American Express 2015 Annual Report Download - page 16

cards do offer several ways for eligible Card Members to pay off purchases over time. For example, Select & Pay
Later®allows enrolled Card Members to select individual charges to pay over time and the Extended Payment Option
provides eligible Card Members with the ability to extend payment for eligible charges above a certain dollar amount.
Charge card accounts that are past due are subject, in most cases, to a delinquency assessment and, if not brought to
current status, may be suspended or cancelled. The no-preset spending limit and pay-in-full nature of these products
attract high-spending Card Members, while allowing us to manage risk accordingly.
Revolving Credit Cards
We offer a variety of revolving credit cards that have a range of different payment terms, interest rate and fee
structures. Revolving credit card products provide Card Members with the flexibility to pay their bill in full each month
or carry a monthly balance on their cards to finance the purchase of goods or services. Along with charge cards and
cobrand cards, these revolving credit cards promote increased relevance for our expanding merchant network.
Cobrand Cards
We issue cards under cobrand agreements with selected commercial firms in the United States. Attaining
attractive cobrand card partnerships is intensely competitive among card issuers and networks as these partnerships
can generate high-spending loyal customers. Cobrand arrangements are entered into for a fixed period, generally
ranging from five to eight years, and will terminate in accordance with their terms, including at the end of the fixed
period unless extended or renewed at the option of the parties, or upon early termination as a result of an event of
default or otherwise. Card Members typically earn rewards provided by the partners’ respective loyalty programs
based upon their spending on the cobrand cards, such as frequent flyer miles, hotel loyalty points and cash back.
We make payments to our cobrand partners, which can be significant, based primarily on the amount of Card
Member spending and corresponding rewards earned on such spending and, under certain arrangements, on the
number of accounts acquired and retained. The amount we pay to our cobrand partners has increased and will
continue to increase as arrangements are renegotiated due to increasingly intense competition for cobrand partners
among card issuers and networks. In some cases, the partner is solely liable for providing rewards to the Card Member
under the cobrand partner’s own loyalty program. As the issuer of the cobrand card, we retain all the credit risk with
the Card Member and bear the receivables funding and operating expenses for such cards. The cobrand partner
retains the risk associated with the miles, points or other currency earned by the Card Member under the partner’s
loyalty program. For further discussion of the competition for cobrand partners, see “Card-Issuing Business —
Competition” and “We face substantial and increasingly intense competition for partner relationships, which could
result in a loss or renegotiation of these arrangements that could have a material adverse impact on our business and
results of operations” in “Risk Factors.”
Card Pricing and Account Management
On certain cards we charge an annual fee that varies based on the type of card and the number of cards for each
account. We also offer many revolving credit cards on which we assess finance charges for revolving balances.
Depending on the product, we may also charge Card Members an annual program fee to participate in the
Membership Rewards programs and fees for account performance (e.g., late fees) or for certain optional services. We
apply standards and criteria for creditworthiness to each Card Member through a variety of means both at the time of
initial solicitation or application and on an ongoing basis during the card relationship. We use sophisticated credit
models and techniques in our risk management operations. For a further description of our risk management policies,
see “Risk Management” under “MD&A.”
Membership Rewards®Program
Our Membership Rewards program allows Card Members to earn one point for virtually every dollar charged on
eligible, enrolled American Express cards, and then use points for a wide array of rewards, including travel, retail
merchandise, dining and entertainment, financial services and donations to benefit charities. Memberships Rewards is
our largest card-based rewards program and a significant portion of our cards by their terms allow Card Members to
earn bonus points for purchases at merchants in particular industry categories. Points generally have no expiration
date and there is no limit on the number of points one can earn. Membership Rewards program tiers are aligned with
specific card products to better meet Card Member lifestyle and rewards program usage needs. American Express
Card Members participate in various Membership Rewards program tiers based on their credit or charge card.
We believe our Membership Rewards “point bank” is a substantial asset and a competitive advantage. We
continue to evolve Membership Rewards to provide innovative ways to use points. For example, in 2015 we announced
a partnership with Airbnb to allow eligible U.S. Card Members to use points to book accommodations directly on the
Airbnb website. We also partnered with Best Buy to allow eligible U.S. Card Members to use their points for online
purchases on BestBuy.com.
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