Next, we're pleased to welcome back Christophe Le Caillec. He's the CFO of American Express. Christophe has been with American Express since 1997 and became CFO in 2023. He previously served as Deputy CFO and led corporate planning, along with other finance functions supporting risk, technology, and global services. Christophe, thank you so much for being here. Maybe we start with looking back on the year so far. How would you characterize American Express's performance and the progress you've made against your strategic priorities? What's gone well? What surprised you?
Good afternoon, and thank you, Sanjay, for having us. I would characterize the year as a very successful year. I would use three dimensions for you. The first one is the financial performance. I'll get back to it. The second one is the progress we made on advancing our strategic agenda, which is probably less visible to you, but super important for us in terms of sustaining growth. The third element is that we answered probably what was the biggest question in the minds of investors at the beginning of the year, which is the Platinum Card. Let me just kind of go back to these three things. The first one, in terms of the performance. By the time we get to the end of the year, we will have grown revenue by about 10% and earnings per share again in the mid-teens range.
What's remarkable, I think, about this performance is not what we did this year. It's the fact that we did it for four years in a row. The story of the American Express financial performance is a story of compounding. If you just look at the last four years, we did grow at a CAGR of 10% revenue-wise and earnings per share in the mid-teens. When you look at this over just 14 months, it means that we added about 50% of revenue to the company and something in the range of increasing the EPS by 85%. The compounding effect of growing revenue in double digit and EPS in the mid-teens three, four years in a row is just remarkable what it does. The second thing that I mention is the progress we made this year in terms of advancing our strategic agenda.
We closed on TheFork, which gives us a brand new platform, similar to Resy and what we did in the U.S., this time in Europe. We released a set of new features and products on the commercial side. We also renewed or extended some partnerships. I'm thinking about the Hilton card in Canada. We announced, or we made progress on our AI strategy, and you heard Steve talk a lot about it at the last earnings call. So, we're progressing a lot on our strategic agenda, small moves every day, I would say. The third thing is around the Platinum Card. At the beginning of the year, I think everybody was wondering, how successful is it going to be, and are you going to be able to maintain your leadership position in the premium space in the U.S.? We answered that question, I believe.
It's yes, we did. The demand for the product, the engagement that we saw with the product, the incredible renewal rate in the 99% range that we saw in the Platinum Card clearly established American Express as the leader, or we reinforced our leadership position, I should say. I feel good, right? When I look back on this year, I feel good about what we did and the progress we made.
Anything surprise you?
There's nothing that really surprised me outside of maybe how AI is picking up pace and how it's becoming more and more central to everything we do, whether it's how we are managing expenses, how we are thinking about product development. It's clearly taking a much bigger share of my own mind and Steve's mind. You heard him talk quite a lot about it at the earnings call. For me, that's the big thing that was not. Maybe I underestimated at the beginning of the year how big this could be, but now we fully.
That's great. Glad you're thinking about it because it's an important topic, of course. Maybe we could talk about spend trends. What are you seeing in the spending trends with the premium customer?
Yeah. If you go back over the last four or five quarters, we've been growing spend in the 8%-9% range. Last quarter was the same, 9%, 8%, sorry. Q2 was elevated, but it was very strong, unusually strong. We refer to it like it was a historical quarter for us. Q3 was also very strong. When I unpack the various categories here, travel and entertainment is growing at 10%. Within T&E, which is a very discretionary category, airline is growing at 13%, right? It's just very strong growth that we're seeing. Restaurant spend was in the 9% range, and it's true about the U.S., it's also true about outside of the U.S. So, a lot of momentum in that space. When I look at the various segments or customer segments, U.S. consumer doing very well.
Q3 billing growth was the third-highest quarter we had in the last three years. So clearly a lot of momentum there. You've seen the commercial billing as well. For the second quarter in a row, we were at 5% when you control for the sale of the two portfolios. International, again, in double digit. It's been growing in double digit for 22 quarters. It's remarkable. I see a lot of momentum. I see a lot of stability. I see a lot of strength. I see a lot of discretionary spend, which is always a good combination, if you want, for our business, but also for the economies in general.
Okay. That's encouraging. So maybe we could talk about the competitive advantage you guys have in the premium space versus traditional peers and newer entrants. Like, how are you maintaining your edge?
