American Express sees younger consumers, SMEs driving Q3 new card growth

American Express Co.'s investment in marketing continues to drive the momentum of customer acquisition for its premium fee-based cards, with robust interest from younger consumers and small businesses.

In the third quarter, American Express invested $1.4 billion in marketing, which boosted the number of new cards acquired to 2.6 million, up 87% year over year and 6% sequentially, CFO Jeffrey Campbell said on the company's third-quarter earnings call Oct. 22.

Among new customers of its U.S. Gold and Platinum consumer cards, 75% are millennials and Gen Zers. Overall spending from this younger customer cohort grew by 38% in the third quarter over 2019 levels, while the activities of its traditional card base, the baby boomer generation, have not come back, CEO Stephen Squeri said on the call. The spending level of boomers is down 6% compared to 2019 levels, according to an investor deck.

Strong consumer spending from the younger generation has been cited by many buy-now, pay-later, or BNPL, companies to explain their thriving amid the pandemic. However, American Express does not see the BNPL players as a big competitive threat, Squeri said. BNPL companies let consumers split a payment into installments. They tend to target consumers with low FICO scores and debit card users, and "that's just not the game that we're playing," Squeri said. American Express has had a BNPL product since 2017 for its credit card members to manage spending, the CEO noted.

The company also had "one of the best quarters ever" in U.S. small-business card acquisition, Squeri said. Goods and services spending from small and medium-sized businesses grew by 21% versus the 2019 level.

American Express announced Oct. 20 a partnership with Goldman Sachs' transaction banking division, providing large corporate clients with a cloud-based payments solution. It combines the strength of the two, corporate card capabilities from American Express and transaction banking solutions from Goldman Sachs, Squeri said.

"We did not believe transaction banking was a sweet spot for us from S&P 500 (companies) and above, and we're really thrilled to be partnering with Goldman on this," Squeri said.

American Express instead wants to focus on building small-business relationships through Kabbage, providing customers with working capital and transaction banking accounts, Squeri said. The company acquired substantially all of Kabbage in October 2020, excluding its loan portfolios.

While the space of corporate credit cards has seen fast-growing financial technology entrants such as Brex Inc., Ramp Business Corp. and DivvyPay Inc., the lender believes it is well positioned in the competition with a large customer base, a sizable balance sheet, an established brand and comprehensive offerings, Squeri said.