Why Did Amex’s U.S. Credit Card Purchase Volume Decline In Q3 Despite Strong Industry Conditions?

by Trefis Team
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American Express Company
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The U.S. credit card processing industry swelled to a record $934 billion in size over Q3 2018, as upbeat consumer sentiment continued to drive discretionary spending for a second consecutive quarter. This represents an increase of more than 10% compared to the figure of $847 billion in Q3 2017 and is slightly ahead of the $927 billion in credit card spend in Q2 2018. Notably, Visa continues to leverage its dominance in the industry to grow its credit card payment volumes at a faster rate than the industry (10.9% year-on-year) – helping its market share nudge higher to 53.3% from just under 53% a year ago.

However, American Express stands out among the four payment processing companies due to a sequential reduction in credit card purchase volume (from $195.4 billion in Q2 2018 to $194.6 billion in Q3 2018) even as its peers reported healthy growth in this key operating metric. We believe that the reason for this decline is primarily the surge in Amex’s payment volumes over Q2 as it implemented its new merchant-focused growth strategy. As we detailed in our interactive dashboard, Amex’s revamped growth strategy aims to grow its merchant base in order to make its cards accepted for making payments at more locations. This push helped Amex add a significant number of new merchants to its payment network in Q2 – which in turn boosted the payment volume for the quarter. While American Express has continued to work on adding more merchants, the unusual surge was missing this time around.

The payments industry is seasonal, with purchase volumes peaking in the fourth quarter of the year due to the impact of holiday season shopping, before falling sharply in the first quarter. The figure then generally increases steadily over the second and third quarters. This trend is seen clearly in the table above, which captures the changes in credit card purchase volumes for these companies over the last five quarters. Visa’s dominance in the industry is also evident here, as the company continues to process more credit card payments than its three rivals combined.

While MasterCard and Discover have not been able to match Visa’s higher growth rate (which regularly exceeds 10% year-on-year), American Express has reported a growth rate of 10% for each of the last three quarters. This has helped the company nearly close the gap with rival MasterCard, and could potentially make Amex the second largest card processing company in the country by the end of 2019.

Details about how changes to U.S. Card Transaction Volumes affect the share price of these companies can be found in our interactive model for Visa | MasterCard | American Express | Discover

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