Here’s the real reason American Express offers such big rewards

Armed with impressive rewards and a loyal customer base, AmEx is a giant in the credit card industry. The company’s revenue has grown more than 32% since 2017, when adjusted for inflation, and the company’s shares have shown resilience and growth in a tumultuous market.

“Rebate revenue,” or fees charged to merchants who accept its cards, is the company’s main source of revenue. It brought in more than $30 billion in 2022, contributing more than 58% of total revenue net of interest expense.

“They charge their merchants a premium for taking their cards,” said Lisa Ellis, principal analyst at MoffetNathanson. «And merchants are willing to pay that premium because American Express brings them the richest and the biggest spenders.»

Because of its reliance on discount fees, big spenders are AmEx’s most important asset. Recent reports from the company claim that Amex Card members spend an average of three times more per year than non-members.

American Express targets these affluent cardholders through a «spend-driven» model that focuses on generating revenue primarily by driving spend on its cards.

That’s where rewards come in. In 2022 alone, Amex spent nearly $17 billion providing services and rewards to its card members.

“This high spend-centric model is why they can offer such large rewards as they do and why customers are willing to pay these higher annual fees,” explained Dominick Gabriele, principal analyst at Oppenheimer & Co. “Because spenders actually make it up in their spending behavior.”

Watch the video to learn more about how AmEx generates billions in revenue each year.

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