Good afternoon, and welcome to our 2nd Financial Community Meeting of the year. We're going to cover a number of topics with you today. I'll begin with an update of our financial and business performance through the Q2. As you'll see, despite a continued slow growth environment, I believe our businesses have performed well on both an absolute and relative basis. One reason I remain confident in our ability to grow is due to the success of our investments across both payments and services.
We've applied our expertise in areas such as digital marketing, loyalty, big data and analytics to focus and prioritize our investment spending. And we've generated very good results. I'll update you on several of our key growth investments today. A number of our opportunities will be covered today by Dan Shulman, Group President of Enterprise Growth. As you know, Dan joined us as Head of Enterprise Growth almost 3 years ago and he has a broad business portfolio including our fast growing prepaid products as well as our payments platform SERVE.
We gave Dan a 1 year grace period before putting him in front of you in 2011 to talk about his business growth opportunities and our plans for capturing that growth. While still in the early stages, we've made good progress within enterprise growth over the last few years. And I thought the time was right for Dan to update you on both our performance and continued potential. Several of the opportunities within enterprise growth are relevant to customer segments not traditionally targeted by our core payment products. As a result, we put a great deal of thought into how to best use our brand to approach these customers.
Our brand attributes of trust, security and service are relevant to all prospects. But for many years, our brand has been most associated with affluent spenders. Our brand is our most important corporate asset. So as a result, we've been very deliberate about how we use it as we expand into new segments. John Hayes, Executive Vice President and Chief Marketing Officer will take you through why we're confident that we can use the flexibility of our brand to tap in to these new opportunities while not diluting its strength in the marketplace.
We'll then end as always with time for Q and A. So let's get right to our performance. Year to date through June, I believe we generated solid results. Despite a global economy that remains relatively slow growth, we generated another revenue record in the most recent quarter. On an FX adjusted basis, we grew revenues by 4%.
And as we mentioned on our earnings call, this growth rate would be 5% excluding the impact of card member reimbursements booked in the quarter. We continue to generate good earnings from our business performance. This performance along with strong results from our expense control efforts contributed to record EPS, while also achieving a return on average equity of 24%. Our business metrics remain positive across the board. Adjusted for FX, billings grew by 8% in the 2nd quarter.
Cards in force grew by 4%, driving a 5% growth in card fees, which continues to reinforce the strength of our value propositions. We also saw a positive growth in card member loans for the 10th straight quarter. This performance compares sharply with most of our large card peers as you'll see in a moment. Finally, our credit performance continues to be exceptional and the best among large industry peers for both write off and past due rates. So let me drill down a bit more on our performance starting with billings.
When you look at FX adjusted billings growth by region, growth rates in the U. S. Remained healthy, but did trend up across our international regions. Asia and Latin America continued at double digit growth levels, while Europe grew by 6%, its highest level in 6 quarters. Markets that saw strong growth rates included the U.
K, Canada, Brazil, China and Korea. Now looking at our relative billings performance in the U. S, credit and charge growth rates for Visa and Mastercard combined continued to approximately mirror our own over the past several quarters. Globally, our billings growth has slowed a bit more than Visa and Mastercard given their greater mix of spending in higher growth countries outside of the U. S.
As a reminder, Visa's numbers do not include Visa Europe, which has been growing more slowly over the last several years. Against large card issuers, we continue to do well. On a billing space that is almost 2.5 times that of our nearest competitor, we continue to grow at 1 of the highest rates. We also thought it would be interesting to look at this comparison going back a few years. Based on information from Nielsen, we were the largest issuer in both 2,007 2012.
And as we've been consistently growing our volumes since 2010, we also had the largest dollar gains over this time. Also of note on this slide is that while growth rates have been improving recently for some peers, several issuers are not yet back to their 2,007 volumes even after 5 years. For card member balances, our peer situation is reversed. In terms of loans, we have one of the smaller portfolios among major issuers. As I said earlier, while we've generated consistent positive growth over the last 2 plus years, the other large issuers except for Discover are still either flat or negative.
This represents an improvement from the more significant declines they saw over the last 2 years, but it's still a major challenge given that their models remain dependent on balances to generate revenues. Because of this, the fight for balances among Lend Centric competitors remains intense. I showed you a similar slide in February and the situation hasn't really changed. 0% balance transfer offers are still a major component of the marketing efforts of big card lenders. In the first half of the year approximately 75% of industry mailings excluding American Express had a 0% BT offer, some extending as long as 18 months.
As you can see, some individual competitors are being notably aggressive with these offers, while our proportion is fairly minimal. I've been in the business a while and to me putting out a substantial number of 0% BT offers doesn't appear to target the affluent prospects some competitors claim to be after, nor is it a net revenue driver over the short term. As an overlay to this, it's also estimated that total revolving credit in the U. S. Grew by only 1% in the first half of the year.
This essentially means the large card lenders are spending substantial marketing dollars not to grow the lending pie, but to take share from one another at a 0% yield. I haven't shared this metric in a while, but now that the industry is starting to see a turnaround in balances, I thought it would be worthwhile to look again at spend velocity. As a reminder, this ratio looks at bill business levels relative to AR and loans and is an indicator of our efficiency in generating spend and utilizing capital. Since before the financial crisis in 2007 and through 2012, the spend velocity of our U. S.
Consumer and small business portfolio and the spend velocity of our lending products within that portfolio have both seen increases that outpace the industry. Because of our spend centric model, our absolute spend velocity has always been higher than the industry overall. So we really look at this metric for directional change. With generally declining balances over this time, you would expect to see an uptick in the industry number as the denominator falls, and it has. However, since 2010, our balances have been growing and yet we've still been able to improve this metric more than most players.
This is driven by our continued focus on spend and transactors even within our premium lending portfolio. Increasing our spend velocity isn't an explicit objective for us, but it's certainly one of the positive outcomes generated by our spend centric model. And looking at revenue growth by quarter over the past year, while Cap One and Discover's core results are hard to interpret because of acquisitions, we've continued to outpace the revenue performance of the other large U. S. Card issuers.
As I mentioned earlier, our write off rates continue to be the best in the industry. Our credit remains well controlled and our risk management capabilities provide us with a core advantage as we continue to advance our premium lending strategy. Card reserve releases continued to help the industry's bottom line during the first half of twenty thirteen, albeit at lower levels from the last several years. While reserve turns are lower than they've been reserve releases for several large players in the second quarter still represented from 10% to 1 third of their segment net income, a sizable contribution. Return on assets is another metric we look at to judge the profitability and productivity of our asset base.
As these numbers show, our spend centric model with its focus on premium lending and full closed loop economics allows us to generate more earnings per dollar of loans in AR than the rest of our major card peers. Our bottom line results have been helped materially by our proactive control of operating expenses. After several years of high growth due to historic levels of investment spending and in light of the slow growth environment earlier this year. As you know, we committed to hold our annual OpEx growth to 3% or less for this period and next. Our plans to achieve this include shifting our expense base in card and travel servicing to reflect customer preferences for online transactions and servicing and making appropriate reductions in non revenue generating areas of our expense base such as certain staff functions.
The actions associated with the restructuring charge we took in the Q4 last year have helped our expense performance in 2013. Now looking at our year over year growth, expenses through June were down 2% from 2012, well below our commitment of less than 3% growth. Our performance against our OpEx commitment allowed us to fund a high level of marketing and promotion expense as a percentage of our managed revenue. For the 2nd quarter, M and P was 9.5% of managed revenues, up from 7.9% in the Q1. We believe this level of investment is appropriate for supporting our growth plans across our range of new and existing businesses in both the U.
S. And around the world. Our adjusted expenses as a percentage of managed revenue ratio continues to come down from the historical highs of 20102011. Over time, we expect this ratio to migrate back towards historical levels in 2 ways: 1st, through top line revenue growth and second through expense flexibility, which includes our operating expense controls. Another contributor to shareholder value is our payout ratio.
As you know, our on average and over time target is to return 50% of the capital we generate to shareholders through dividends and share repurchases. But we also have the option of paying out more or less in any given year depending on conditions and Fed approval. Through our dividend payments and a $2,200,000,000 in share repurchases, we paid out 70% 97% respectively in the 1st and second quarters. This was well above our target, even as we maintained very strong capital ratios. These payments are evidence of our ability to generate capital in excess of what we need to support our business growth.
As you'll remember back in February, I took you through several short term P and L scenarios. These scenarios gave hypothetical examples of how we might be able to achieve EPS growth within our targeted range of 12% to 15%, even with revenue growth below our 8% target. The scenario showed that by varying our revenue expense and payout assumptions, there were several possible ways of generating good EPS growth. I thought it would be useful to show how our year to date results fit against the templates we shared at our February meeting. We start with the 4% revenue growth we generated through June.
We then add the positive benefit of our OpEx initiatives, which had us coming in much better than our commitment of less than 3% growth. Lowering our growth rate were M and P and rewards, which slightly outpaced revenues. We also focused on reducing our credit provision, which reduced our earnings growth given the lower level of reserve releases in 2013 versus 2012. Taxes were a net drag in our growth performance given our tax rate of 31% this year against a 29% rate last year, which benefited from some discrete tax items. The final major driver was share repurchases, which provided a 600 basis point lift to EPS.
In sum, this led to a 9% growth in EPS growth through the first half of the year, somewhat below our targeted range, but still more than double the rate of our revenue growth. Now tax rates can and do fluctuate each quarter. If our rate had held at its 2012 level, our adjusted EPS growth would have been 13%. The continuing slow growth environment will remain a challenge for revenues. But as you can see, we have shown we have the flexibility to drive appropriate bottom line performance for our shareholders.
So overall, you can see that we're tracking against our important commitments on expense control and payout ratios. These outcomes are of course very important for shareholder value and the actions we're taking here are critical to our longer term growth objectives. But also important to our value and long term potential is how we're driving our results. And 1st and foremost among our expense guidelines is that lowering our service levels or control and compliance standards is not acceptable. As Steve Squeri took you through at earlier meetings, our control and compliance investments will continue to be funded at appropriate levels.
This remains a top priority for the company and we expect that future expenses in this area will continue to be matched to regulatory expectations as well as our own goal of operating in a well controlled manner. The same holds true for service. As I've told you many times, service is a critical competitive advantage for us and a key element of our brand promise. While some companies may be willing to lower service standards for better financial outcomes, this is not an acceptable trade off in our playbook. We continue to improve our service performance and gain efficiencies, even as we've tightened overall OpEx.
For example, one important metric we look at is recommend to a friend, which measures card member satisfaction with the service provided by our customer care professionals. As you can see, since this was introduced in 2,009, we've generated steady gains in our results, a scenario that wouldn't be likely if our expense actions were impacting our service standards. Another relevant metric is customer retention. This slide shows the trend of card members who have left the franchise voluntarily since 2007. As you can see this metric has steadily declined over time, even as we raised our fees on certain products commensurate with the increased value we added.
