American Express 2008 Annual Report Download - page 11

Download and view the complete annual report

Please find page 11 of the 2008 American Express annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 125

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125

american express company
9
on American Express cards returned to robust
levels and credit improved significantly. Our
growth in those periods was aided by reengi-
neering benefits and lower loss reserves as credit
trends improved – all of which allowed us to plow
additional investment dollars into the business.
When the current recession lifts, spending by
consumers and businesses will rise. We are not
likely to see meaningful improvement in 2009,
but a recovery will take place eventually. In such
a scenario, the recent steps we have taken to reen-
gineer our expense base and the competitive
strength of our business should put us in a good
position to benefit.
Because the drivers of this downturn are
unique, no one can predict what a recovery will
look like. If there is a “new normal,” it could be
one in which consumers keep a tighter rein on
spending, borrow less and save more. While this
would create challenges for us, there would be
positive outcomes as well. The experience of the
past year reinforces the principle that people
should not spend more than they have the capac-
ity to earn and pay back. And financial services
companies should not encourage people to get
over their heads in debt. Healthier consumer
behavior is better for everyone in the long run.
In addition, when consumers and busi-
nesses are more cautious about how they spend
their money and demand more value, American
Express has much to offer. Examples include
our expense management products and services
that enable corporations to reduce purchasing
and travel costs; our classic pay-in-full charge card
product, which encourages financial responsibil-
ity; Membership Rewards and other rewards-
based programs that enable cardmembers to get
more value for their spending; our wide array of
proprietary and partner-issued airline co-brand
cards; our marketing and information manage-
ment capabilities that can help increase business
for our merchant partners; and our industry
leadership in service quality.
Over the longer term, a major factor creating
opportunity for us is the continuing transition
away from cash and checks toward cards and
electronic payments. Today, cash is used for about
two-thirds of global personal consumption. Even
in the U.S., the most mature market for credit
cards, cash and checks still account for more than
55 percent of consumer spending and 85 percent
of spending by small and midsize businesses. For
a payments company like American Express,
that means the chance for increased volumes,
especially in industries such as healthcare that
do not widely accept plastic.
The growth of online commerce also presents
a sizable business opportunity. U.S. consumers
spent about $150 billion online in 2007 – a small
piece of their overall $4 trillion in spending. With
online purchases expected to grow nearly 20
percent annually between now and 2012, the
opportunities for payments providers will expand
significantly. Intense competition in this space is
bringing innovation and efficiency in the pay-
ments marketplace, something that will benefit
both consumers and payments providers.
We believe that we have the right business
model to benefit from these changes in the pay-
ments landscape over time. Our breadth in serving
consumers, small businesses and corporations
around the world; the power of the American
Express brand; our online capabilities; and the
range of ways we participate in the payments
chain as an issuer, processor, network and mer-
chant acquirer are just some of the assets that
give me confidence in our long-range prospects.
We benefit from both the diversity of our
payments businesses and our focus as a payments
provider. Unlike some competitors that offer a