American Express Business Model

American Express is a global payments company that provides customers with access to products, insights, and experiences that enrich lives and build business success.
The company is a leader in providing credit and charge cards to consumers, small businesses, mid-sized companies, and large corporations worldwide.
American Express cards, issued both by the company and by third-party banks and other institutions on the American Express network, can be used to charge purchases at millions of merchants worldwide.
The company offers its various products and services globally to diverse customer groups through multiple channels, including mobile and online applications, affiliate marketing, customer referral programs, third-party service providers and business partners, direct mail, telephone, in-house sales teams, and direct response advertising.
American Express was founded in 1850 and incorporated in 1965. It and its principal operating subsidiary, American Express Travel Related Services Company, Inc., are bank holding companies subject to supervision and examination by the Federal Reserve.
The company’s businesses comprise four reportable operating segments: U.S. Consumer Services, Commercial Services, International Card Services, and Global Merchant and Network Services. Corporate functions and other businesses are included in Corporate & Other.
These businesses function together to form an end-to-end integrated payments platform, which the company believes is a differentiator that underpins its business model.

In addition, American Express’s business model has a few key components:

American Express maintains direct relationships with both card members and merchants, handling all key aspects of those relationships. This creates a “closed loop” that distinguishes their integrated payments platform from other bankcard networks.
The company’s integrated payments platform allows them to analyze information on card member spending and build algorithms and other analytical tools to underwrite risk, reduce fraud, and provide targeted marketing and other information services.
American Express offers a broad set of card products, rewards, and services to a diverse consumer and commercial customer base, both in the U.S. and internationally. They acquire and retain high-spending, engaged, and creditworthy card members through innovative products, incentives, digital and mobile services, exceptional customer care, and partner relationships.
The company has focused on broadening the appeal of its products to attract new customers, particularly Millennial and Gen Z customers, as well as expanding its position with small and mid-sized enterprise customers. They have also introduced new adjacent products that complement their existing products.
American Express builds and manages relationships with millions of merchants around the world that choose to accept American Express cards. They also build and maintain relationships with merchant acquirers, aggregators, and processors to manage aspects of their merchant services business.
The company operates a payments network through which they establish and maintain relationships with third-party banks and other institutions in approximately 103 countries and territories, licensing the American Express brand and extending the reach of their global network.

Table of Contents

Formation

American Express was founded on March 18, 1850, through a merger of three transportation companies owned by Henry Wells, William G. Fargo, and John Warren Butterfield.

Early Success and Expansion

By 1862, American Express operated a vast network of offices and express routes across the United States. It became a prominent player in the express delivery of valuables and goods.

Merger and Renaming

In 1868, American Express merged with the Merchants Union Express Company, forming the American Merchants Union Express Company. It was later renamed the American Express Company in 1873.

Innovations and Global Expansion

Under the leadership of James Congdell Fargo, American Express introduced innovations such as money orders (1882) and traveler’s cheques (1891). The company expanded its presence internationally, establishing offices in France, England, Germany, and other countries.

Shift to Banking and Travel Services

When the U.S. government nationalized the express industry in 1918, American Express shifted its focus primarily to banking and travel-related services.

Diversification

Starting in the 1960s, American Express diversified its interests through acquisitions of various investment, insurance, and publishing companies. The company aimed to expand beyond its traditional financial services offerings.

Global Growth and Partnerships

American Express established card-issuance partnerships in South America and Europe in 1972, marking its global expansion. In 1991, the Membership Miles rewards program was introduced, contributing to the company’s growth. Cobranding partnerships, such as the one with Hilton, further enhanced its business model.

Technological Advancements and Social Initiatives

American Express launched a mobile app in 2010 and initiated the Small Business Saturday campaign to support small businesses. The company introduced machine learning-based fraud protection and refreshed its Corporate Card program in subsequent years. In 2020, American Express announced a $1 billion action plan to promote equity and inclusion across its operations.

Value Proposition:

Financial Solutions: American Express offers a wide range of financial products and services tailored to the needs of individuals, businesses, and corporate clients. From credit cards and charge cards to travel services and merchant solutions, American Express provides comprehensive financial solutions designed to help customers manage their finances, streamline payments, and achieve their financial goals.
Premium Rewards: American Express is known for its premium rewards programs and exclusive benefits offered to cardholders. With perks such as travel rewards, cash back, concierge services, airport lounge access, and complimentary upgrades, American Express attracts affluent customers seeking luxury experiences and personalized service.
Global Acceptance: American Express cards are widely accepted at millions of merchants and businesses worldwide, making them a convenient payment option for travelers and consumers around the globe. By offering a network of merchants and partners, American Express ensures that cardholders can use their cards virtually anywhere, whether at home or abroad.
Customer Service: American Express prioritizes customer service and support, providing 24/7 assistance to cardholders for inquiries, account management, and emergency assistance. With dedicated customer service representatives, online resources, and mobile app features, American Express delivers responsive and personalized support to enhance the customer experience.

