Amex Raised Platinum’s Fee, Customers Didn’t Cancel — Higher Annual Charges Coming Across Cards

American Express has probably the most interesting earnings call for me after the airlines. They’re going to offer a spin, but Amex numbers were good. Wall Street didn’t like it because increased earnings were all being ploughed right back into the business. But that’s actually good as a bet on their future.

What was most striking to me was this data point from Amex CFO Christophe Le Caillec: people are not cancelling when their Platinum cards come up for renewal with a higher annual fee.

Importantly, about 1/4 of the overall U.S. consumer Platinum portfolio has been billed for the higher annual fee, and we have seen no change to our very high retention rates relative to pre-refresh.

American Express makes a couple of important arguments about why Platinum is working:

• Increasingly, annual fees are a material part of the revenue they earn. The best cards give back the revenue generated from spending to the customer, but the flat fee for the card is growing, and consumers are paying it.

• Offering an attractive card with benefits is increasing spending, and keeping more of that spend inside their own ecosystem. Amex pushes people to their own travel platform and to Resy which they own. Chase pushes their cardmembers to Chase Travel (and away from Expedia and Airbnb) and also to the Shops with Chase, although the experience there leaves something to be desired.

Platinum card spend acceleration was reported to be about six percentage points, mostly from long-standing cardmembers rather than new accounts. That’s good – Platinum is a massive back book, and getting existing cardmembers to spend more after a fee increase is success.

I think this is overplayed though. Amex’s growth rates were already strong across the board (total billed business up 10% reported, U.S. Consumer Services up 10%, luxury retail up 18%, etc.). Amex gave a somewhat fuzzy number on Platinum, but if it were outperforming the company, we’d have probably gotten more there. So while the numbers aren’t directly comparable, it’s probably actually a drag on overall reported growth.

Annual fees are becoming a much bigger part of the model. Net card fees were the fastest-growing revenue line, up 16% (foreign exchange-adjusted), and management expects card fee growth to pick up eve more as more Platinum cardmembers roll into the annual fee increase. More than 70% of new Amex accounts worldwide are fee-paying products.

They’ve grown lodging spend through Fine Hotels and Resorts and The Hotel Collection 50% year-over-year. That’s not surprising. Platinum cardmembers get a bigger credit than they used to, and they’re using it. We don’t know what the baseline was, or how much this is driving increased bookings that do not use a credit.

U.S. Resy restaurant spend was up 20%. That’s also not surprising since they’re paying cardmembers to spend at Resy restaurants.

Amex wants benefits that feel rich to consumers but also deepen consumer engagement inside of Amex’s travel, dining, and partnership relationships. The restaurant spend credit seems too expensive relative to the value they might capture from it, but at a minimum we know that they can buy awareness and engagement with the platform.

They also claim to be acquiring young, affluent high wallet share customers early and seeing their spend compound. Platinum marketing is connecting with younger consumers, but whether they stick with Platinum over time, whether Amex continues overindexing on credits relative to the annual fee, is all an open question. They don’t just need to acquire customers, they need to retain them.

• U.S. Gen Z spend up 38%
  
• Millennials up 13%
  
• Gen X up 8%
  
• Boomers up 4%.

Where Amex is weak is mid-sized businesses. They claim to be strong in small and large corproate business, but they’re addressing gaps in the middle with expense management software and their new Graphite Business Cash Unlimited card. The problem is that Graphite Cash Unlimited is too expensive and delivers too little value.

ChatGPT credits are smart (Business Platinum and Business Gold) but those merchant-funded offers alone won’t be the killer app. And this is an area with real competition. Capital One recently acquired Brex. Ramp is making real inroads.

And all of this is expensive. Benefit costs are rising, 11% during the quarter, expalined by the Platinum card refresh and consumers actually using the benefits. I know I’m getting 3-4 times the annual fee in credits that displace real expenses I’d otherwise incur. I suspect that this may explain why we’ve seen a crackdown in what counts for reimbursement from the Platinum airline fee credit, among other changes.

The takeaway in all of this is that American Express believes the higher annual fee model works, that they can layer credits that keep customers and spending inside their ecosystem, and that bribing customers with enough value will retain them and grow their spending.

If you use Centurion Lounges, the hotel credits and Resy dining credits, the entertainment and uber credits, then there’s tremendous value in Platinum. But it’s a terrible card for actual spending. The business works for American Express because too many consumers appear to value prestige and perceived ‘access’ while tolerating low points-earning rates on most of their spending.

Platinum is only for airfare (5x) and where you’re getting statement credits and to get benefits. It is not a good everyday spend card. Too many customers don’t realize this, and that’s been great for the Amex business.