American Express at Scotiabank Financials Summit 2024
Investing through downturns, taking market share, a long runway for international growth, and more
American Express AXP 0.00%↑ is a key holding in Sycamore Capital’s portfolio, with a 20.7% weighting as of the end of August. Anna Marrs, President of Global Commercial Services, spoke at the Scotiabank Financials Summit on September 4th.
Below, I’ve summarized the key insights from the entire conversation. But first, here are my top three takeaways from her interview:
Investing through downturns: During the pandemic, Amex significantly invested in its core retail business, reaping substantial rewards in the following years. More recently, they've focused on the U.S. SME segment, despite macroeconomic challenges. Marrs emphasized, “We’ll keep investing right on through whatever macro is ahead.”
Taking market share: Thanks to these strategic investments, Amex has steadily gained market share, particularly in the U.S. SME segment, where it has grown from 45.8% to 47.1% over the last two years.
International growth potential: Amex’s global growth opportunity is considerable, with a small share of commercial markets outside the U.S. For example, in Canada, Amex holds just 4% of the market but added over 111,000 new merchants in 2023 alone.
“Outside of the U.S…we have a much starting smaller share…sub 5% in many countries. So, it will be a long runway for growth outside the U.S.”
See below for my full notes from the conversation.
Introduction of Anna Marrs: Anna Marrs, Group President of Global Commercial Services and Credit and Fraud Risk at American Express, joined AmEx in 2018 after roles at Standard Chartered and McKinsey.
Commercial Services at AmEx: Marrs oversees a business representing 25% of AmEx's revenue, about $14.8 billion in 2023. She was attracted to AmEx for its leadership in commercial services, service orientation, and customer-focused marketing.
Economic Outlook: American Express sees "stable billings growth against a more muted macro environment." The company expects the global economy to remain mixed.
U.S. Small Business Segment: AmEx holds 47% of the U.S. small business card market. While small business spending slowed in 2023, AmEx continues to acquire customers and maintains strong credit performance. Marrs noted, "we're ready to grow with them as the economy accelerates."
Corporate Traveler Segment: Corporate travel spend has recovered post-pandemic, with consultants and bankers spending at or above 2019 levels, but technology companies remain cautious. This segment represents 5% of AmEx’s billings.
International Growth: AmEx’s international commercial and SME businesses grew by 14% in Q2 2023. Marrs mentioned that outside the U.S., "we have a much smaller starting share" but expect continued growth due to dedicated charge value propositions.
Canada Insights: AmEx’s market share in Canada is 4%, and they are focusing on expanding card acceptance, having added over 111,000 merchants in 2023.
Sectoral Trends in the U.S.: AmEx observed "belt-tightening" in small business spending in 2023 across industries. Notable areas of focus include mortgage brokers and construction, which showed signs of stress due to higher interest rates.
Credit Performance: AmEx continues to perform well in credit management, with delinquencies in small business loans at 1.3%, lower than pre-pandemic levels.
SME Opportunity: Marrs emphasized the long-term growth potential in SME payments, citing structural tailwinds like digital payment adoption and small business formation, saying, "small business formation in the U.S. increased by over 50% after the pandemic."
Pandemic Market Share Gains: Marrs explained that AmEx’s market share gains during the pandemic were strategic, not coincidental. The company leveraged its scale and competitive advantages to capture growth during the crisis.
“If you look at 2023, after we executed on [our] growth agenda and began to invest at differential rates in the business, we grew revenue and EPS at higher rates than 90% of the S&P 500.”
Fee pools & strategic expansion: AmEx has a 47% share in the card market for small businesses. They aimed to expand beyond cards by focusing on services that meet small business needs, especially cash flow management.
Business Blueprint & adjacencies: AmEx launched tools like checking accounts and short-term lending (via Kabbage) to offer more financial solutions for small businesses, helping them manage cash flow. The Business Blueprint platform also helps businesses see their overall financial health. "18% actually take another Amex product within 3 months."
Ecosystem & customer engagement: The ecosystem approach improves customer retention and product adoption, with customers doing more with AmEx when they can see and manage their financials through AmEx's platform. "You get more data... and that helps you also from a credit perspective."
Interchange fee pressure: AmEx competes on differentiating itself beyond price by focusing on coverage and the premium membership model. "Our average customer spend with these merchants is higher."
Small business & consumer overlap: AmEx sees a synergy between consumer and small business accounts, with 60% growth in spend when a business owner uses a commercial product alongside their consumer card. "There are nearly 5M small business owners…who just have a consumer product. And that’s a lovely prospect base for us."
Technology & AI: AmEx has used AI since 2010 for fraud detection and now uses machine learning for 100% of its credit and fraud models. AmEx continues to invest in Decision Sciences to refine modeling techniques and use data better. "It's the deep spine of the organization."
No preset spending limits: AmEx dynamically adjusts limits based on real-time transaction data, making it competitive. "We can look at that transaction relative to your recent transaction history, your overall balance."
Capital deployment: AmEx focuses on marketing, technology, and small acquisitions to support its core business, including $6 billion on marketing annually. "Marketing capabilities and platforms that the company has are tuned to help us do that in an optimal way."
Partnerships with fintechs: AmEx views fintechs as both competitors and partners, focusing on APIs to integrate with fintech services efficiently. "It's a space for... constructive paranoia."
Fraud prevention: Fraud is a constant focus, and AmEx maintains the lowest fraud rate in the industry through continuous innovation.