American Express 2015 Annual Report Download - page 31

the caps could be surcharged up to cost, subject potentially to the ability of an individual Member State to prohibit
surcharging altogether; and (ii) require all networks, including three-party payment networks that operate with licensing
arrangements, such as our GNS business, to establish objective, proportionate and non-discriminatory criteria under
which a financial institution may access the network, for example, as a licensed issuer or acquirer. The potential
surcharging regulation may increase instances of differential surcharging of our cards, prompt customer and merchant
confusion as to which transactions may be surcharged and lead to Card Member dissatisfaction. The access requirements
will undermine the flexibility and discretion we have had to date in deciding with whom to partner in our GNS business.
We see a trend toward regulation of the payments industry in other countries, too. For example, in Mexico, the central
bank issued rules in March 2014 for the regulation of payment instruments and the authorization of payment
clearinghouses, including requirements on non-discrimination and access; however, “closed-loop” networks such as
American Express are exempt as are also our licensing arrangements, provided that volumes under these arrangements
fall below a certain sector share (as do currently our GNS volumes in Mexico). In Canada, regulators have prompted the
major international card networks to make voluntary commitments on pricing, specifically interchange fee levels; in the
case of American Express, our commitment extends to maintaining current pricing practices whereby issuer rates
received by GNS partners are agreed to bilaterally with each partner, rather than multilaterally, and merchant pricing is
simple, transparent and value-based with the same rate for the acquiring of credit and charge card transactions for a
particular merchant regardless of the type of card that is presented. In Malaysia, the central bank introduced rules that
impose caps on interchange fees, permit steering by merchants and co-badging of debit cards with other card networks,
and require issuers to offer cardholders the option of taking up a basic card product with minimal or no cardholder
incentives or rewards and at zero or nominal cost to the cardholder.
In some countries governments have established regulatory regimes that require international card networks to be
locally licensed and/or to localize aspects of their operations. For example, card network operators in India must obtain
authorization from the Reserve Bank of India, which has broad power under the Payment and Settlement Systems Act 2007
to regulate the membership and operations of card networks. In Indonesia, bank regulations require participants in a card
payment and settlement business to obtain a license and establish a local legal entity, and the central bank is now
considering the establishment of a domestic processing infrastructure for local transactions. In Russia, card network
operators must be authorized by the central bank, and newly enacted regulation requires networks to place security deposits
with the central bank, process all local transactions using government-owned infrastructure and insure that local transaction
data remains within the country. Governments in some countries also provide resources or protection to select domestic
payment card networks. For example, China recently proposed new regulation that will permit foreign card networks to
operate domestically in the country for the first time, subject to licensing, capital and other requirements. The development
and enforcement of these and other similar laws, regulations and policies in international markets may adversely affect our
ability to compete effectively in such countries and maintain and extend our global network.
As the operator of a general-purpose card network, we are also subject to certain provisions of the Bank Secrecy
Act, as amended by the Patriot Act. We conduct due diligence on our GNS partners to ensure that they have
implemented and maintain sufficient AML controls to prevent our network from being used for money laundering or
terrorist financing purposes. As aggregators and other third parties add merchants to the American Express network, we
have expanded our due diligence to review the AML and “know your customer” policies and controls of those third
parties, and retain the right to require termination of merchants’ card acceptance under appropriate circumstances.
Since American Express Company and TRS are bank holding companies, our business is also subject to further
regulation and regulatory oversight by the Federal Reserve. As a service provider to regulated U.S. banks, our GNS
business is subject to review by certain federal banking regulators, including the Federal Reserve, the FDIC and the OCC.
For additional information about our regulatory status, see “Supervision and Regulation.”
CORPORATE & OTHER
Corporate & Other consists of corporate functions and certain other businesses, including our prepaid services
business (which offers stored value/prepaid products, such as American Express Serve®, Bluebird®, the American
Express®Gift Card and Travelers Cheques), LoyaltyEdge®and our foreign exchange services. Our support functions,
including servicing, credit and technology, are organized by process rather than business unit, which we believe serves to
streamline costs, reduce duplication of work, better integrate skills and expertise and improve customer service.
As an issuer of stored value/prepaid products, we are regulated in the United States under the “money transmitter” or
“sale of check” laws in effect in most states. We hold the funds received for stored value/prepaid products in accordance
with applicable law, predominantly in highly rated debt securities consisting primarily of intermediate- and long-term
federal, state and municipal obligations and bank deposit accounts. Sales of Travelers Cheques and net interest income
from the Travelers Cheque investment portfolio continued to decline in 2015. We are also required by the laws of many
states to comply with unclaimed and abandoned property laws, under which we must pay to states the face amount of any
Travelers Cheque or prepaid card that is uncashed or unredeemed after a period of time depending on the type of product.
In November 2014, the CFPB proposed regulatory standards for prepaid cards, including uniform disclosures,
certain protections for consumers and other requirements. Because the proposed rule is not final, the ultimate impact
of these measures on us is not certain.
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