Again, this would not likely be the case if our expense actions were lowering either our service standards or our customer value proposition. The final topic I want to mention related to the first half of the year are the recent proposals issued by the European Commission on interchange fees. The draft proposals were formally issued 2 weeks ago, but in
the run up to the
release, there was as you know a great deal of speculation on what was and wasn't covered as well as on which companies would be directly affected. Once we had a chance to look at the draft in detail, a number of statements we made in advance of the release were affirmed. Our merchant discount rate is not being regulated. Transactions in our proprietary businesses are not directly covered by the proposed pricing caps. Commercial payments are not directly covered by the proposed caps and the requirement to separate network processing functions would not apply to transactions in our proprietary business and most if not all transactions involving our issuing or merchant acquiring partners.
As a reminder, there are several governmental bodies and multiple reviews involved before these policies are finalized. The European Commission, which is the executive branch of the EU, will spend the next 6 months or so clarifying and refining the language. The European Parliament, whose membership consists of people from the EU's 28 states, will at the same time hold its own hearings and draft its own text between now and the end of the year or possibly later. The European Council, which consists of a cabinet level official from each of the 28 member states, will have its own working group creating its own proposals with a similar timetable. Early next year, these 3 institutions will come together to negotiate a joint compromise document.
If this timeline is met, each body will then revise and ratify the proposal, likely not before the Q2 of 2014. Now based on the current draft of some of the proposals, Some will become effective almost immediately after ratification, such as the pricing caps on cross border transactions in the EU, while the domestic pricing caps would take effect in 2016. Also any new rules on surcharging would likely take effect in 2016 or later as many EU states currently prohibit this practice and their individual laws would have to be changed. So as you can see, this is a lengthy process covering several government bodies. My colleagues and I will be actively engaged and appropriately engaged with policymakers throughout this time to ensure that our views are heard.
And I'm confident in our ability to manage through this situation because of the experience we have with regulatory change. Every country and circumstance is different, but whether it's Australia or Argentina, we found that while individual elements of our model may change our expertise, capabilities and relationships have allowed us to flexibly balance the needs of our card members, merchants and shareholders. It's a challenge to be sure, but it's one we've worked through before. While the global economic environment remains a challenge, we continue to have attractive growth opportunities over the short, moderate and long term. As has been the case for many years, our list of high return growth investments is longer than we can appropriately fund, which is a good problem to have.
Dan Schulman will be discussing his business opportunities in enterprise growth. So I thought I'd update you on some of the results and opportunities within our traditional payment businesses. So I believe the term traditional actually does a disservice to the innovative thinking that's underway across our organization. So let me start with our core investment card acquisition. Our card acquisition investments continue to become more productive each year as we successfully bring on high spending prospects across our charge, co brand and proprietary lending products.
For example, through June, the 1st year spending of new consumer and small business card members acquired globally is expected to be 10% higher than the card members brought on in 2012. This is now the 4th year in a row we've driven positive growth in this metric. The success of our acquisition efforts with premium customers is one driver of the continued high gap in average spend between us and other large issuers. On average, our U. S.
Proprietary card members spend more than 2.5 times that of our nearest competitor and our dollar increase from the prior year was the highest among this group. As you can see, our position is strong and has remained so, but we don't take it for granted. We innovate and enhance our value propositions while providing exceptional levels of service, so that we can continue to earn the business and loyalty of our card members and certainly our premium card members year in and year out. High spending customers are core to our franchise and we take any and all competitors very seriously. We've been a leader in the premium space for decades and we're not ceding this position.
While claims of progress are being made by other issuers, if these claims were true, we would see it in our billings numbers and we don't. Our average spend numbers remain very high relative to the others shown here. And as you saw in the 5 year billing slide I showed earlier, we had the largest increase to our volume base since 2,007, while some others have yet to recover. We continue to direct significant investment funds to premium cards and we continue to see good results. First, because we know this space well and we know the value and service that premium card members seek.
And second, because we're good at what we do. Our new card spending and high average spend are continued evidence of the success of the segmentation, risk and value proposition investments we've made over the last few years. Our modeling and data capabilities along with product enhancements that add value to specific customer segments have enabled us to be far better at finding the right high spending prospect and turning him or her into a new card member with the appropriate product. Card acquisition is one of our largest investment areas and is a result of innovative thinking across our marketing risk and service functions. It's a pool of funds that's become more efficient.
Another investment area for us is the expansion of premium lending. Even as we remain focused on our spend centric model, premium lending remains an important growth opportunity. And as you've heard me say before, the economics in this segment remains strong. Our focus has been and will be to pursue the opportunity within the context of our successful spend centric model and by building profitable relationships not chasing balances. As I showed you earlier, our investments over the last several years have successfully driven growth across our lending portfolio.
We've substantially outpaced the industry, while at the same time improving our risk profile. The first metric that supports this is loan tenure. In 2,008 approximately 25% of our loan balances were generated by card members who were in our franchise less than 2 years. Today that number has fallen to 11% with 89% of balances held by card members who've been with us for 2 years or more. Now we shared these results with you last year and they've remained consistent.
Higher tenure means we know these card members better. We know their payment and spending practices. Our portfolio is more seasoned. Higher tenure also means we're meeting the needs of these customers with our value proposition and they in turn have a stronger relationship with us. The tenure of our loans also shows that we have a relatively low mix of balanced shoppers, which is certainly a positive for our economics.
A second metric that shows the improvement in our portfolio is our mix of transactors versus revolvers. In 2008, 84% of our lending balances were comprised of revolvers, while today that number has fallen to 70%. We're able to keep transactors profitable because of our spend centric economics, which is far more difficult for other large card issuers. Another way of looking at this is the improved risk profile of our portfolio. And the way you do that is to look at principal payment rates since the financial crisis.
As you would expect, as consumers have delevered, all lenders have seen increases in these rates. 5 years ago, our rate was the highest of this group and that remains true today. But as you can see, our shift over this time has outpaced our peers. To me each of these metrics is evidence of the success of our lending investments. They're generating growth in both the number and quality of our premium lending relationships.
And they're bringing card members with very favorable characteristics into our franchise. We're committed to executing against our premium lending strategy and I believe we have both the products and the capabilities to profitably capture these opportunities. Our investment opportunities in the consumer segment have shown good returns, but the breadth of our product set also allows us to invest productively in the commercial segment, both large and small. The large and midsized corporate billings, we remain the leader and our growth continues to outpace our major peers even on our very large base. Our competitive product features, our analytic and reporting capabilities and the relationships we build through our sales and account management teams all contribute to our strong position with corporate customers.
Now T and E spending as you know is always the first to feel the impact from corporate expense cutbacks, which is why we've made targeted investments to expand the scope of our B2B billings. Over the last several years, our growth in B2B has been impressive, a trend that has carried into 2013. Our major investments have included expanding our merchant coverage in B2B categories, while also developing new analytics and reporting to help our clients better manage the spending. A focus on B2B helps in several ways: increasing the value we provide to corporate clients by expanding the types of spending we analyze, providing merchants with an efficient electronic payments process and reducing the volatility of our overall billings base during slower economic times. Within the U.
S, we also hold a leadership position in small business, which is another important area of investment. We've invested in the expansion of both our charge and lending products to good result. From 2010 to 2012, these investments helped drive a 13% compound annual growth rate in our U. S. Small business billings, a double digit trend that continued in the first half of the year.
Our small business growth has outpaced that of our overall billings, helped by investments in product features, targeted marketing and advertising and our successful shop small campaign. Outside of the U. S, small business also represents a sizable growth opportunity for both our proprietary and G and S businesses. In countries such as Japan, Canada and the U. K.
To name just a few, we're shifting our investment resources to focus more on the small business segment. For example, the shop small program currently underway in the U. K. In many countries, small business is an untapped underpenetrated segment. And certainly as I visit our market teams and discuss our growth potential, this opportunity is cited more and more.
Ed Gilligan took you through some of these investment results last year. And in many markets, our performance continues to be strong. As examples, small business billings continue to ramp up in the first half of the year in a number of countries, up 19% in France, 18% in Italy, 17% in Germany, 15% in Japan and 11% in the U. K. Another successful growth area has been global network services.
Over the last 13 years, G and S billings have generated a 24% compound annual growth rate bringing with them both a lower risk profile and a lower capital requirement. As you saw from yesterday's announcement, our G and S business here in the U. S. Got a major new issuer with the signing of Wells Fargo. We're very excited about having Wells as a partner for a number of reasons.
First, because they are one of the best run most respected financial institutions in the country. 2nd, they have exceptional marketing customer service capabilities, which when combined with our own strengths in this area makes for a very powerful partnership to expand their card business. And finally, given that 2 of the 3 founding partners of our company were Henry Wells and William Fargo. The partnership brings our companies full circle. We've both been around for over 160 years and we both prospered because of our ability to innovate, reinvent and adapt.
It's truly special to both companies that were once again partners. Our relationship with Wells has several components to it, the most significant of which is a card issuing agreement. Within this element of our partnership, we'll also provide Wells with our partner advantage capabilities and services in the areas of marketing, risk and product management to help them develop a compelling suite of products, which will run on the American Express network. Our agreement also includes edge solutions to assist in the design and support of their loyalty program. As I said, we're thrilled to have Wells join us as a partner.
They're joining a base of U. S. G and S partners that continue to represent sizable growth potential. Partners signed with us because of the clear value we provide as a network and as a result I expect you'll see further announcements from us before the end of the year. We also continue to actively sign partnerships outside of the U.
S. And as a result G and S has been a key driver of our international billings. Recent partnerships include Citi in Malaysia and Hong Kong, Shanghai Pudong Development Bank in China and Indus Indbank in India. These signings along with our existing partnerships are an effective way of making relatively faster inroads into high growth markets such as Korea and China. By taking advantage of our issuing partnerships, particularly in emerging markets, we're able to enter a country such as China with a relatively lower level of investment and with far lower risk.
For example, we don't have to invest $100,000,000 plus to establish and open a bank branch network. We don't incur credit risk in countries with limited reporting capabilities, such as central credit bureaus. And we don't commit capital that will need to be tied up for years, if not decades. We do earn lower revenue per dollar of billings compared to our proprietary business. But at the same time, we have far lower risk, marketing and operating expenses.
The low level of capital required by these partnerships yields a very high ROE. And all in, we believe the trade off is an appropriate one for our shareholders. Another major growth investment for us is the expansion of Loyalty Partner. Loyalty Partner is in the Coalition Rewards business and operates our payback program in 4 countries around the world. As you can see, we continue to make strong progress in adding customers, gaining almost 5,000,000 collectors since the end of the year.
When Ed Gilligan spoke at the same meeting a year ago, he told you we expected to be at 50,000,000 customers by August of 2013. And as you can see, we've exceeded that goal. Since we acquired Loyalty Partner in 2011, the combination of their assets and capabilities with our merchant base, partnership skills and marketing and segmentation expertise has allowed for accelerated growth performance. Even in our established German program, we continue to make progress and have just signed one of the largest supermarket chains in the country as a new partner. As we ramp up in our existing markets, we also expect to expand into other high potential countries beginning in early 2014.