Revenue Model:

Cardmember Fees: American Express generates revenue through annual fees charged to cardmembers for the use of its credit cards, charge cards, and premium membership programs. These fees vary depending on the type of card and the level of benefits offered, providing a steady stream of income for the company.
Transaction Fees: American Express earns revenue from transaction fees charged to merchants for processing payments made with American Express cards. These fees are typically a percentage of the transaction amount and are collected from merchants as part of the payment processing services provided by American Express.
Interest Income: American Express earns interest income from cardmember balances and revolving credit accounts. When cardmembers carry a balance on their credit cards and incur interest charges, American Express collects interest income on the outstanding balances, contributing to its overall revenue stream.
Partnerships and Affiliates: American Express forms partnerships and affiliations with merchants, businesses, and financial institutions to promote its products and services and generate additional revenue through co-branded credit cards, loyalty programs, and marketing partnerships. These collaborations often involve revenue-sharing agreements and promotional arrangements that benefit both parties.

Distribution Model:

American Express’s distribution model is multifaceted and designed to reach its diverse customer base through various channels:

Physical Branches: American Express has physical branch locations where customers can visit for in-person interactions, inquiries, and account services. These branches are strategically located in key cities and regions.
Online Platforms: The company offers online platforms and mobile applications that enable customers to access their accounts, make payments, check balances, and perform various transactions digitally. This digital presence enhances convenience for customers.
Affiliate Marketing: American Express leverages affiliate marketing programs, partnering with other businesses and financial institutions to promote its card products and services. These partnerships often offer co-branded credit cards or loyalty programs.
Customer Referral Programs: American Express runs customer referral programs where existing card members can refer friends and family, earning rewards or benefits for successful referrals. This word-of-mouth marketing helps acquire new customers.
Third-Party Service Providers and Business Partners: The company collaborates with various third-party service providers, merchants, and business partners to expand its reach. This includes payment processors, technology partners, and travel-related businesses.
Direct Mail: American Express utilizes direct mail campaigns to target potential customers. Direct mailers often include personalized offers and incentives to encourage card applications.
Telephone: Telephone-based customer service and sales teams assist customers with inquiries, applications, and account management over the phone.
In-House Sales Teams: American Express maintains in-house sales teams that engage with potential customers, businesses, and corporate clients to promote and sell card products and services.
Direct Response Advertising: The company invests in direct response advertising campaigns across various media channels to attract new customers and reinforce its brand presence.

Organizational Structure:

American Express operates through a well-defined organizational structure:

Chairman and Chief Executive Officer (CEO): The CEO is responsible for overall leadership, strategic direction, and decision-making at the highest level.
Board of Directors: The board provides oversight, governance, and guidance to the executive leadership team.
Executive Leadership Team: This team includes top executives responsible for various business units and functions, such as U.S. Consumer Services, Commercial Services, International Card Services, Global Merchant and Network Services, and Corporate & Other.
Business Units: Each of the four reportable operating segments (U.S. Consumer Services, Commercial Services, International Card Services, and Global Merchant and Network Services) is led by a president or executive vice president. These segments focus on specific customer groups and services.
Corporate Functions: Corporate & Other encompasses various corporate functions, including finance, legal, human resources, and technology support.
Global Network Expansion Teams: Teams focused on expanding the company’s global network, establishing relationships with third-party banks and institutions in different countries, and extending the reach of its services.

Marketing Strategy:

American Express’s marketing strategy revolves around the following key elements:

Branding: The company maintains a strong and recognizable brand image associated with trust, reliability, and premium financial services.
Customer Engagement: American Express engages customers through personalized marketing campaigns, exclusive offers, and loyalty programs that cater to their interests and preferences.
Content Marketing: The company produces content related to personal finance, lifestyle, travel, and business to engage and educate its target audience. This content is often shared through various digital channels.
Digital Presence: American Express leverages its digital platforms, including its website and mobile app, to provide easy access to account management, rewards redemption, and customer support.
Co-Branding Partnerships: The company partners with other brands, such as airlines and hotel chains, to offer co-branded credit cards with specific benefits and rewards tailored to customer interests.
Customer Referral Programs: Encouraging existing customers to refer friends and family through referral programs is a part of its marketing strategy, capitalizing on word-of-mouth marketing.
Data-Driven Insights: American Express utilizes data analytics and customer spending insights to tailor marketing efforts, provide targeted offers, and identify emerging trends.
Sponsorships and Events: The company sponsors and participates in various events, including sports, entertainment, and cultural activities, to increase brand visibility and engage with customers.
Social Responsibility: American Express incorporates social responsibility and community engagement into its marketing strategy, supporting initiatives related to equity and inclusion.

