American Express 2006 Annual Report Download - page 26

SUSTAINING MOMENTUM IN A CHANGING LANDSCAPE
We entered 2007 in strong shape with considerable momentum across our payments
businesses. Nonetheless, like all payments companies, we face a number of challenges
including an uncertain economy, increased competition and certain short-term factors.
Specifi cally, we anticipate pressure on our interest and provision expense lines in early
2007. A number of hedges that had dampened the impact of higher interest rates expired
last year. Additionally, we will not have the benefi t of the unusually low level of write-offs
we saw early last year following bankruptcy law reforms in the United States. Given these
factors, we expect uneven growth in these two expense lines in the year ahead. To mitigate
that impact, we are focused on controlling overall costs and taking a more stringent
approach toward discretionary expenses in 2007.
Despite this somewhat more conservative stance, we will continue to invest substantially
in growth opportunities and are confi dent that the business-building initiatives of the past
several years will continue to drive additional cardmember spending.
Our business model gives us the fl exibility to pull back or push ahead with investments
in response to changing conditions. It positions us to adapt to a changing environment as
we seek to meet our long-term fi nancial goals.
Equally important, we see substantial opportunities for growth now and in the years
ahead, beginning with our traditional strengths: consumer, small-business and commercial
payments, as well as expanded opportunities such as network services.
Consumer Spending. Opportunities for growth outside the general purpose card market
are signifi cant. For example, more than $24 trillion or 86 percent of worldwide consumer
spending remains on paper in the form of cash and checks. We intend to continue
converting more spending from cash and checks to American Express card products,
both in regions where card usage is well established and in rapidly growing areas where
consumer credit is in earlier stages of development. We will accomplish this through
the strength of our brand, commitment to service and ability to provide more value,
convenience and opportunities for our high-spending customers.
Small-Business Spending. American Express was one of the fi rst card companies to
develop products and services specifi cally for small businesses. At the end of 2005, our
share of spending in the U.S. small-business segment was approximately 50 percent. While
that may sound like a description of a mature business, plastic still accounts for less than 15
percent of all small-businesses payments
—
and total spending by this group is estimated
to be $2 trillion.
Middle Market. Midsize companies represent a $950 billion global market, and roughly
85 percent of that amount is still transacted with cash and checks. We have captured
signifi cantly more spending among this group over the past few years with products
and services that include expense management and volume discounts we negotiate with
suppliers. We also have made large investments in our sales force, especially in our inter-
letter to shareholders
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