So as you can see, there's a lot going on and we're showing strong results from our investments. Against the backdrop of a slow growth environment, I believe our combination of tight expense control and focused business building investments is the most effective way to generate shareholder value. We continue to have exceptional growth opportunities and I believe we have the assets, capabilities and talent to realize them. A number of our growth opportunities fall within Enterprise Growth, the business unit I established just over 3 years ago. Given all of the changes occurring across payments at the time, I wanted to make sure we had a leadership team focused on payment and service products that were outside of our core opportunities.
As I said earlier, Dan Schulman took you through the growth potential of his businesses at this meeting 2 years ago. Today, he'll share with you how that potential is coming to fruition.
Dan?
Thanks Ken and good afternoon everyone. As Ken mentioned, it's been almost 3 years since the formation of Enterprise Growth. And during the next 35 minutes, I'm going to discuss the lessons we've learned and some of our initial results. These lessons have shaped our mission. Simply put, we believe we have a transformative opportunity to broaden American Express' reach to new customers geographically, economically and demographically, and to truly transform the scope and scale of our business.
Enterprise Growth was created as a startup inside of American Express. Our original objectives were to drive transaction based revenue growth with an emphasis on our digital transformation. We were also tasked to look for opportunities to leverage the assets of Revolution Money, an alternative payments company that we had recently acquired. In the 1st 12 to 18 months, we had to build up almost everything, just like a startup. We had to create an organization with the right skill sets to compete in a digital environment, including hiring software developers, platform architects and user interface experts.
We needed to develop a robust software platform from which to launch our new products and services And we had to establish distribution partnerships and develop new business models. And I'm happy to say as we end year 3, we have put many of the necessary building blocks into place. Consequently, we can now see that although our general aspirations that are outlined on this slide here haven't changed, the scale and scope of our ambition certainly has. Most of us realize at least conceptually that a digital transformation is likely to sweep through the financial services industry. The real questions are exactly how will it redefine our product models and over what time period and who will be prepared to take advantage of that transformation.
3 years ago, there was a lot of talk about near field communication or NFC and the ability to tap to pay with your mobile phone. Many in the industry were predicting that NFC would change the face of commerce, advertising and consumer behavior overnight, the way the original iPhone did for the mobile phone industry. Clearly, a form factor evolution of some type is inevitable and data is going to play a leading role in redefining how commerce is conducted. But as Bill Gates observed, we have a tendency to overestimate how much things will change in the next 2 years and underestimate how much change will occur over the next 10 years. And I think digital payments and wallet certainly illustrate this point.
However, it would be a serious mistake to conclude that the growth of digital wallets will slow just because NFC is delayed. In many ways, we are entering into the era of the non bank, a time where consumers have all the power of a bank branch in the palm of their hand. Banks are going to need to reevaluate neighborhood storefronts. Digital wallets have become so much more than just tap to pay. They are morphing into full service money management tools and can function as an alternative to traditional bank branches and check cashers.
I believe digital laws are going to redefine the world of banking and will break down the barriers between traditional retail financial products. Today, customers can load cash directly into their digital wallet, pay their bills online, pay for goods online and offline, manage their budgets and loyalty rewards, write and cash checks and send peer to peer payments. And they can do this regardless of what technological standard emerges at the point of sale and without the need to go to a bank branch. This expansive definition of a digital wallet from tap to pay to a more convenient and less expensive way to manage and move money opened our eyes to the full extent of the opportunity in front of us, one that legitimately enables us to explore opportunities to reach billions of consumers across the globe. We clearly didn't get to this point of view in a straight line.
But today we've arrived at a very clear vision and mandate for what we believe is a transformative business opportunity, backed by the results we are seeing from our early product initiatives. The opportunity ahead of us has the potential to be a significant growth driver for American Express. Not only can better products redefine the industry, they can also create meaningful revenues and profits over the medium to long term. We see our mission as using emerging technologies to breathe life into the words financial inclusion for people across the world that are underserved today by traditional financial services. Technological advances in software platforms and mobility have opened up a unique opportunity for us to bring underserved customers from the margins of our financial system to the mainstream.
Our vision is to explode the paradigm that it's expensive to be poor. Ironically, the less money you have, the more it costs you to manage and move it. And that doesn't have to be true. We believe that managing and moving your money should be a right and not a privilege. Anyway you look at this opportunity, you can't help but realize how large it is.
We dimensionalize it in several ways. Early on, we size the opportunity as the traditional prepaid card, which in and of itself represents 425,000,000,000 of payment flows globally, growing at 20% per year since 2,009. But let me frame for you how we think about this now, starting with the word prepaid. No part of the payments industry has gone through more profound changes in recent years than the prepaid sector. New players are challenging the old model of high hidden fees and second class citizenship.
The old traditional prepaid product is starting to feel outdated and consumer preferences have started to crystallize our thinking about what prepaid will look like in its next iterations. We think of prepaid as a category and an enabler, not a product. The prepaid category positions us to provide a competitive alternative to checking, debit and other payment methods. If you think about it, checks and debit cards work on a prepaid basis. First, you hand a bank teller cash, checks or you deposit your payroll and then you swipe a debit card or write a check for your purchases or to pay your bills.
In the not too distant past, it was important to have bank branches to compete in checking or debit. It was how consumers deposited funds into their account. Today, the combination of software based applications, mobile phones and retail partnerships eliminates the need to physically go to a branch to make a deposit. We believe our serve software platform now enables American Express to compete for opportunities beyond traditional charge and credit cards. We're seeing the convergence of prepaid, checking, debit and cash into an evolving alternative to banking category where we currently have negligible presence.
Let me be clear, the $25,000,000,000,000 you see on this slide is only in theory what is addressable. But capturing even a small percentage of this opportunity represents a multibillion dollar revenue stream with what we believe to be attractive margins and profit potential. And later, I'm going to share a more detailed scenario that outlines how we think about financial opportunity. Another way to dimensionalize the opportunity is to look beyond product segmentation and focus on the unmet needs and pain points of consumers. Unfortunately, the traditional banking system is not easily accessible to large segments of the population.
In the U. S. Alone, there are nearly 70,000,000 people that are unbanked or underbanked and millions more that are unhappily banked. When we size this opportunity, we believe we can better serve nearly 100,000,000 people in the U. S.
With our capabilities and products. But defining these segments as the unbanked or underbanked is not a fair description. The reality is these are everyday Americans. It's not just the poor who make up the unbanked and the underbanked population. We characterize this population as the new middle class.
For example, we estimate that 15% of Bluebird customers have an average household income of over $100,000 Many of the new middle class have been scarred by the Great Recession. They define their financial objectives quite simply: spend wisely, avoid debt and save for the future, and they struggle to meet these goals. In fact, 45% of middle class households earning between $50,000 $150,000 per year spend all or more of their monthly earnings each month. Many don't have access to credit. Others simply don't have a bank branch in their neighborhood.
More than 1800 bank branches have closed in recent years. There are also a number of people who are simply frustrated by the hassles of the traditional banking system and hidden fees that seem to be constantly rising. So what does all this mean? The convergence of software platforms and increasing mobile phone penetration across the world provides a huge opportunity to reshape the management and movement of money and to bring better, more affordable services to those who need it most. You can see on this slide the various fees that people are charged for accessing their own hard earned money.
Tens of millions of people are relying on high cost, time consuming and out of date ways to get cash, pay their bills and manage their budgets. And it's extremely expensive. In 2011 in the U. S. Alone, the under bank spent $78,000,000,000 on fees and interest.
And you really need to experience using alternative financial services firsthand to understand just how inconvenient and time consuming the process is. I spent a day managing my financial life without a credit card or a checking account, and I found that doing things many of us take for granted, like paying bills, sending money to my daughter who's in college, cashing a check, was practically a part time job. Not only does it cost a lot of money, for example, I paid a 5% fee when I cashed a $20 money order, but the amount of time and effort to do so was substantial. But it obviously doesn't need to be this way. Technology can transform the entire experience of waiting in lines and paying high fees.
For example, with Blue Bird, I can use mobile check capture, snap a photo of a check within seconds and have it loaded onto my digital account for free. And with Serve, I've set up a sub account for my daughter and can transfer funds to her in seconds, which she can use almost immediately. What we've learned over the past year is that underserved customers want what all of us want. They want to keep their money safe to easily access cash, pay their everyday bills, save for the future and to be treated with respect. The bottom line is this, the current financial system is failing to meet the needs of millions upon millions of people.
And the fact is that American Express has a unique set of assets to address this emerging alternative financial services landscape. We believe great, simple to use intuitive technology can reinvent the prepaid category and is the key to changing this dynamic. In my experience, having a best in class software platform is the crucial differentiation in providing a competitive advantage to meet the needs of the underserved. Consequently, we've invested considerable time and resources in building out our serve software platform in order to deliver low cost alternatives, traditional banking, payment and commerce services. We've made immense strides in the past 3 years beginning with our acquisition of Revolution Money.
At that time, it was a platform with basic capabilities, but it was the foundation that clearly jump started our efforts. It operated on a separate network outside of American Express. It had a basic risk managed engine and an infrastructure primarily focused on enabling P2P transfers. But it was clearly not ready to support the scale of our ambitions, and so we went to work to build upon this framework. In 2011, we added additional risk management capabilities, expanded funding options to include cash loads at retail, deployed iOS and Android mobile apps and moved the serve platform to the American Express network, dramatically expanding our funds out capability to include all merchants who accept American Express.
And we launched our first product iteration, utilizing these platform capabilities called Serve, enabling us to get real time learnings from customers. In 2012, we incorporated that customer feedback and began to make significant strides in advancing our platform. We added multiple new ways to put funds on the platform such as direct deposit and remote check capture and more ways to move funds off including electronic bill pay. We completely redesigned our user interface. We substantially revamped our risk management and fraud processes.
And as a result, we were able to launch Bluebird with Walmart, taking full advantage of all of our new platform capabilities. And here we are in the middle of 2013 closing in on what I would characterize as a state of the art platform that provides almost all the features necessary to address financial inclusion. You can now fund your account in 15 different ways from loading a check into your account by mail to direct deposits. You can add cash onto your Bluebird account for no charge at all Walmart cashiers. And your funds are eligible for FDIC pass through insurance coverage.
We also added a number of ways to use the funds in your account. There are now 9 ways for a customer to move funds, including scheduled payments and preauthorized check writing. Our platform is cloud based. It works across multiple operating systems, devices and screen sizes. It addresses the realities of today's point of sale technology, but it's built to adapt to the standards of tomorrow, whether that be NFC, QR scanning or geofencing.
And it has an increasing set of APIs that will be extended to the development community and these APIs are currently being used by our joint venture partner in China. We believe the current iteration of our platform is a distinct competitive advantage. It has dramatically expanded our capabilities and our aspirations and it continues to get better. Our motto when it comes to our platform is faster, better, cheaper. We've moved from having major software releases every quarter to every month, allowing us to rapidly iterate and improve products, introduce new functionality and improve our platform performance.