Yeah. Competition has been strong. It's strong everywhere. There's not one market that I think of where, when we do a review of that market, they don't start with, like, "Competition is really strong here." It's true for the U.S., it's true outside of the U.S. If you look at our performance over the last 10 years, it has been probably the strongest we've seen in many years at American Express. Last earning call, we share a slide with our return on equity over 10, 15 years, I forgot. Not only we've been growing a lot over the last 10 years, but despite this competition, we've been improving the returns. We now have an ROE that is in the north of 30%. It was 25%, 28%, say, 10 years ago. So, why that? I think there's a couple of reasons.
The first one is, the competition, it is very visible in the U.S. The competition is expanding the TAM. There is more and more people who are considering a premium card, a fee-paying card now than there was, say, 10, 15 years ago. That is a net good thing for American Express. Of course, it comes across as competition, but I see it as TAM expansion because every time someone, anyone is considering a premium card, they will include American Express in the mix, and we benefit from that. The second thing that this competition is doing is it is forcing us to innovate, and that is a net good thing as well, right? We refresh many products over the last three, four years, the Gold Card, the Delta suite of products, recently the Platinum Card. Every time we try to innovate.
When I look at what our competitors are doing, they are trying to emulate us, right? I mean, they are literally taking the playbook that we laid out and they are trying to replicate it, and they are still very far behind, right? People talk about lounge, but it is easy to claim that you have a lounge benefit, but how many lounges do you really have versus American Express? We have 33 or something like that. People have a hotel program, but we have 3,400 properties in that program. People talk about access to restaurants through Resy, Tock, and now TheFork. In Europe, we have access and priority access to 75,000 restaurants. So, it is easy to claim that you have a premium products to flag, to flash like you are a metal card.
What is much harder to do is just to build this value proposition, this access infrastructure, to build those partnerships with thousands of demanding partners across the world to deliver on that promise. I think that we are still leading the charge by quite a huge margin. So, competition is good. It is making us better, and I think that the distance between us and our competitors, if anything, is increasing.
A hot topic this year has been VCE growth. So maybe you could talk about the expectations in the fourth quarter and into next year as you lap the Platinum refresh. You have talked about some actions you can take to manage costs here as well, so maybe you could expand on that.
Yeah, yeah. First of all, we talked about a full year VCE to revenue ratio between 44% and 45%, and it will be between 44% and 45%. Maybe just to answer your question, just take a step back over the last maybe 10, 12 quarters, and if you were to graph the VCE to revenue ratio, you would see an upward trend. You would see a step-up that is directly attributable to the refresh of the Platinum Card, which we are lapping now. The world we are going into, like Q4 onwards, you should expect the kind of trend that we have pre the product refresh to kind of be visible to all of you. That trend was a modestly increasing VCE to revenue ratio, and the fundamental force behind that is the fact that the VCE ratio by product varies a lot, right?
It can be as high as 60% for some premium co-brand cards to as low as 30% for cashback product. As the portfolio is getting more and more premium, and you remember, like last quarter, three quarters, actually 76% of the new accounts that joined the American Express franchise in Q3 were on a fee-paying product. So the portfolio is slowly skewing more and more and more premium. So that's this kind of upward trajectory that is creating this growth. Now, I'll say to you what I've said as well on the earnings call, right, which is VCE is a useful metric, but it's an incomplete metric, because it doesn't factor into account the benefit we're getting on marketing. It doesn't factor into account the benefit we're getting on positive selection, and it doesn't factor into account the benefit we're getting on scale and OPEX and operating leverage.
So it's incomplete, but it's still a useful metric. So what are we doing? First, we are very focused on making sure that we have the right value proposition, and we have a value proposition that's going to be effective and profitable for American Express. We are constantly innovating there. So you saw us recently, we added the Airbnb benefit, which is super popular. What we do as well is just create new redemption opportunities for our card members that are at a cost per point that is super compelling from a financial standpoint. So we introduced the amount-based redemption, which allow card members to use their MR bank of points to pay for their statement. We were surprised by the success of this option, and what it means is that people value convenience just as much as they value frequent flyer miles, for instance.
