader in the industry.
Let’s look at the Amex marketing strategies one by one-
| Amex Marketing Strategies | Details |
| Segmentation | Amex segments its customer base based on geographical areas, demographics, and psychographics. They consider factors such as social class and VALS (Values and Lifestyles) to tailor their offerings. |
| Targeting | By understanding their diverse clientele, Amex targets specific customer groups with personalized products and services. |
| Positioning | Amex positions itself as a premium brand, emphasizing exclusivity, reliability, and exceptional customer service. |
| Digital Marketing | Amex leverages digital channels extensively. Their online campaigns run across social media platforms like Facebook, LinkedIn, and YouTube. They use targeted ads to reach specific customer segments. The company’s website and mobile app provide seamless experiences for cardholders, allowing them to manage accounts, redeem rewards, and access exclusive offers. |
| Influencer Marketing | Amex collaborates with influencers and celebrities to promote their products. These partnerships help reach wider audiences and build credibility. |
| Social Responsibility and Cause Marketing | Amex supports various social causes, such as small businesses, education, and environmental sustainability. Their “Shop Small” campaign encourages consumers to support local businesses. By aligning with positive initiatives, Amex enhances its brand image and connects with socially conscious consumers. |
| Customer Experience and Loyalty Programs | Amex focuses on providing exceptional customer service. Their Membership Rewards program offers points for spending, which can be redeemed for travel, shopping, or other benefits. The company’s Centurion Lounge network provides exclusive airport lounges for premium cardholders, enhancing the overall travel experience. |
| Partnerships and Co-Branding | Amex collaborates with airlines, hotels, and retailers to offer co-branded credit cards. These partnerships provide added value to customers and expand Amex’s reach. |
| Event Sponsorships and Experiences | Amex sponsors major events, concerts, and sports tournaments. Cardholders get access to exclusive pre-sales, VIP experiences, and preferred seating. These sponsorships reinforce the brand’s association with luxury and entertainment. |
| Data-Driven Marketing | Amex analyzes customer data to personalize offers, recommend relevant products, and anticipate needs. Their targeted email campaigns and personalized recommendations drive engagement and conversions. |
| Thought Leadership and Thoughtful Campaigns | Amex positions itself as a thought leader by sharing insights on financial trends, travel, and lifestyle. Their campaigns focus on emotional storytelling, emphasizing how Amex enhances people’s lives.For example- #BackingWomanArtisans, |
So yes, American Express’ marketing strategy combines innovation, digital prowess, and customer-centric approaches to maintain its position as a global leader in financial services.
(F) Wrapping Up Amex Business Model: How does Amex make money?
In a nutshell, American Express makes money mainly by charging fees to both cardholders and the stores where their cards are used. Cardholders pay annual fees and interest on balances, while merchants pay transaction fees. By attracting wealthy customers and offering perks, Amex encourages more spending. Additionally, they’ve introduced new card features to entice cardholders to use their cards more often.
While each transaction may seem small, with millions of transactions happening every day, these fees add up, allowing American Express to turn a tidy profit while providing valuable services and benefits to its customers!