Our website performance has improved with page loads dropping from 6 seconds to 2 seconds. Our point of sale and ATM authorization performance is now less than 2 seconds on average. And the processing of our direct deposit loads decreased to less than 15 minutes, which enabled customers to access their money earlier and reduce calls into customer care. Our current software platform built on top of the existing American Express infrastructure in combination with our partnerships with retailers provides us with what we believe to be a very significant cost advantage as we compete against traditional banks. In fact, we estimate that we have approximately a 2.5 times cost advantage over traditional checking accounts.
And by the end of 2013, we plan to leverage a unified set of features on our serve software platform for all of our prepaid products from our basic reloadable prepaid to our alternative to banking products. We designed our platform to reuse our software code so that we can turn select features on and off for different products, which provides a substantial reduction in development costs and speeds our time to market. While we are leveraging numerous American Express assets, including our brand and the values it stands for, our network, our merchant coverage and our compliance and risk resources to create both best in class capabilities and a low cost infrastructure. We're also beginning to drive benefit back into our core business. We've piloted a program to tap new prospects for our credit and charge products.
And as we attract millions of new customers into our franchise, we want to spend at local retailers. We've become increasingly relevant to smaller merchants. We're working with our merchant services team to look at Bluebird customer concentrations to sign up new merchants. While it's still very early days, we have solid and growing momentum. As our platform and capabilities have matured, our value proposition is strengthened, attracting both distribution partners and customers.
As of today, the customer base across enterprise growth is 5,000,000. That count reflects cumulative customer orders for all of our reloadable prepaid products and our partnerships with Vent Prive and Liane Liane. While customer acquisition is critical in gaining scale, engagement is also crucial. We want engaged customers and we're seeing that as both our serve and bluebird customers add more funds via direct deposit. We've seen these volumes climb as well as the volumes serve technology we licensed to Lian Liyan in China with more than 1,000,000,000 process were enabled through our platform in Q2 alone, an increase of over 4 25% compared to the same time last year.
Our entry into the alternative to banking category was our Bluebird launch and it is already emerged as a powerful alternative to debit and checking. In fact, just last week, Bluebird earned the number one spot in the new consumer reports ranking. We've made features like pre authorized check writing with no overdraft fees, mobile check capture, online bill pay and direct deposit within reach of everyone and without excessive fees, hassle or the need for a credit check. In March, we added even more features like FDIC pass through insurance, which means that permanent Bluebird accounts have an extra layer of security and it allows consumers to directly receive government payments like Social Security, military pay and tax refunds. Bluebird is striking a positive chord with consumers.
Including sub accounts, we now have over 1,000,000 accounts with more than $1,000,000,000 added onto the product. Given we launched Bluebird just 9 months ago, it's premature to share detailed financials, but I do want to provide some insight on how customers are engaging with the product. What's most encouraging is consumers are using the product for everyday needs, paying bills, writing pre authorized checks to pay their rent and medical expenses, withdrawing money at ATMs and doing everyday spending at a wide variety of merchants that accept American Express cards. And since we've launched, we've seen more and more customers adding funds through direct deposit, a clear indication that many customers are living their lives or their financial lives on Bloomberg. To date, adding funds through direct deposit represents 39% of total reload activity, which is up from 30% just a few months ago.
Direct deposit users projected annual funding volume is roughly equivalent to the average card member spend on our U. S. Consumer credit card products. 87% of Bluebird enrollees are new to American Express and nearly half 47% to be precise are under the age of 35. And as we scale, we are beginning to see our original assumptions around each economic driver come to life.
Bluebird is an attractive product for our franchise, offering low risk revenues and a lower expense and capital profile relative to our traditional products. Our cost per user are rapidly dropping as we scale. And when we look at our key revenue drivers, our assumption around usage per account is tracking to our original projections. Working with Walmart, we are just beginning a series of significant online and offline marketing initiatives, including a back to college marketing campaign and a trial launch of a store within a store experience, where customers will be able to visit Walmart to get real time help in setting up and using their Bluebird account. The acquisition and funding volumes we are seeing on Bluebird indicate there is strong demand for alternative payment services.
We built Bluebird on our serve software platform and we will seek to further leverage the platform when we relaunch American Express Serve in the next several months. We'll be adding a slew of new features and benefits as well as distribution partners to fully serve the unbanked and underbanked populations. We'll have much more to say about this and share with you in the next few months, so stay tuned. Today, we announced that we are creating a co branded American Express Serve product with ISIS, the joint venture comprised of AT and T, Verizon and T Mobile. This product will be available in every ISIS Mobile wallet and will allow us to introduce serve account features like direct deposit, online bill pay and peer to peer payments to the ISYS mobile wallet.
The combination of the capabilities of both the serve and ISIS platforms will enable millions of Americans to access low cost ways to move and manage their money, while enjoying the flexibility to make either online or offline purchases with an American Express ServeCard or tap to pay via NFC where available. We'll be rolling out this partnership later this year for the national launch of ISIS, in which the ISIS mobile wallet application will feature an integrated customer experience for both the ISYS and serve applications. We believe that the combination of our respective platforms and their capabilities can create a mobile wallet and a consumer experience that works for the reality of today's point of sale environment and the potential of tomorrow's. The opportunity outside of the U. S.
Is significantly larger and we are looking to pursue this with an aggressive international expansion plan. Our success with Walmart is leading us to investigate co branded retail opportunities around the world as a distribution channel for our alternative to banking platform. We are in a number of advanced discussions with leading retailers for launch in 2014. We also plan to leverage our payback initiatives across the world. This is obviously a natural opportunity to expand prepaid alternatives to banking to our payback collectors, many of which cannot qualify for our traditional credit products.
For example, Mexico is an attractive opportunity as we have strong brand awareness, good merchant coverage and millions of engaged collectors. We've been in China since early 2012 through our relationship with the Lian Lian Group, where we licensed the SERVE platform to help power their digital infrastructure. We believe that over the long term, this can become a meaningful opportunity for American Express as digital payments in China are growing exponentially. In China today, about 880,000,000 people add minutes to their prepaid mobile phone on a recurring basis. And because transactions in China are still predominantly cash, the bulk of prepaid customers have to rely on handing cash to agents who then add money to their mobile phone electronically.
Lianne Lianne has already signed up almost 250,000 agent locations who are now using the serve platform to power this transfer of cash to mobile minutes or bill pay. And in June, Lian Lian launched its first set of consumer wallet applications powered by our serve APIs. These capabilities allow Chinese consumers to redeem deals and offers seamlessly at merchants, pop up their mobile phones from their handsets, and in the near future enable online purchases. We're also in the early days of looking at new ways to leverage our platform to tap domestic payment opportunities in emerging markets like South Africa and Brazil. We plan to work through our GNS business partners or establish potential partnerships with mobile network operators and retailers to do so.
And finally, we are exploring an entry strategy into one segment of the cross border money transmittal sector. The U. S. Account to account remittance opportunity or the movement of money from 1 know your customer account to another is estimated to be about $70,000,000,000 On average, consumers send nearly $500 home to support their family between 10 to 12 times per year, and they're paying anywhere between 3% 15% in fees every time. This is a regular flow of money and we see an opportunity to make this experience faster, better and less expensive.
As you can tell, we believe there is a great deal of financial opportunity in delivering alternative to banking solutions for underserved consumers in the U. S. And around the world. The assets we now have in place provide us the capabilities to deliver products that offer a very competitive and differentiated value proposition compared to other alternative financial services. I think the best way to illustrate this is to walk through one potential scenario and this is not meant to represent our expected revenues nor is it a projection.
It's simply meant to show the potential opportunity that could lie ahead. As I shared earlier, the unbanked and underbanked populations alone account for nearly 70,000,000 people in the United States. We believe the addressable population is closer to 100,000,000 consumers when we include the unhappily banked or people who are looking to switch banks due to a move or a job change. Based on household data from the FDIC and expenditure data from the Bureau of Labor Statistics, we identified relevant household spending that alternative to banking solutions could capture. From this, we've estimated an addressable pool spend from our target segment of 1,400,000,000,000 If we assume a 10% share of the spend generated by just this population with a 2% revenue margin that alone would generate approximately $3,000,000,000 in annual revenues.
And if you look around the world, there are billions of unbanked and underbanked people that we believe can be better served. Every 1% share that we can capture of their spend, again assuming a 2% revenue margin, would generate approximately $500,000,000 in revenue. So you can see over the long term, depending on your assumptions around share capture, that this can be a very significant growth opportunity for American Express. When enterprise growth started in the fall of 2010, our overall remit was to look at new opportunities outside of our traditional card business. We knew that in order to accomplish that goal, we would have to build new technologies to enable us to be ready for digital transformation.
What we didn't know is that in striving to accomplish these goals, we would discover an opportunity to play a leading role and make a real difference in the lives of people around the world. What started as a digital transformation has evolved into something much more. This is now about meaningfully expanding the reach of American Express. Our aspiration to reach new customers isn't in the millions, it's in the tens and tens of millions. This is about redefining the business we're in and the scale we can achieve.
We're still in the early days of this journey, but it's an exciting, motivating and inspiring time for us. And we feel we are taking the right steps to be a leading player in the emerging alternative payments industry. We have the right assets across American Express to seize this opportunity. We now have in place a flexible and robust software platform that can build upon our strong relationships with customers, merchants, business partners, our 163 year old brand and our heritage of service. And I'd like to now introduce our Chief Marketing Officer, John Hayes, who will expand on how our efforts in enterprise growth can both leverage and strengthen the brand.
John?
Thank you, Dan. Real pleasure to be here today and to share with you how we manage the American Express brand. Now I'll touch on a little history, but my role is to talk about how we're evolving our brand for the future. Taking a brand into new segments can present obstacles and we're well aware of that. However, we know how to evolve our brand as we've pursued opportunities and reinvented our business.
In fact, our brand is an advantage and a crucial part of our strategy to reach new customers that might not be traditionally associated with American Express. As Dan discussed, we've identified segments where consumers are often not served or not served well by the banking sector. One of the reasons we feel strongly about this opportunity is because a brand that stands for trust, security and service is a tremendous asset in a world where trust, security and service have been in short supply. In recent times, American Express has been seen as a premium brand, but that doesn't mean its relevance is limited to a premium segment. During our 1st 4 decades as a freight forwarding business of the American frontier, the brand was synonymous with trust, security and service.
These same brand tenants paved the way to enter new businesses of issuing money orders and traveler's checks in 18/91. The brand became stronger and more relevant in the 20th century when we expanded the travel business, especially internationally. When we entered the card business in 1958, the brand quickly became identified as a leader in a new world of plastic payments. Because we were extending credit with early stage products, we focused largely on the T and E needs of the premium space and that served us well very well for many years. Throughout the 1990s, we expanded merchant coverage from the high end restaurants, hotels and airlines to everyday retailers, changing our business mix from 70% T and E and 30% everyday spend to more than 70% everyday spend.
