American Express 2015 Annual Report Download - page 28

submissions. We can realize losses when a merchant’s offsetting charge submissions cease, such as when the
merchant decides to no longer accept our card or goes out of business. We monitor our merchant base to assess the
risk of this exposure. When appropriate, we will take action to reduce the net exposure to a given merchant by
establishing reserves of charge payable holdbacks from a merchant, lengthening the time between when the merchant
submits a charge for payment and when we pay the merchant, requiring the merchant to secure a letter of credit or a
parent company guarantee, or implementing other appropriate risk management tools. We also establish reserves on
our balance sheet for these contingencies in accordance with relevant accounting rules.
Global Network & Merchant Services — Competition
Our global card network competes in the global payments industry with other card networks, including, among
others, Visa, MasterCard, Discover (primarily in the United States), Diners Club International (which is owned by Discover
Financial Services) and JCB and China UnionPay (primarily in Asia). We are the fourth largest general-purpose card
network on a global basis based on purchase volume, behind China UnionPay, Visa and MasterCard. In addition to such
networks, a range of companies globally, including merchant acquirers and processors and companies such as PayPal,
carry out some activities similar to those performed by our GMS and GNS businesses. No other single entity engages on a
global basis in the full range and scale of activities that are encompassed by our closed-loop business model.
The principal competitive factors that affect the network and merchant service businesses include:
• The number of cards-in-force and amount of spending on those cards
• The quantity, diversity and quality of the establishments where the cards can be used
• The economic attractiveness of the network to card issuers, cardholders and merchants
• The success of marketing and promotional campaigns
• Reputation and brand recognition
• Innovation and investment in systems, technologies and product and service offerings
• The quality of customer service
• The payments industry expertise and capabilities that can be provided to partners in areas such as customer
servicing, loyalty, fraud prevention and data analytics
• The security of cardholder and merchant information
• The impact of court orders and litigation settlements, ongoing litigation, legislation and government regulation
Another aspect of network competition is the dynamic and rapid growth of alternative payment mechanisms and
systems, which include aggregators (such as PayPal, Square and Amazon), wireless payment technologies (including
using mobile telephone networks to carry out transactions), electronic wallet providers (including handset
manufacturers, retailers, banks and technology companies), prepaid systems and systems linked to payment cards,
and bank transfer models such as ACH and wire transfers. Partnerships are also being formed to create various
competitors, such as merchant coalitions like the Merchant Customer Exchange. New payments competitors continue
to emerge in response to evolving consumer habits and merchant needs.
New technologies and evolving consumer behavior are rapidly changing the way people interact with each other
and transact business all around the world. Traditional and non-traditional competitors such as technology
companies, telecommunication providers and aggregators are working to deliver digital and mobile payment services
for both consumers and merchants. Competition remains fierce for obtaining and retaining online and mobile spend in
the ever-increasing digital world. Alternative business models represent potentially disintermediating factors in the
card payment industry and new entrants to the digital payments space may have large cash reserves and other
resources available to develop new platforms and technologies, large existing customer bases and the ability to use
payments as a tool to support other sources of revenue. To the extent alternative payment mechanisms and systems,
such as aggregators, continue to expand successfully, discount revenues and potentially other revenues, as well as our
ability to access transaction data and conduct merchant marketing through our closed-loop network, could be
negatively impacted. In the United States, alternative payment vehicles that seek to redirect customers to payment
systems based on ACH continue to emerge and grow, merchants with recurring billing models actively seek to switch
customers to payment through direct debits from bank accounts, and existing debit networks also continue to expand
both on- and off-line and are making efforts to develop online PIN functionality, which could further reduce the relative
use of charge and credit cards online.
Some of our competitors have attempted to replicate our closed-loop functionality. For example, JPMorgan Chase
launched ChaseNet, a merchant-processing platform developed with Visa. Efforts by some card networks, payment
providers and non-traditional competitors to replicate the closed loop reflect both its continued value and the intensely
competitive environment in which we operate.
Some third-party processors and acquirers offer merchants the capability of converting payment card
transactions from the local currency to the currency of the cardholder’s residence (i.e., the cardholder’s billing
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