American Express doesn’t issue debit cards in the US but it is gearing up to issue debit cards in China as it extends its position in the country.
AmEx was granted the opportunity to process payment transactions in China approximately 8 months ago and wasted no time in building a platform and expanding its network to 14 million merchants in the process.
China has a relatively high level of current account penetration among its population, around 80%, and debit cards are vastly preferred to credit cards. In 2019, there were approximate 7.4 billion debit cards in circulation.
Amex is seeing the benefit of pursuing a place in the Chinese market through its joint venture with Express Hangzhou Technology Service.
“Developing our core processing network in mainland China has been a priority for us, and since getting the green light to start processing payments in China eight months ago, we have received mobile wallet parity coverage with our partnerships with China’s major mobile wallet providers,” commented Stephen J. Squeri, chairman and CEO of American Express.
The 14 million new merchants in China are just the beginning, with more slated to be added in the coming months, according to Squeri. “A key enabler of our coverage growth in China is the progress we are making to modernize our network, particularly in adding the capability to process debit transactions globally.”
Debit processing is “an essential need for customers in China and helps us prepare for additional debit applications elsewhere,” Squeri said, in noting Amex has established 16 key issuing partnerships in China as well.
In a similar pursuit for advancing debit, Amex has looked at the open banking mandates in Europe as a way for card brands to get more exposure, focusing on payment initiation through its Pay with Bank transfer platform.
This was Amex’s answer to the challenge in Europe of not having a major debit card presence, like Visa and Mastercard do. Pay with Bank establishes e-payments through a linked bank account, targeting both merchants and consumers.
Amex changed its financial reporting this quarter to more clearly show how China joins its revenue mix. For Q1 of 2021, Amex had $44 billion in process volumes and $225 billion in billed business.
Because of the addition of debit and various processing regulations in China, Amex’s business model in that country is “unique and different” from what the company does with global network services partners in other regions.
Amex reported $2.2 billion in net income in Q1 of 2021, compared with $367 million in Q1 2020. The numbers reflected the impact of $1 billion in credit reserve releases driven by improvements in the macroeconomic outlook and strong credit performance, the company stated. Amex also reported 2.1 million new card acquisitions.
Amex reported revenue for Q1 2021 at $9 billion, a 12% dip from the previous year’s Q1 at $10.3 billion, driven by declines in cardholder spending and loan volumes and a lower average discount rate. But revenue in March was up 7%, an indicator that card spending is increasing.