And it didn't weaken our brand, but strengthened it. The brand evolved with the times servicing our customers in places where they wanted to be served and further increasing our brand's relevance, as did moving from pay in full charge cards exclusively to include credit cards, we launched Centurion and the blue card in the U. S. During the same year, different products with different customers. Blue made our brand more relevant for a newer younger segment, while Centurion solidified our leadership in the most affluent segment.
We also learned how well our brand could play with the right partners, issuing co brands with companies like Delta, Costco and Starwood. In 1987, we established our Global Network Services business, which now partners with 149 banks around the world and represents more than $100,000,000,000 of built business. The brand quickly gained relevance in nontraditional segments when we launched gift cards in 2002 and personal savings in 2,009. With each of these changes in our business, we increased our brand equity, carried it into new products, attracting new customers and making a strong brand even stronger and more relevant. And as the brand and business have moved forward, we continue to build on our brand tenants of trust, security and service.
Let's look at our brand performance, while all of those changes I just referenced were taking place. These charts show brand equity among customers using third party data from the research firm Brand Asset Valuator or BAV. BAV is the world's largest database of brand perceptions and measurements. Its data has been collected since 1993 over 20 years, 50,000 brands and 276 studies. It's one of the best ways to show the complete picture of our brand's performance.
Now this slide shows how we stack up against a universe of 10,000 brands from different industries as rated by American Express customers who know these brands over several years. The first ranking is stature, which is built around knowledge and esteem and reflects where a brand stands at a given point in time. The second is strength, which is built around differentiation and relevance and is an indicator of how the brand will perform in the future. Since 1993, we've managed to keep our brand equity scores in the high 90% range. Now that performance stands out for two reasons.
1st, the absolute level is among the highest of the brand's BAV tracks. Customers rate American Express in the top 1% or 2% of all the brands they know. 2nd is the level of consistency in these measures. Throughout all the changes I just mentioned, our scores have been consistently at the top. These steady results came at a time when we almost tripled our cards in force, adding tens of millions of new card members, many from outside our traditional base.
These results also came during a period of disruptive changes like the emergence of online commerce and spanned the worst recession since the 1930s. And we delivered these consistent results against a backdrop of an intense focus on the affluent space by many of our competitors. Yet our brand experienced no dilution. It remains strong and steady even while we grew the business and welcomed tens of millions of new customers. Now this next slide shows how we track on some key brand attributes.
The numbers are for U. S. Card members, but the global metrics would look very similar. While this BAV model has more than 70 attributes, we're highlighting the most relevant measures to us and our category: leadership, reliability, intelligence, prestige, distinctiveness, quality and innovation. And again, you can see the absolute levels are consistently high.
And while the scores trail off a bit for innovation, American Express is a leader in the industry. Next, we see how our scores stack up against the major issuers that we compete with in the U. S. The outlined areas are the composite scores of Chase, Capital One, Citi, Discover and Bank of America. You'll see that we come out ahead in every attribute.
And when you look at the attributes of prestige, distinctiveness and quality, the margin is quite dramatic. Now let's stay with a listing of the key attributes, but now look at the difference in how we track with prospects versus customers. The blue bars are American Express card members and the green bars are the general population in the U. S. The gap is noticeable and it's not new.
These numbers would have looked similar at most any point over the last 20 years. It makes sense that those who know us best, our card members, have the strongest connection to our brand. Those who don't know us need to be won over. Prospects recognize us for our leadership and prestige, both of which demonstrate the strength of the brand in the marketplace. But those who haven't worked with us don't know as well what makes us distinct, reliable and high quality.
These attributes need to be experienced firsthand. Now can we change the perceptions of prospects? Our answer is yes. And I say that with confidence because we've been doing just that successfully for the past 20 years. We've increased cards in force by converting tens of millions of prospects into customers.
We've done this by changing their perceptions from the standpoint of prospects to that of card members. That's why our brand scores have remained consistently high among our card members, while our cards in force have grown from $34,000,000 to $104,000,000 on a wide variety of products and with no dilution to our brand strength. Year over year, we have replicated that success. Now we know from our research that the interest among prospects that Dan described is clearly there. When you look at what attracts customers to serve, their perception of the American Express brand is a clear driver.
We asked CERV customers the reasons they signed up for an account. More than 60% rated the association with American Express as a reason for signing up for a serve account, a reason that actually rated higher than the no monthly fees feature. Another brand metric BAV uses is good value. Although I'm going to talk about Bluebird specifically, our focus on good value extends well beyond enterprise growth. It's part of the product design, the benefit features and digital initiatives we've been adding to our products consistently across the company.
Now regarding Bluebird, let's look at how it influences the perceptions of good value among prospects. Prospects with no knowledge of Bluebird scored us low. The scores also reflect a basic fact. Until recently, we haven't had products designed for the large segment that Dan spoke to earlier. Serve and Bluebird offerings give us the opportunity to win customers with distinctively high value products.
And our research insights indicate that these products are making a noticeable impact. When you ask the same question about good value to prospects who are familiar with Bluebird, the scores jump by more than 30 points. Our experience with Bluebird suggests that the pairing of American Express and Walmart was a strong positive. It's one of the reasons why so many people stood up
and took
notice. Prospects saw it as bringing together the convenience and value of Walmart with the trust, security and service of American Express. This powerful combination resulted in a collective lift for both brands. It allows us to take our business into new territory without compromising historical brand equity. While the appeal of the American Express brand was important for prospects, we wanted to be sure that by extending our franchise, we wouldn't be diminishing our brand strength among existing customers and we're not seeing any evidence of that.
In fact, early indications show just the opposite. Here's how Bluebird influences the perception of good value among our existing customers. First, the response from card members with no knowledge of Bluebird. Next, card members who are familiar with the product. The jump is every bit as large as it was among prospects.
Not only is Bluebird contributing to brand equity, but it's also increasing perceptions of good value for both card members and prospects. Now I want to stay with the Bluebird theme, but approach it from another perspective. This data set shows key attributes that make up cardmember perceptions of our brand: relevance, respect, customer service, acceptance, value, innovation and a handful of others. These attributes are similar to the BAV data that I just went through, but they vary slightly as we're looking at a different research study. The chart is plotted so that the further away from the center, the higher and better the score.
Now this light circle is what existing card members who don't know Bluebird think of our brand. For each attribute in both absolute and relative terms, the rankings are very good. Now this darker outer circle is what card members who do know Bluebird think of our brand. So what you see is that on key attributes there's either an overlap or a positive difference on scores. Card members who know about Bluebird think just as highly of our brand.
There's no dilution. And actually with the darker outer circle, you can see that Bluebird drove measurable improvement in a few key areas like relevance, service, innovation and respect. Some questioned whether our brand would be relevant to the unbanked and unhappily banked. Others were concerned about whether appealing to this segment would dilute perceptions among existing customers. So far on both counts, the opposite has been true.
So how is a premium well known and historic brand like American Express able to be so relevant to new segments and help drive our business forward. 1st, we understand our brand's core values and we're very careful not to compromise them. We operate on the principle that everything we do as a business must enhance the brand. Our job is to make deposits in the brand bank, not withdrawals. 2nd, as we're seeing with Serve and Bluebird, our brand is even more relevant in a digital and social world.
Trust, security and service are tremendous assets in an economy that increasingly revolves around protecting financial data and personal information. This is true among our existing customers, but it's especially true for the underserved and unhappily banked. 3rd, when we put our brand into new segments, it evolves and updates. Its values and history are refreshed. It's our ability to take on new meaning in people's lives that makes our brand enduring.
We're very encouraged by what we're seeing, but that doesn't mean we aren't managing our brand very carefully every step of the way. We have clear brand management principles: clarity, commitment, protection and responsiveness. We're constantly monitoring our brand and listening to a marketplace on a daily basis and using numerous tools. BAV is only one of the many tools we use. Our multidimensional approach tracks perceptions, our positioning relative to our competitors and any changes over time.
And we're listening constantly through social media, buzz metrics, our brand health tracker, net promoter scores and literally tens of thousands of interviews a year with card members and prospects around the world. The fact is our brand is incredibly strong. And we're confident that our brand will stay strong and grow stronger as we move forward because what our customers know and prospects learn is that our brand isn't fleeting. We stand for timeless values and have real meaning in people's everyday lives. Now more than ever people want products and companies especially in financial services that stand for trust, security and service.
The brand is a tremendous asset in all the work that Dan is doing in enterprise growth and we will ensure that same work is going to be a tremendous asset for our brand. Thanks.
Thanks, John. We're now going to start Q and A and we're going to have the unusual combination of 2 CFOs. And let me just say to all of you, this is Dan Henry's last financial community meeting. He was CFO of the company as you know for 6 years and has been with American Express for 23 years. And I will just tell you he has done an absolutely terrific job for this company.
As we navigated through the financial crisis, Dan was not only steady as a rock, but he was very innovative, never lost his cool and I give him a lot of credit for our success in navigating through. So Dan, thank you for 23 years and do well on the Q and A. Yes. Right back and then we'll wait.
Thanks. As the growth in billings from some of these new areas come new clients in enterprise, would you expect the compression of the discount rate, which has been sort of in the 2 to 4 basis point range, would you expect that to accelerate? And just broadly, how do you think about sort of balancing the desire to grow volumes against the potential compression in the discount fee?
I think what's important and I'll obviously have Ed and Dan comment. The reality is, Brad, we have developed a set of products that appeal to different customer segments. Our prepaid rate is very competitive and it's offering you heard some of the numbers that Dan went through of the spending that's generated on that product is quite attractive. What we're doing on our existing card business is we've developed some terrific value propositions that are providing tremendous value to our merchants. So it's a balance.
And what's important I think as we go through, you might recall when we launched GNS, there were the same set of concerns of well, if you're going to be offering this product, are you going to be able to maintain the discount rate? The reality is that it has been more of a mix issue as we have shifted to everyday spend from T and E and gone into broader categories. I want to be clear, we want to be relevant, but we think we can generate appropriate economics by being relevant, but that means that we have to
have the right economics
for each type of product that we're offering the consumer and merchant. So let me just have you, Dan, comment and then Ed give some comments.
Yes. I think the movement in our discount rate is very much driven by the strategy that we wanted to achieve. I mean, John mentioned that we shifted from 70% T and E and 30% non T and E to the office of today. So that whole change in discount rate is driven by a strategy that we're executing against well. And each of our products, as Ken said, have good economics, which is the prime thing
that we want to achieve.
Dan, too, and then I have.
I'm with 2 Dans on the panel. So I think the key points that I'd stress is we are seeing new customers come into the franchise. As I mentioned in the presentation, 87% of the Bluebird customers coming in are new. We've never had them in our franchise before. And as I also mentioned, you take a look at all those customers that come in and there are also prospect pools for our charge and credit moving up.
