American Express is gearing up for growth in China, with its experience in that country potentially creating a template for its international expansion elsewhere.
In announcing its first-quarter results last week, AmEx disclosed it was changing up the way it labels certain results to take account of the rising Chinese contribution to its income.
“Over time, we do expect that volume to be very significant and we wanted to make sure we were providing the right level of insight,” Chairman and CEO Stephen Squeri told analysts on an April 23 conference call as he discussed first-quarter results and answered a question about China. He explained that the international capabilities the company is building in China may be rolled out in other international markets as well, though he added that he didn’t have any announcements yet on that front.
“It’s important that you understand the capabilities that we’re building,” he said, referencing the China experience. “We’re building these capabilities from a global perspective.”
Analysts picked up on AmEx goals for China, the biggest country in the world with about 1.4 billion people. “Management remains committed to expanding its presence in China and in expanding its debit capabilities,” analysts for Chicago-based investment firm William Blair said in a report regarding the American Express results. “The ramp up will likely take several years, but represents a large opportunity.”
The April 23 William Blair report noted that American Express has collected 14 million Chinese merchants that accept its card, and ties to 16 issuing partners in just months. “Management continues to focus on building out a debit card strategy for the market (and globally),” the report said.
The People’s Bank of China gave Amex approval to clear card payments in November 2018, and final approval for a clearing license just last June, becoming the first foreign network to be permitted to process transactions in the local currency, Bloomberg reported, calling the Chinese financial services market a $45 trillion market.
Amex’s joint venture with LianLian Group “should enable the company to process and settle payments in yuan,” the William Blair report said. “Amex believes this effort will garner a substantial Chinese customer base that will be especially monetized when those customers travel cross border.”
Squeri underscored those prospects on the call. “At some point, we will have a lot of traveling Chinese cardmembers and it’s important that they’re able to use all the products that our partners issue to them all around the world, and debit being one of them,” he said.
Overall, Squeri called this a “transition year” for the company with respect to financial expectations, in light of the impact from the COVID-19 pandemic. The New York-based company’s goal is to achieve earnings that had been expected in 2020 by next year.
The company reported first-quarter net income of $2.24 billion, up from $367 million for the quarter last year. First-quarter revenue dipped to $9.06 billion, from $10.3 billion before the pandemic's full effect was felt.
Compared to its Latin American and European businesses, AmEx billed business in Asia has been recovering faster, according to slides the company presented for the first-quarter earnings results. Of its cardmember receivables for the quarter, international consumers contributed about 15 percent, which was smaller than the individual U.S. consumer, small business and corporate card segments.