The team is very much aware of that dynamic, and we are creating redemption opportunities to control if you want this VCE ratio, and redemption opportunities that actually going to improve that ratio. The last thing that I will say is that we are always evolving the way the benefits work in the programs. I told you about adding Airbnb. We also, as you know, introduced a minimum spend level threshold of $75,000 to take full advantage of their access to our lounges. So we know or either like introducing the request for second night at the hotel to benefit from the hotel credit. So we are very much aware of all this dynamic, and the team is constantly modeling what's the right outcome here.
The objective being delight the card member, make him or her excited about having a Platinum Card or Gold Card or co-brand card, and at the same time generating economics that are going to be compelling for us with the objective function at the end of the day of improving the return on capital.
Got it. Steve talked about how you're approaching AI across the customer experience on the recent earnings call, as you alluded to. Can we first talk about payments and what's been your approach and what you're working on right now?
Yeah. This generates, as you and I were talking about it, but this generates a lot of discussions internally in terms of how we transfer all this membership benefits and translate these benefits into the AI ecosystem. How we use that technology to propel some of these benefits, and how do we make those benefits and membership benefits available to our customers when they are in these LLMs and AI ecosystem. That's very much what we're doing. Just to give you some illustrations of how we're doing that. We've been working with OpenAI to have in ChatGPT the ability to reserve, for instance, Resy restaurants. If the card member decides to engage with the restaurants through ChatGPT as opposed to Resy, that's totally fine with us, and kind of like work with Resy to make that happen, all the way to booking the reservation.
We're working as well with OpenAI to build a plug-in that will enable our card members to browse, for instance, the offers that are available to them and select those offers that are relevant to them. The way to think about what we're trying to do here is just take this very successful approach that we have around membership and figure out what's the best way to make them available to our card members in the AI ecosystem. That's very much what we're trying to do here.
I'll add something to that, which is the fact that we have a ton of data, and we can use this data to work harder for us. We are very sophisticated in terms of how we're thinking about our data and how to use it. We moved it all to the Google Cloud to benefit from the AI infrastructure to figure out what's the best way to do our marketing work, to do our servicing work, to process payments, to detect fraud. It's very much where we're going with that.
I mean, is there anything with the data that you need more of from the merchant, or you feel like you have sufficient data to give more context and informed offers?
I mean, we always take a lot more data. We also buy a lot of data to enhance our own dataset. I don't think that for us, the opportunity is more to figure out what's the best use of that data more than just like, let's get a lot more data. I think that to translate this into something tangible that we can deploy at scale to our card members or to make our machine works better. I think that that's what the direction we're taking much more than just like, let's get more data.
Got it. So another hot topic is rewards maximization, optimization. I mean, how do you address concerns that AI will lead to customers optimizing—
Yeah.
—Their rewards and benefits?
It's a classic question that we're getting. It's happening already. I mean, before AI, there were already customers who were trying to maximize the benefits. Let me say a few things here. The first one is, we are not running a breakage model. So we're not building those benefits, those experiences with the expectation that card members are not going to use it. It's just the opposite, right? For those of you who are Platinum Card Members, you might remember when we refreshed the product that the first time you went into the app, the first thing you saw was just a series of benefits, and we were asking you, "Do you want to enroll into it? Do you want to enroll into that?" We're trying to get the attention of the card members and more enrollment than the other way around.
So clearly not running a breakage model, because we believe that it's by engaging with card members that we are going to maximize the relationships here. The second thing that I want to say on this one is that we are not engaging into a competition on the number of points. Again, if you go back to the Platinum refresh, when we refreshed the Platinum Card, we did not change anything relative to the MR points, the earn rates, the accelerators that's there. It is a race to the bottom as far as we're concerned. It is something that is super easy to arbitrate with an LLM or without an LLM, and it's not what we focused on. Instead, what we focus on is experiences that are really hard to replicate and that are much harder to maximize the gains, right? Access to lounges, right? We just talked about it.
It's like there's just no real way to maximize that benefit outside of pay the fee, $895, and then spend at least $75,000 on the card, right? So that puts the bar at a much higher rate, if you want.
That's very much the direction that this is taking for us, right? Focus on experiences, and again, do not run a breakage model.
Got it. And so, maybe we could talk about how you're using AI with the customer experience, because I'm sure there's a lot that's done there.