Second thing that I think is very important and benefits both our emerging businesses and our core business is that as we get millions and millions and millions of more customers coming in that are more and more relevant to merchants across the landscape, right, smaller merchants that we may not have the penetration we have today, our coverage and our relevance should increase. And that helps our core business as well. The more places you can spend, the better off that is for us. And so we're seeing this really be a benefit in terms of our merchant services, in terms of their ability to go out, have more coverage and importantly more relevance as well. So you have new prospects coming in on the consumer side, an increase in merchants as well And that we believe can be a real winning formula for us.
So, I mean, all I would add is that, if you look backwards from today, 10 years, we've done a very good job of managing our discount rate. You have seen over time a slight downward trend and I would argue that's the sign of our strategies being successful, capturing more everyday spend and getting more volume outside the U. S. In higher growth markets that tend to have a lower discount rate. If you continue to see this slow decline going forward, I would still suggest that that is a measure of our success that we're getting more volume in everyday spend categories, whether it's coming from prepaid cards, credit cards, charge cards, and we're going to get more volume from outside the U.
S. And high growth markets. So I would say it's a very good metric to track and one that we hope we achieve.
Yes. I would just add one other point that I think where companies go wrong when they diversify And
so
if you go And so if you go back frankly to the problems this company had in the late '90s, they took that charge card and they stretched it and they stretched it. What we've done is really come out with a range of products that are segmented to meet both the value proposition needs with the appropriate economics against each segment for both the consumer and the merchant. And so that is a very important basis of our strategy.
And we'll go to the middle.
Yes, right here. Thank you. I got a couple of questions. One is, I'm sure you guys are aware of the district court's ruling against the Fed's interpretation of Durbin. I was just wondering if debit interchange rates take a step function down again.
Is there an opportunity for American Express to work with issuers either on the prepaid side or using the 3 party exemption? And I guess secondly, on the EC proposals, understanding it doesn't affect your proprietary business, I was just wondering how it affects the growth trajectory of the GNS business and how important GNS was to the growth story in that region?
So let's to go first, let me have Ed cover GNS and actually you can cover the other issue also and then we'll have Louise talk a little bit the legal issue. Obviously, Durbin doesn't affect us because we're not in the debit business, but we can talk about some of that. So Ed why don't you talk about GNS? So we're hopeful that we have good opportunities to grow our GNS business
in the U. S. As you've just seen with Wells Fargo and outside the world including Europe. We offer a good range of premium products. We have very good partnerships with the select banks we work with.
And generally, you have a situation like Wells Fargo where they want to accelerate their growth of the credit business, they value our brand, it fits into their strategy, complements them and we're giving them a range of value added services to help them succeed. Whether Durbin Impacts, however that plays out with debit is really not on our radar screen because that's not our business, but offering a range of value added products to banks and capture a higher share of their spend in our network is absolutely our strategy. In Europe, certainly there is going to be some impact on our business. What we've learned in other places around the world is to keep our eyes open, to look at the risks, to have time to mitigate those risks. But in every situation of change, of regulatory change and others, there is always opportunities.
There's opportunities to redefine our business and find new pockets of growth because we do have a unique business model of issuing acquiring a network. We are a 3 party system, but we do have issuers. Some parts are impacted directly, some may be indirectly. But the net of this, we feel that we're experienced and we are looking as much for the opportunities as we are to decide how we mitigate the risk. Louise?
And on the Fed interchange issue, I would say it's still early days. As you probably know, there's going to be a hearing in a couple of weeks to see whether or not there's going to be a stay. We still have to determine whether or not the Fed is going to appeal. We still have to see whether after the appeal there will be a new rulemaking and what the ultimate interchange rate will be. So I'd say we're watching all of this very carefully, but it's going to play out over a period of months or maybe even years before we actually understand the full impact of the ruling.
So we're watching carefully, but we do have time to assess exactly what happens after
this.
Obviously, to state the obvious, it does not just have an impact on debit for the banks, but back to the whole issue of retail banking, pricing flexibility, how that's going to be managed. I think it's far more reaching potentially than just debit. I think it's going to cover retail banking.
Yes? Regarding the Wells Fargo announcement, I remember back in time the Citi and MB and A I'm sorry Citi and BofA announcements and it's arguable that they have not been the partners you were hoping for in USG and S. Wells clearly seems more excited. What's changed? What's new?
Is this an indictment against Visa's ability to provide direct merchant relationships to Wells that Amex can fill now with regard to loyalty and whatnot?
I'll comment briefly and Ed can comment. The reality is I think the reason why Wells is interested in partnering with us is power of the brand, the partner power of the brand, the partner advantage services that we've talked about, the marketing, the risk management, I think they see real value in that. I also believe with BofA, I think we have a good partnership with them. I think that's moving. Citi, I think that's a positive partnership.
So I think at the end of the day, what we're seeing is banks really are looking for ways that they can generate growth. When through the industry growth rates are not terrific. So I think what you are seeing is they want to affiliate with both a company that has a set of capabilities and a brand that is making progress in the marketplace and is moving forward. So Wells did it because they want to grow their business. You'd have to ask them relative to how they feel about Visa or not.
They're still a major issuer of Visa. But the reality is they see obviously a very strong opportunity to grow with us.
I would just add I would characterize it as an endorsement of our capabilities as a network player in the U. S. And around the world where you have a situation like Wells, which has called out in the past year or so that they the one part of their business they want to do better on in the U. S. Is the credit card business.
And they assessed all their options and they went through a very thorough process to look at all their options. And luckily, we were able to find a way in there to make our case and to be a partner of theirs, where we're not just providing our network so they can issue cards. As they said in their own announcement and as Ken mentioned today, there are other assets that we've created that really come from our core business that we now make in network assets. It could be consulting on risk, consulting on marketing using our rewards platform, LoyaltyEdge, which is managed in enterprise growth, which came out of our membership rewards experience. We've created these network assets because we do have issuing expertise and we're making them available to select partners who we believe will manage our brand effectively and who want to use our brand to improve the quality of their value that they offer to their customers.
And I think in Wells, we found a very good partner. Yes.
Right here and then we'll go.
Thank you. This is a question probably directed at Dan Shulman. The question was, you talked about a relaunch of the Serv platform. And the question I had is, if I'm understanding it correctly, loading physical cash onto a Serv card currently is done through MoneyPak. Is part of the change to the Serv platform also going to involve a change to the way cash physical cash can be loaded onto the serve platform given that a big part of the demographic does use physical cash, doesn't have bank accounts?
That was my first question. I do have a quick follow-up, if that's okay.
So we are looking across the entire serve product construct and the platform that it's built upon and looking at each and every one of the feature functionality that we have and how can we bundle all that together in combination with distribution partners as well to go after the unbanked and underbanked populations very aggressively. We're looking at the entire value proposition across that, including how might people load and what form might that take. But until we announce, we'll save the specifics until then.
Thank you. And then on a different note, Ken, you talked about T and E spending earlier and alluded to some of the pressures there. But when you look at what's happened post Q2 and if you look at what's going on more broadly with the economy, the housing prices, unemployment data? Is your view as we look at the next 6 to 12 months that maybe there should be a pickup in T and E spending not only on the corporate side, but also on the consumer side? Do you have any perspective on that?
I'm not really
going to project where the spending is going to be. The reality is there are a lot of puts and takes on the economy and where the growth is. And I'll just leave it how we have performed in the first half of the year. We believe we've got a set of value propositions that will allow us to grow, but I'm not going to project what the billings will be in the second half of the year.
Yes. Can you give an update on how
much of a challenge acceptance has been with the for the Bluebird customer at the relevant merchants where they shop? And then also, could you talk about how aggressively you're focusing on closing the acceptance gap? And maybe you touched a little bit upon not just the tremendous U. S. Opportunity, but internationally.
It seems like perhaps a little bit of color on the acceptance issue internationally as well.
So I think what we'll do is, Ant, why don't you cover a little bit just from a Bluebird standpoint and then Ed, Anre, you may want to cover how we're doing overall.
As I mentioned, first thing is we're seeing great growth in Bluebird and the amount of funds putting being put on that. So obviously, we're having good reception back from consumers in terms of acceptance levels. But what we are finding with Bluebird is people are living their financial lives on that product. And hence they're doing everyday spend across a whole wide variety of different activities. We introduced this pre authorized check writing and we're seeing people writing things like for rent and their medical expenses where they don't take plastic at all.
So people are really using the platform, loading it with their payroll and then using it as an alternative to checking and debit. So the first thing is we've got great acceptance and we've always had great acceptance. But now what we're seeing is there are concentrations that we're beginning to see because the population of Bluebird serve prepaid customers is growing as you saw on the chart that we're now able to leverage in certain geographic areas and we do an overlap as to coverage to concentrations to see where might we start to use that to leverage our ability to sign up new merchants. So that's been actually quite helpful for us as we think about this. So one, great coverage, and we've always had great coverage.
We're expanding it dramatically and Anre is working on that and we'll probably expand on that. But 2, we're now taking the combination of what we're able to bring and what Anre is able to do and marry that together.
Well, for
the coverage, clearly we want to get more merchants to accept the American Express card. I think we're comfortable where we are today because last year we had $888,000,000,000 of billings on our global merchant network and we've been growing well. We've done well in the U. S. We've done well in most of the large markets outside the U.
S. But we're never satisfied that we have enough merchants to accept the card and we know particularly outside the U. S. We have to do better. The gap that we have tends to be with small merchants.
And with large merchants in most places of the world, we have a very strong value proposition. We have channels to get to them. And it's a matter of the right construct to convince a merchant who hasn't accepted to come on board. And our merchant services team continues to do an excellent job. We continue to try different constructs to bring large numbers of small merchants on.
We have a program called One Point in the U. S. And we have versions of that outside the U. S. And country by country, we are making progress and we can call out deals we've done with La Caixa in Spain as an acquirer who's also a GNS issuer that worked well for us.
We can talk about Japan 8 years ago doing a deal with JCB that got us parity coverage in Japan. We now have parity coverage in Brazil because we did a new deal with Cielo, the Visa acquirer in Brazil. And that's just happened in the last year or 2. So each country is different. There isn't really pan European or global merchant acquirer.
Most of these are country by country, bank by bank. We have to come up with constructs to accelerate coverage. Anre Williams is our President of Global Merchant Services. I'll ask Anre to add to that.
Sure. A couple of things I would say. Just to echo the point that John Hayes made earlier, over the past 10 years, we have had a dramatic increase in the number of places American Express has accepted, both in the U. S. And internationally.
But we still recognize that there are card member demands and demands of issuers that would like to see acceptance more broadly. The place that we're focusing on most aggressively around the world is with small merchants. These are merchants that do less than say $1,000,000 a year in spending on credit cards period. And that's a focus area for us. And I would just say stay tuned because we do believe we're going to make inroads not just in the U.
S. But in a few other markets outside I mean, Europe most likely. Thank you. The only outside around Europe most likely? Thank you.
The only point
I would make with respect to
our cards overall and with prepaid is as you know this is the classic chicken and egg situation. You need more cards to get more merchants. You need more merchants to get more cards. We're in the early stages of Bluebird, but we are really encouraged by what we're seeing, which gives us confidence that we're going to be able to increase the relevance. Point I would make is with small merchants, the issue has really not been price.
