Other than the two card majors Visa and MasterCard, American Express comes in third and is one of the largest issuers in the United States. The products on offer are credit cards and charge card products. It also has travel-related services for its consumers as well as businesses across the world. It is a well-known fact that American Express is more for the affluent card holders and it manages to attract the prime customers due to its value-added services as well as the other features such as rewards packages. The best feature of them all is that balances that are paid off within the grace period carry no fees whatsoever. Due to this fact American Express has a very low charge-off rate when compared to other cards.
Due to its low charge off rates which hover around 4.4% American Express can afford to be a bit more aggressive with the issuance of cards. This is an important move for any issuer in the wake of recovery of the economy as this is the time to cash in and take advantage of the opportunity to tap customers.
The transactions by American Express and the payments processing business has accounted for about 3/4th of the total price estimate. The earnings of the company or the revenue come from the fee charged from the merchant for the transaction.
Balances that are paid within the grace period are not charged. However, if the balances remain unpaid for 180 days after the due date, then these payments are considered as defaulted and are then termed as charge offs. The overall profits for any issuer would directly depend on the charge off.
Due to its affluent customer base and its conservative banking practices American Express has always enjoyed the privilege of having the lowest charge off rates and this might have actually helped American Express to keep the losses at a minimum during the recession (2008-2009), whereas the whole credit card industry had witnessed charge offs that had peaked at 10.6%.
Now after the recessionary period has come to an end, the economy is slowly but steadily recovering from the lows as well as witnessing low charge off rates. This might be a trend that might have a positive impact on the other card issuers as well. Whereas, American Express will remain untouched by any of these developments as they already have low charge offs when compared to the rest.