American Express 2015 Annual Report Download - page 25

Examples of countries where we have entered into IO arrangements include Brazil, Colombia, Indonesia, Malaysia,
Peru, Russia, South Africa, South Korea, Turkey and Vietnam. Through our IO partnerships, we believe we can
accelerate growth in Card Member spending, cards-in-force and merchant acceptance in these countries.
Network Card License Arrangements. The second type of GNS arrangement is known as a network card license
(“NCL”). At the end of 2015, we had 83 of these arrangements in place worldwide. We pursue these arrangements to
increase our brand presence and gain share in countries in which we have a proprietary card-issuing and/or merchant
acquiring business and, in a few cases, those in which we have IO partners. In an NCL arrangement, we grant the third-
party institution a license to issue American Express-branded cards. The NCL issuer owns the customer relationships
for all cards it issues, provides customer service to its Card Members, authorizes transactions, manages billing and
credit and designs card product features (including rewards and other incentives for Card Members), subject to
meeting certain standards. The NCL issuer bears the credit and fraud risk for the issued cards, marketing and
acquisition costs, and costs of rewards and other loyalty initiatives. We (or an IO partner) operate the merchant
network, route and process card transactions from the merchant’s point of sale through submission to the issuer, and
settle with issuers.
Our revenues in NCL arrangements are driven by a variety of factors, including the level of Card Member
spending, commissions, currency conversions and licensing fees paid by the NCL issuer and fees charged to the NCL
issuer based on charge volume, plus the value-added services such as card features and benefits we provide for the
NCL issuer’s Card Members. As with IO arrangements, we bear the risk arising from the NCL issuer’s potential failure
to meet its settlement obligations to us, and, as a result, engage in similar monitoring and risk mitigation activities as
described above.
Examples of NCL arrangements include our relationships with Wells Fargo and U.S. Bank in the United States,
Santander in Mexico, Minsheng Bank in China and NOVO BANCO in Portugal.
Joint Venture Arrangements. The third type of GNS arrangement is a joint venture (“JV”) arrangement. We have
utilized this type of arrangement in Switzerland, as well as in other countries. In these countries, we join with a third
party to establish a separate business in which we have a significant ownership stake. The JV typically signs new
merchants to accept cards on the American Express network and issues local and U.S. dollar-denominated currency
cards that carry our logo. In a JV arrangement, the JV bears the credit and fraud risk for the American Express cards it
issues and is responsible for the operating and marketing costs. Unlike the other two types of GNS arrangements, we
share management, risk, and profit and loss responsibility with our JV partners. Income is generated by discount
revenues, card fees and net interest income. The economics of the JV are similar to those of our proprietary card-
issuing business, which we discuss under “U.S. Card Services,” and we receive a portion of the JV’s income depending
on, among other things, the level of our ownership interest. Our subsidiary, American Express Overseas Credit
Corporation Limited, purchases card receivables from certain of the GNS JVs from time to time.
Global Merchant Services
Our GMS business builds and maintains relationships with merchants and merchant acquirers and processors,
processes card transactions and settles with merchants that choose to accept cards for purchases. We sign
merchants to accept cards and provide marketing information and other programs and services to merchants,
leveraging the capabilities provided by our closed-loop network. We also offer support for card acceptance, fraud
prevention and other value-added services.
Our objective is for Card Members to be able to use the card wherever and however they desire, and to increase
merchant acceptance in key geographic areas, industries and businesses that have not traditionally accepted the card.
We add new merchants to our network through a number of sales channels: an in-house sales force; third-party sales
and service agents; third-party acquirers; aggregators; strategic alliances with banks and processors; the internet;
telemarketing; and inbound “Want to Honor” calls (i.e., where merchants desiring to accept our card contact us
directly). As discussed in the “Global Network Services” section, our IO partners and JVs also add new local merchants
to the American Express network.
With our direct and inbound channels, we acquire the merchant, own the contract, agree with the merchant on the
discount rate and handle servicing. Since 1995, we have worked with third-party acquirers to acquire small- and medium-
sized merchants using several different models. External sales agents, for example, acquire the merchant on our behalf,
while we retain the card acceptance agreement with participating merchants, agree on the discount rate and handle
servicing. In 2014, we established a new merchant-acquiring program, OptBlue, to expand card acceptance by U.S. small
merchants that have a projected American Express charge volume of less than $1 million per year. In the OptBlue®
program, third-party acquirers or processors contract directly with merchants for card acceptance and determine
merchant pricing. The OptBlue program provides an alternative for eligible small merchants who may prefer to deal with
one acquirer for all their card acceptance needs. OptBlue acquirers provide relevant merchant data back to us so we can
maintain our closed loop of transaction data. In 2015, we announced the launch of OptBlue in Canada.
GMS continues to expand the number of merchants that accept our cards as well as the kinds of businesses that
accept the card in order to address Card Member needs. For example, 40 percent of our U.S. billings came from the
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