It has been do I see this product. And so the relevance issue is very, very important and the scale issue is very important. 2nd point I would make is relative to scale and relevance is given what has happened in this convergence of online and offline, the definition of scale has been redefined. So you can't just look at the scale from a payment standpoint. It's what how are we getting involved in retail financial services more broadly by providing basic financial services.
And the ability in fact, if we think about the Bluebird customers and the prepaid customers, we're bringing a number of customers onto the Internet who in fact could not do commerce because they didn't have a product. So you've got to think about this effort on multi levels. This is not just a simple extension of a product. We're actually getting into a new area for the company that fortunately will reinforce a number of the attributes in our existing businesses.
Yes.
And I'll come over here. Hey, thanks. Just a follow-up on the Wells Fargo partnership. I guess given all the services that you guys are providing
with them, can you give us
a sense of if the economics differ significantly from this relative to, I guess, you could say a traditional G and S relationship? And then, Ken, given your comments around further announcements before by the end of the year along with the comments around that there'll be some impact in the G and S business related to the European Commission, should we expect the strategic focus of future growth to shift regionally maybe more back to the U. S. Or into parts of Latin America or Japan? I'll answer part of it and have Ed talk a little bit about Wells Fargo.
I would say number 1 is we think G and S continues to be a terrific opportunity on a global basis. And so we're going to be focused on growing G and S internationally where we think we have very attractive opportunities and we continue to believe we have attractive opportunities in the U. S. I mean that's our view. This is a business that we built from scratch.
We had a lot of skeptics that we would be able to do it and we've done it and we think it has continued growth and we're very positive about it. We can't talk
about the economics of Wells Fargo, but I can say we built a very good case, which they've accepted that the issue cards with a number of value added services wrapped around that that our success is kind of tied to theirs. We'll only be successful if they are and vice versa. And I would to that last point building on Ken's. When you look over the next 5 years and you look at payments business and you look at credit card spending in particular and just look at different estimates like from Euromonitor and McKinsey of where the growth is, you see that to no surprise there's a lot of markets that are growing 10% plus projected of credit card spending. So we all know about bricks, but add Korea, Turkey, Indonesia, Malaysia, a number of markets like that, that are going to be growing faster, most likely than the developed world in this industry.
Many of those markets are network markets for American Express, where we have a good footprint today from issuing and acquiring, but we know we can do more by adding more value and capturing a higher share of those partners spending. And if we are successful, you would see our network business continuing to be a very good growth opportunity for us regardless of what's happening in Europe because there's so many other parts of our business in addition to our European network business that we feel very good about. And I do believe we'll feel pressure in Europe as every major player in payments will, But I also think we have a lot of flexibility and we'll be able to adapt and we have a lot of experience to understand where we're at risk and where their opportunities are. And I think as this unfolds, we feel we will be able to navigate successfully here and I do believe our network business will continue to be a very good growth opportunity for us.
And while we can't talk about the specifics of Wells, I don't believe in doing lost leaders. I believe in doing deals where the economics are attractive. And so that's the same principle that we followed with Wells. This is not a situation, won't mention companies that have done deals because they wanted to make a statement to get into an area as a loss leader. That's not the way we operate.
Okay.
Question, Durbin related in a way. Just if you step back and you look at around the world, the state of regulation in the credit card and interchange in particular. It seems to be increasing the EU proposals, obviously good news for you that you're carved out. But how much of a risk today is the just the resolve of the merchants to lower these fees, debit cards being taken care of in the U. S, credit cards doesn't look like it's going to be next a political standpoint, but they did negotiate surcharging in the litigation settlement.
I know your business model is different in a lot of different ways, but how much is surcharging and the potential for discounting with debit cards being so inexpensive under the regulated form? And also the steering case that you the DOJ, I think there was an update in the 10 Q, there's you're moving to settle some of those claims. Just give us an update on where you think we are in the U. S. When it comes to the merchant resolve and reducing the credit card side of the acceptance costs?
Well, let's talk about this at 2 or 3 different levels. And I'll make some comments. I think Louise can make some comments from Ed can make some comments. The reality is everyone wants the lowest price. So it's not just merchants that's life.
The reality is I think what we've demonstrated is number 1 that no merchant we don't have the market power to in fact drive any merchant to accept this unlike Visa and Mastercard, right? So that is a fundamental difference that is key. The whole issue of the EU proposals was really based on Visa's anti competitive behavior. So we are not the dominant player. We don't have that market power.
What we've got to do every day is demonstrate our value. Now what we have demonstrated is that we have a lot of value that we provide to merchants and we provide to our customers. What we've also demonstrated is that we have a flexible business model that has allowed us to deal with a number of regulatory issues, because of the diversity of our business model. And I think that's very important. So there are clearly I can't project what will happen in the future.
What I do believe though is that as long as we stay focused on really leveraging the flexibility of our model and we demonstrate that we're providing value to merchants and card members and we're innovating as we have been doing over the last several years with an increase in competition, with an increase in regulation. I think we're going to continue to perform well. So let Ed, why don't you comment a little bit more on the business and then I think Louise it would be useful to talk a little bit about
the legal. So we think
a lot about this issue and the merchant landscape. And American Express is committed to not just drive the Net Promoter Score of our card members, but also the Net Promoter Score of our merchants who accept the card. That's probably not something you're going to hear from Visa or Mastercard or merchant acquirers in the U. S. Or around the world, that their mission is to help merchants grow their business and be successful.
But that is part of our value proposition as an issuer, acquirer and a network. So a lot of this is, as Ken said, in reaction to Visa and Mastercard, particularly in the U. S. Over the last 10 years increasing interchange, putting a lot more price points in there by product and merchants being confused, not feeling total price of acceptance of interchange, acquiring fee, network fee. It's gotten complex and it's risen over the years and merchants feel they can't negotiate and it's dictated to them which suggests that there is market power at play here without Visa and Mastercard operate.
In Europe, Mastercard had been aggressive in the last year or 2 putting in that same kind of tiered interchange structure with premium products And that's really what's at the crux of this. And Visa and Mastercard have been under investigation in Europe for upwards of a decade. But it's when Mastercard started implementing these price increases and merchants have no outlet, this is what you get. We are committed to merchant value. We talk about it.
You hear it in all our discussions when we say how we're going to grow. We're going to grow by helping merchants successful. Out of that frame of mind came programs in the U. S. Like Small Business Saturday, trying to get people to rally to support small merchants that's now rolling out in the U.
K, in South Africa, in Australia, in Israel. When you see merchant financing, when you see all the digital marketing we're doing, where we're taking offers from merchants who come to us and we're putting them on Facebook and Foursquare and Twitter and Xbox and in our mobile app, it's integral to our business model that we're going to add value to merchants and we're going to help them grow their business. And the discussion with American Express, when it all goes well, is not about the cost of acceptance, it's about what we can do to help their business succeed. We have a long way to go on this journey, but that is critical to our business model. And that's one of the reasons why when you hear all the noise, it's really the reaction to Visa and Mastercard's market power.
That does impact us indirectly and we have to adjust. We tend to have more options and we tend to have more time to adjust and we tend to find opportunities, which we have done successfully in a number of places around the world.
I would also just reinforce the point that if you look at what the EU did, it is directly and explicitly in response to what they perceive to be the Visa, Mastercard duopoly in the EU. And that is the starting point. I would also say that as Ken did and as others did that power. We do not have market power in any jurisdiction. We negotiate with our merchants all the time.
We have bilateral agreements. We have to demonstrate our value every single day. So I think the reason you don't see a potential pickup on this trend in the U. S. Is because what's also clear is that it's not I should say it's not clear that this regulation of merchant interchange has actually translated into lower consumer prices and direct benefit for consumers in any jurisdiction that is where it's been implemented.
There's been great debate about whether any consumer has benefited in fact in Australia from the merchant regulation that's there. So what I would also say on the litigation front frankly is that what you saw in our filing was the impact of the Supreme Court decision. So the Supreme Court recently upheld the validity of our merchant arbitration clause. And as a consequence of that, one case was essentially withdrawn and in another case we filed a motion to compel arbitration. So you're seeing the ripple effect of that favorable Supreme Court decision in the outstanding litigation that we have.
At this point
though? The steering case is the one where we actually filed a motion to compel arbitration.
Okay. Thank you for that. I guess my fear is not that I know you don't have market power and I totally agree that you're a different model and add a lot of value. My fear is that more that as the merchants look to reduce Visa and Mastercard's credit card fees, which they can't really control, they turn to alternatives like surcharging and you guys get caught up in it. But that's a topic for another day.
I have a separate question for Dan Shrillman.
And I
would say also the reality is that you have a number of jurisdictions, governments and countries that have outlawed surcharging. It is not consumer friendly. My personal view is we're not going to see a wave of it around the world because it just inherently is not friendly to consumers.
The second question for Dan Schulman on Bluebird. Just if you could give us any color on the 1,000,000 plus accounts, that seems like a pretty good number. I haven't really seen a whole lot of advertising. Like how do you position this to the consumer? Is it mostly through Walmart at this point?
Are they do consumers know what it is when they walk by it? And how do they deal with that brand perception that you noted earlier that they may not see value until they actually pick up the box? And also if you just comment on serve offers and where that's going to is that going to be relaunched with the new serve product? Thanks.
On the Bluebird side, initially, it really was through the PR and the placement in Walmart. We still have great placement and in fact growing placement in Walmart through a number of different areas. It really is a terrific partnership between our 2 firms. What we really both of us wanted to do was add feature functionality to the product like FDIC pass through insurance, preauthorized check writing. We truly wanted to make this an alternative to checking and debit.
And then once those products were complete, then we would start to push a little bit harder into the marketplace. And as I mentioned in my talk, we are now beginning a series of both online and offline campaigns to talk to consumers about the value proposition of Walmart. We just saw consumer reports come out and rank Bluebird number 1 in their recent rankings. So we've got a tremendous amount of both good buzz and PR around it And now we're and we've got a product that we're quite proud of at this moment, validated by external sources, and now we're beginning to put a degree of marketing behind it. Oh, yes, I'm sorry, on the offer side.
So just like we did when we launched Serve initially, which I characterized then as Serve Version 1.0, We launched offers to get a sense and a flavor for what was our UI like, what was our sourcing of offers like, what was the customer proposition. We learned a tremendous amount from those efforts. And so we're taking all of those efforts into our learning and we'll come out with something new and different in the future. That's really all I want to say about it now.
Yes. Yes. Sorry, I've got another question for you on the interchange topic. Understanding that the EU proposals don't impact your proprietary business, would you expect the dynamic there to unfold in the same way it did in Australia where just the lower interchange rates in general pressure your rates? And then on a secondary question, is there an absolute level or minimum level of discount that you need to deliver the service and the rewards to maintain product differentiation?