Key Highlights

Global Payments Provider: American Express is a worldwide payments company that offers customers access to products, insights, and experiences to enhance their lives and business success.
Card Services: It is a leader in providing credit and charge cards to a broad range of customers, including consumers, small businesses, mid-sized companies, and large corporations globally.
Merchant Network: American Express cards, issued by the company and third-party banks, are accepted by millions of merchants globally for purchases.
Diverse Channels: The company delivers its products and services through various channels, including mobile apps, online platforms, affiliate marketing, direct mail, customer referral programs, and partnerships.
Segmented Business Structure: American Express operates through four main segments: U.S. Consumer Services, Commercial Services, International Card Services, and Global Merchant and Network Services. Corporate functions and other businesses are included in Corporate & Other.
Integrated Payments Platform: The company’s model involves direct relationships with card members and merchants, creating a closed-loop system. This enables them to analyze spending patterns, mitigate risk, reduce fraud, and provide targeted services.
Customer Acquisition and Retention: American Express focuses on acquiring and retaining high-spending, creditworthy card members through innovative products, digital services, customer care, and partnerships.
Merchant Relationships: The company manages relationships with millions of merchants worldwide who choose to accept American Express cards, and also works with merchant acquirers and processors.
Global Network: American Express operates a payments network that extends through partnerships with third-party banks and institutions in numerous countries, expanding its global reach.

Element	Description
Value Proposition	American Express offers a range of value propositions for its customers: – Premium Services: The brand provides premium and exclusive services to cardholders. – Global Acceptance: American Express cards are widely accepted by merchants and businesses worldwide. – Rewards and Benefits: The company offers rewards programs, travel benefits, and concierge services. – Financial Services: American Express offers financial and banking services. – Trust and Security: The brand is known for trustworthiness and robust security measures. – Customer Support: American Express provides exceptional customer support and assistance.
Core Products/Services	American Express’s core products and services include: – Credit Cards: The brand issues credit cards, including charge cards and co-branded cards. – Payment Processing: American Express facilitates payment processing for card transactions. – Travel Services: The company offers travel booking, travel insurance, and travel-related services. – Financial Services: American Express provides financial and banking services, including savings accounts and personal loans. – Merchant Services: The brand offers merchant services for businesses, including payment processing solutions. – Loyalty Programs: American Express runs loyalty programs such as Membership Rewards.
Customer Segments	American Express’s customer segments include: – Cardholders: Individuals and businesses holding American Express credit cards. – Merchants: Businesses and retailers accepting American Express cards as a payment method. – Travelers: Customers utilizing American Express travel services and benefits. – Financial Services Customers: Customers availing American Express’s financial and banking services. – Businesses: Companies using American Express merchant services and corporate cards. – Loyalty Program Members: Customers participating in American Express loyalty programs.
Revenue Streams	American Express generates revenue through several revenue streams: – Merchant Discount Fees: Revenue comes from fees paid by merchants for card transactions. – Interest and Fees: Revenue is generated from cardholders through interest charges and annual fees. – Travel Services: Revenue may come from travel booking fees and travel-related services. – Financial Services: Revenue is generated from interest on loans and other financial services. – Loyalty Programs: Revenue may come from fees and agreements with loyalty program partners. – Merchant Services: Fees from businesses using American Express’s merchant services.
Distribution Strategy	American Express’s distribution strategy focuses on a global network, partnerships, and digital channels: – Card Issuance: The brand issues cards through a network of banks and financial institutions. – Merchant Acceptance: American Express cards are widely accepted by merchants and businesses. – Online and Mobile Channels: The brand promotes card applications, payments, and services through online and mobile platforms. – Partnerships: American Express partners with travel companies, retailers, and financial institutions to offer co-branded cards and benefits. – Corporate Services: The company provides corporate cards and services for businesses. – Customer Support Centers: American Express offers customer support through call centers and online channels. – Marketing and Promotion: The brand engages in marketing and promotional activities to enhance brand visibility.