American Express takes a hit in the points game

Lots of folks will gladly tell you how awesome the American Express Membership Rewards program is (and often include a link for you to enroll, earning them a few bucks for the effort). The points are reasonably easily transferred to a variety of loyalty programs and the overall value is decent. Plus their enrollment bonus numbers are often pretty solid, including some incredibly generous offers every now and then. But all those points have to be paid for eventually. For American Express that point is apparently now. And the numbers are not pretty.

The company announced a number of financial charges and restructuring efforts late last week, many related to their credit card products focused on lower income markets. But there was one rather surprising number which also cropped up in the list of charges the company would be recognizing:

It also said it would record $342 million in expenses related to its cardholder rewards program after determining the rate at which its customers redeem points earned on purchases is higher than previously calculated.

It would seem that the folks running the actuarial tables to bet on how much servicing the points will cost missed. Badly. More than a third of a trillion billion dollars in redemption costs AmEx pays to partners was missed as part of their recent performance efforts. Is this because customers are becoming smarter about how they redeem their points? Or because they really just screwed up in the accounting department? Hard to know for certain but neither is necessarily a comforting thought.

The company was still profitable in the quarter despite the write-downs so this isn’t likely to lead to massive restructuring of the awards side of their business. Still, it has to raise some concerns in the world of cardholders churning for points. As the cost to service the points rises the acquisition costs of customers grows. Trying to keep that number down is one of the primary keys to building a strong customer portfolio. If the enrollment bonuses cost the banks more over time then either the points have to decrease in value or the number issued has to decline. Neither of those is a particularly enticing option.

Definitely something to pay attention to in the coming weeks and months; maybe there was a very real business reason so many affiliate link providers got cut recently.

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Seth Miller

I'm Seth, also known as the Wandering Aramean. I was bit by the travel bug 30 years ago and there's no sign of a cure. I fly ~200,000 miles annually; these are my stories. You can connect with me on Twitter, Facebook, and LinkedIn.


  1. As per a WSJ article, AmEx said 94% of points were being redeemed. It’d be interesting to find out whats the number for airlines and other cards.

  2. I suspect the large cost is due to 1) large CC signup bonuses and 2) transfer bonuses. I know when I see a good transfer bonus, I immediately transfer out many MR points. Perhaps a better business model would be to slightly increase the transfer ratio and stop running transfer bonuses. That would encourage people to keep their points in their AmEx accounts for a longer period of time. It may also be beneficial to stop running short-lived 75K – 100K CC bonuses, and instead run 40K – 50K bonuses for longer periods of time. Just my two cents.

  3. Probably because they have crazy 100K MR signup bonuses (to USA) and nothing for Canadian/UK/etc.. 🙂

    I sure hope they don’t de-value AMEX MR overall, or only limited to certain countries

  4. The way I read it, they incurred $342M in total, not miss their estimates by that much.

  5. allowing to churn after 12 months of account being closed is probably contributing to this. I am sure they are trying to hold on to their market share, we’ll see what happens in 2013.



  6. @Jon, AMEX want you to transfer those points to other programs, because they can reduced the liabilities.
    Thats why they run those transfer bonuses.

  7. @$100 to $250 finder fee for each approved app via an affiliate link referral, they obviously miscalculated the impacted of a blog having 7 affiliate links in one post, and reposting that post 3 times that week. 🙂

  8. They had a similar problem last quarter, too. “”Growth in spending is partially driven by the costly rewards Amex offers to its cardholders. While total operating expenses were up 13% from last year, cardholder rewards and services were up 25% from last year, reaching 42% of discount revenue compared with 37% in the prior-year quarter. We think higher rewards are inevitable, especially since the level of competition in rewards is rising”

    I think they’re discovering what the FF community has figured out long ago: the MR bonuses are more valuable than people realize. Customers are getting more savvy about acquiring points, and about maximizing redemptions. Amex is going to have to fix this, and I don’t think it’s going to be good news for customers with large MR balances.

  9. I’m just hoping this doesn’t mean we won’t be seeing any more transfer bonuses. I don’t have a ton of MR points, but I’ll probably transfer at least part of them out at the next good opportunity.

  10. Nice catch Seth! Time will tell where Amex goes from here. Not encouraging for the points addicts. BUT the company is still solidly profitable and may swing back hard at Chase to gain back some customers who left…

    It should be exciting. First 50% transfer bonus I see to the main partners I am out:-)

  11. I wonder how many points they are on the hook for that last run on the 100K for the Platinum Card last week.

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