I think the reality is
the
what happens in a particular country or circumstance is going to vary. So it's not to me particularly helpful to say what happened in Australia is going to happen in Europe. Who the heck knows when in fact we don't even know what the final outcome of these proposals is going to be. What we can say is as I said in Australia or Argentina, what we have been able to demonstrate is that because of our flexible model, we have been able to manage through and navigate through that over time. And my view is because of that flexibility in our model that we'll be able to do that.
There obviously is a point we can't operate the business for free. We want merchants to have to pay a fee because we provide the value to do that. But from what we have experienced thus far, we have, I think, amply demonstrated that we've been able to manage through again, I go back 15 years at a meeting like this and people saying your discount rate is going to just drop precipitously because what is because of what's going on. And the fact that we have had 2 or 3 points per year is a real demonstration of the value that we're providing and that is representative of the mix change that we've had from T and E to everyday spend. So I think the point is we have managed through a lot of different regulatory environments over the last 10 years.
But to focus on a single country and then extrapolate and say this is what's going to happen in this country, I don't really think is constructive. What I think is most constructive is we've managed through a range of environments. Yes, over here and then I'll come back. Yes. All the way in the back.
Yes. Microphone over there please.
When you look at your operating expense to income ratio, is that a fair bogey to use because an increasing percent of your business is being processed online versus offline. Now I understand that D and S has been spending a fair amount of money, but at some point his crossover points going to
can you hear me? I'm sorry. He'd like more.
But at some point his crossover point is going to come to an opening so to speak. So I guess the question is that is the low 60% number, is that the right bogey that we should look at? Shouldn't the bogey be lower? Because from a technology standpoint, my sense is that online spending per unit is much cheaper than offline.
I think the point I'd make and I'd let Dan or Jeff handle this is I've got options.
You can compare answers.
Yes. I think what's most important is the progress that we're making overall. Again, the reality is there were questions out there. Would we be able to in fact move as aggressively as we had as we have on OpEx. I think we've demonstrated that.
I think we've also acknowledged that we're getting a lot of efficiencies of moving online. That's also increasing the investment capacity that we have. And I see that as a real positive and a good balance.
We should be going back to historical levels in terms of the adjusted expense to revenue ratio. And as Ken said, we've been delivering against that. And we'll adjust as the marketplace evolves. Our main focus is always to have innovative products that are in the marketplace that enable us to attract new customers and retain the ones that we have. At any point in time, we do an allocation between investments that give us a near term benefit, like we actually acquire a new merchant or a new card number.
We make those decisions based on the lifetime of the customer or the merchant. We also allocate a portion to, what I'd say, medium term paybacks, which we offer in infrastructure. And then we make investments which are more geared to longer term. And as we said, today G and S is a very successful business. It took many years to develop that.
I think the same is true of the businesses that Dan spoke about today. Today they're in the investment mode, but we think they have growth potential. And if we can create scale, then we can achieve the kind of profitability that we want.
The point that you made about processing more sort of online versus offline, and when I presented in February, we talked about the scale that we were achieving and how
we were absorbing more and more
transactions, whether that be more data, more transactions, more phone calls, what have you. I think when you look at the fact that we've been able to become more efficient, it's enabled us to make more investments in more salespeople to fund the initiatives that Dan is embarking upon, to fund the compliance initiatives that we've had to do, and to look to grow our business in other ways. So I think you really have to get behind and underneath not only the OpEx, but then when you look at that 60%, 67% ratio, just what the components are. And what we've really tried to do by becoming more efficient is really to create more operating leverage to create more investment capacity. So, I think that's what has happened as a result of becoming more efficient and moving more and more of our processing online.
Way in the back. Okay. Thanks.
Hi. Two questions. One is on the G and S business. So I'm hearing that with Welles, you're highlighting the loyalty programs that they have interest in developing and giving back to their customer set. Are you able to create for them loyalty programs that are unique for them with the merchants that you work with?
So on the loyalty edge program that we have, which is actually seeing quite a bit of success recently. I think as Ed mentioned, we obviously now have a number of value added programs across the enterprise that we can bring to bear to various customers of ours. LoyaltyEdge basically customizes its rewards and we use a basic platform that we have that was from our core business and our expertise, but then we customize it to that particular partner. And so each one of them is customized based on what that partner desires, what they think will drive loyalty for them. And we basically take our volumes, our capabilities, our platforms and apply that with them.
Betsy, we absolutely can give the merchant content as well.
And then separately on all of the bank product bank like product that you're offering to serve Bluebird customer set, what's the expectation game plan for having that same kind of functionality delivered to your regular traditional American Express cardholders?
So as we've mentioned, the ability to do peer to peer transfers, all the different platform capabilities is something that Mark Gordon, our Chief Information Officer, who works for Steve and I are both looking at right now. How do we take the assets that each of us are developing, various platforms that we develop both within the core infrastructure like our digital offer ecosystem be able to take that and apply that to serve and Bluebird customers as well as some of the feature functionality we've been building on our platform and be able to open that up to our customer base. And so, it's complicated to go and do that, but our long range plan is to make sure that we have assets that work across the enterprise.
But I think what's key just going back to the value proposition and as Dan talked about digital wallets overall, I think what's different about Bluebird is we've got a customer segment that has a real need. And we're providing it on a digital platform. The question at the end of the day and the question is, do card members in fact want to have a wallet? They may, they may not. Do they want some of the functionality?
We're looking over that over the long term. They very well some segments may. But what we have is fortunately is the segments that we're going after with Bluebird and prepaid clearly see the value of the overall proposition. And so I think what's critical is there are a set of capabilities that we have created that I think customers will eventually want broadly. But then what we've also created with our prepaid product is we're addressing a very basic need on a digital platform.
Unlike a number of other digital wallet providers who are providing a technology, but it's not clear what the value proposition is for the customer and they're not seeing the adoption. So what we're seeing is we are seeing the attraction to the value proposition of Bluebird and reloadable. And I think that's something that's important to focus on. Yes.
Thank you. Just a question about your merchant financing business. I know it's small, it's very new. But to Andre's point, you're focused on attracting smaller merchants onto your platform. Is that a tool that you're using?
And can you give us any metrics that you can share as far as the success of that program? And then just on a separate and totally unrelated note, note, your proprietary versus the G and S business, clearly the G and S business with the Wells Fargo announcement getting a lot of attention. But initially with G&S, one of the concerns I think that people had expressed was maybe organizationally a conflict between the proprietary and the G&S business. Do you feel you resolved those issues? Maybe there was never an issue, but can you talk about that especially in light of some of the marketing type or consulting services you're offering your G and S partners?
Just those two thoughts. Thanks.
Well, since Ed has overall responsibility for the proprietary and G and S business, He can talk through the organizational and he can talk through merchant financing.
It's in the early days of G and S in the U. S. We had what let's say what Ken would describe as constructive conflict as we tried to sort out what were network assets versus what was proprietary. That was years ago. And not just in the U.
S, we had the same debates going on in international. Are we going to favor one part of the business versus another? But we honestly those conversations haven't been present here for many, many years. Our goal our collective goal is to make American Express a growth company in a slow growth environment and GNS has provided to be is proven to be a great complement to our existing business. And increasingly, we are creating network assets, not proprietary assets.
So, LoyaltyEdge platform Dan talked about for Wells Fargo, merchant content, travel programs, things we're doing when we launch a product, a digital product with Facebook, all American Express cards can come on and take advantage of that regardless of whether it's proprietary network. But you should think about it, we found we have hope and now we have proof that it's a great complement. It hasn't hurt the brand as John has pointed out. And quite honestly, it's really been very nicely accretive to our growth rates. But I'll let Anre talk about merchant financing.
Yes. I would just Ed's point is one really emphasize the last point that he said is that the organizational synergies and the level of teamwork is very, very high. In the early years, there were a few people that I had to crack heads. Some did not survive. And the reality is because they weren't looking at the big picture.
Some of them are looking for
G and S issuers. That's right.
That's true.
But the reality is that we've got an organization that understands we've got a set of collective assets and how do we really use that to drive the business. So you go into a market and what is terrific is to see the country manager talking through both the proprietary and the G and S opportunities and then they understand the benefit to the merchant side of the business. Ron Ray? The question
on merchant financing just to give everyone a quick background. Merchant financing is something we launched in the U. S. Less than 2 years ago. It provides the opportunity for smaller merchants, which is an area of focus of ours, to be able to leverage the settlements by accepting American Express to be able to get financing that they can use for the growth of their own business.
The beauty of the product is that we believe we have an attractive interest rate and the repayment of the loan is done through the deduction of the settlements that come through every few days. We think it's very attractive. It's gotten very high net promoter scores and we believe it's a viable way of providing value to small merchants for the relationship that we have with them.
Quite honestly, we learn
from some of our GNS partners like Bradesco in Brazil who had been at this business for a long time. And they were able to help educate us to enable to launch the business here. So it's certainly been a it looks to be again a very good complement to our merchant value story.
So I'm conscious of time. So two more questions, Max.
Yes.
Question for John. Regarding marketing, obviously, it's a fairly material piece of the expense puzzle here. Over the last 3, 4 years, huge switch to digital forms of marketing, how much more flexible has that made you in terms of your ability to ratchet your budget in terms of an opportunity shows up or something like the recession happens and need to immediately ramp down?
Well, there's a couple
of key points about the digital world. First of all, our customers and our prospects are in the digital space, right? So, the opportunity for us to go out and do marketing in that space is necessary because that's where many of the people we want to reach are spending their time. If you look at the opportunities in the social space, the most important one is that it is in many cases a dialogue medium. In other words, in the old days, you put a message out there and you didn't really know how it performed for anywhere up to 4 to 6 months at times.
And now in the digital space, what we're able to do is we're able to get that loop that allows us to put stimuli out there, figure out how it works, revise it and learn again in a period of, in some cases, days weeks as opposed to what was months or beyond in the past. The last point I'd make about the social space is that it's not just a communications medium. So, in the old traditional marketing approaches, we were working pretty much with communications medium. And today, it's many of these social channels are service channels, they're distribution channels, they're communications channels. So, it's allowed us to do what Ed talked earlier about when we look at some of the products we're able to offer in this space, whether it's Tweet to Buy, Link Like Love, CardSync, we're able to get into these channels to not only communicate, but offer products that create a level of engagement and start to drive business from that angle as well.
Building on Chip's point now, the flexibility and instant learning we have and to answer to look at your question, digital has become the biggest source of new customers for us in the company now as we acquire new customers coming through digital channels, our own channels, affiliate channels, partner channels. It's the largest. And we have a lot more time now to adjust that. So a direct mail campaign used to take months that you'd commit ahead of time for it to execute it. Digital channels can be executed much faster, which to your point gives us more flexibility to dial up and dial down at any given point in time of how much we're spending to acquire.
And as Ken pointed out, that's one of our largest or the largest investment we make as a company. Any other
also as Dan is departing, is also make sure that all of you don't just wonder why this person is sitting on stage. This is Jeff Campbell, our new CFO and we're excited to have him on board. So thanks for joining us, Jeff. So thank you very much.