Again, maybe the starting point is just to think about all the data that we have and making this data work harder. How is that translating in terms of customer experience and customer services? Maybe we can talk about customer services. We're working with third parties to develop agents and voice bots, voice agents that can provide actual servicing. Let me give you some examples, for instance. Fraud and fraud detection or transaction validation, right? Charge validation. And you know, right, it happens to all of us. You're shopping, it's an out-of-pattern transaction, and you get a message from American Express, "Is it really you? Please call us," right? That "please call us" can be handled by a voice agent, which we have today, right? And it's working really well. The experience is actually quite powerful.
Those transaction validation, fraud prevention can be effectively handled by some voice agents. It's an example of how today the American Express Card Members can engage with some AI technology. And for us, the real trick here, and maybe you're going to say, "Yeah, but why are you so slow at it?" The real trick, and what we're trying to do, is figure out how to translate the premium servicing that American Express is famous for into this AI world, right? To make sure we have the right tone, the right voice, the right service, and to test out every possible situation to make sure that the card member experience is a very good one. But today, that's what we're doing, and I've been listening to calls myself, and I'm really amazed by how effective that is.
Now, is that an expense optimization?
Yeah
More than a revenue optimization? How should we think about that?
Yeah, yeah. That is clearly on the expense side.
Because what that is doing is displacing some actual people on the phone.
Right.
It is definitely an expense benefit. On the revenue side, where I see the biggest opportunity at this stage is on the marketing machine and the ability to customize all the offers, all the approaches. When you combine in an email, in a message, the right offer with the right visual that will appeal to you, that is where we are using it most.
The idea is just to make the marketing more effective. It will have an impact on the dollars we spend as well, as well as their response rate and the effectiveness of the marketing dollars.
Got it. You have continued to invest in your digital capabilities and broaden your product offerings. How are those investments translating into deeper customer engagement and stronger relationships with card members?
Yeah. We do not talk much about it. I would say 10 years ago, digital engagement was a big theme. We do not talk much about it now because pretty much every customer now is digitally engaged. It is especially true with the younger card members. You still have older card members who still enjoy calling us, and we are happy to take those calls, but less and less so. We made a lot of progress in terms of engagement. Just to give you an idea, if I look at just the U.S. Platinum Card population and the Gen Zs and millennials, 25% of this In fact, pretty much everybody is using the app. But 25%, one out of four, is using it every day. They check their balances, to enroll into offers, to check if they have a Hilton reservation or Resy reservation showing up in the app.
We have a quarter of the base just checking on the Amex app every single day. What we're seeing as well is that when card members have multiple products, they are much more engaged with us. They give us a bigger share of their spend wallet or their revolve wallet. We have tactics and strategies to cross-sell the products, and what we're seeing is that card members who have more than one product, one American Express product, say a card and a high-yield savings account, for instance, tend to spend a lot more. The magnitude of either is like 3x, right? So they are much more engaged, right? And we've seen the progress we've made over the last six, seven years. If I look at pre-COVID, say 2019 to now, the number of card members who've got multiple products with us has increased by 70%.
Where I'm going with all of this is that when we think about the investments we're making, the technology investments, the enhancements we're making to our digital assets, the goal is not only to service better our card members, it's also to increase the engagement with them. And we know that when we do that, and you add Resy, you add the travel app, and you add TheFork now, all of this is creating a platform, if you want, of digital engagement that are reinforcing themselves and reinforcing the membership model, which is where all roads are leading.
Great. You obviously are making investments on new product rollouts on the commercial side. What's your expectation on how long it'll take to see an acceleration in commercial spend? And how have the customers been reacting to all of these new products and offerings?
It's a huge priority for us, right? We know we have work to do on the commercial side. As we've said many times, the small business component of the commercial segment is doing just fine. It's on the mid-market. And you've seen how busy we've been over the last few weeks or few months. We released either a corporate cashback card. We released for the first time our expense management solution. I would say the first version, there is a dedicated app for that, and there's a specific software to help our card members manage expenses. And what we've done is, it's the beginning of it as well, there's more to come, but create AI-powered agent to help the card members submit their expenses, manage their expenses, generate insights, validate those expenses against the internal policy. So, there's clearly the beginning of something there.
And we also have released what we call the business savings account. Very active, and we know what we want to do here. What we want to do is figure out how to combine the amazing card products we have with no spend, pre-spend limits, capacity, combined with their amazing service that we have, and the membership benefit that we have, all of this with an expense management software solution. And we're making progress. It's slow, arguably, because it's complicated, and we want to do it right. It's in the market today at a small scale, so it's too early to talk about the feedback. The early results are good. And we're learning a lot from what's working, what's not working. We're also learning how to make the sales force, the sales organization at American Express, much more efficient and better at selling software versus selling cards.
So it's a big transformation if you're in the commercial organization today at American Express. And the early signs are good. They're very good, but a lot more to come. And what's the lot more to come is around having an accounts payable solution to have more AI-powered agents to simplify the life of our card members. Their acquisition of Center that we made a few quarters ago is really incredibly focused on doing that. We also made an acquisition of, you might remember, a company called Hyper that was specialized in AI agents. All of that is coming together. So, it's the beginning. It will take time. You're not going to see that curve bend next quarter. It will take time because the sales cycle is long, the development cycle is long.
But I'm pretty sure that over time, we're going to build an effective value proposition, and we're going to be competing effectively in the marketplace.
Great. Let's shift gears, talk about international. That's been an accretive to growth area for American Express for quite some years now. What's driving that growth, and what do you think about the longer-term runway there?
Yeah. American Express International is a great opportunity. It is growing faster than the U.S. When you look at the economics that are coming in international, they are pretty much accretive on every single metric in terms of the premiumness, their proportion of the role of card fee in the economics, the risk profile of the card member, which is more premium, the growth rate, which is higher than the U.S. It is pretty much every single metric is accretive to American Express, hence the focus. The reason for that, I would say, is because the brand is more premium outside of the U.S. than it is here. Even more premium, I would say. The second thing is, we are starting from a much smaller share. We have on average in the lead markets about 6% spend share, which is very small, right? That gives us a massive growth opportunity.
There is also a growth lever that we have and that we are pulling really hard in international, and it is the growth that is coming from coverage expansion, merchant acceptance. As you know, for those of you who have traveled overseas, acceptance is not as good as it is in the U.S. But every time we are making progress, it is a growth opportunity for us. We are now, in most markets, we have reached a scale where we have enough card members to actually either increase or accelerate the coverage and benefit from the growth that is coming from growing those two segments. So it is incredibly exciting to be in international today.
Great. I have one final area, which is a hot topic as well, which is card fees, right? Card fees have been a key growth area through all these refreshes. Maybe you could talk about the growth in the fourth quarter and into 2027 as you lap Platinum refresh.
Yeah. At the beginning of the year, we said to investors, "You should expect card fee," which was growing, what was it, like 17%? Basically, we exited the year. "It should decline a bit during the beginning of the year, and then you should expect an inflection point in the second half of the year and an acceleration," which is exactly what we saw, right? We were at 15% growth in Q2, which surprisingly is disappointing to some investors. Try to grow anything at 15%. We accelerated that growth rate to 17%. I fully expect that Q4 is just We talked about either high teens, and we are going to be in the high teens.
I think the message that is coming from this card fee dynamic is incredibly powerful and very representative of the health of our business and what we have achieved over the past years, not only this year. When you look at this card fee growth rate over the last six, seven years, this has been growing at about 17%, including during COVID. Last quarter, we generated something like $3 billion of fee. It's an incredibly strong vote of confidence from our card members. The single biggest contributor to this very strong card fee revenue is the renewal rate, right? We were talking about Platinum, where the renewal rate is in the 99% range, which is an eye-watering renewal rate for anything that costs $895, right?
It speaks about the vote of confidence we're seeing from our card members, the engagement, the passion that they have for the products. It means as well that the membership strategy is working well because card members are voting with their wallet every year to renew their membership. I find this metric very, very representative of the success of the firm. Nothing can grow at 17% forever, right? You can't expect this to grow at 17% forever. I'm very optimistic about the opportunity that we have here, about our ability to keep refreshing the products, innovating in that space, and engaging the card members with this kind of renewal rate that we've seen in the past years.
Okay. Well, I think we'll leave it right there, Christophe. Thank you so much.
Thank you, Sanjay. Thank you.
Thank you.