Why Isn't the American Express Card Business as Big as Visa or Mastercard Globally?

American Express (Amex), Visa, and Mastercard are among the world's leading card issuers. However, despite their significant influence in the payment industry, Amex's global footprint is notably smaller than that of its competitors. What are the key reasons behind this?

Business Model

One of the main differences lies in their business models. Unlike Visa and Mastercard, which function primarily as payment networks, Amex operates as a direct issuer of its cards. This means Amex directly issues cards to consumers and businesses, whereas Visa and Mastercard partner with many banks and financial institutions worldwide. This direct approach can limit Amex's market penetration, as the extensive network of Visa and Mastercard partners allows them to reach a much broader audience.

Target Market

Another key factor is Amex's target market. Amex traditionally focuses on a more affluent customer base, offering premium services and benefits. This niche market strategy, while highly lucrative, can potentially limit its overall market size. Visa and Mastercard, on the other hand, cater to a much broader range of consumers and businesses, from small businesses to large enterprises. This broader appeal contributes to their larger market share.

Acceptance

Amex's international acceptance rates are another significant factor. While it is widely accepted in the United States, Amex has historically faced lower acceptance rates internationally. Many smaller businesses, in particular, may not accept Amex due to higher transaction fees compared to Visa and Mastercard. This limited acceptance can further limit Amex's growth potential.

Fees and Costs

Amex is known for charging higher merchant fees. These higher costs can dissuade some businesses from accepting Amex cards, which in turn limits the growth of Amex's acceptance network. Visa and Mastercard, on the other hand, often offer more competitive rates, making them a more attractive option for many merchants.

Global Strategy

Visa and Mastercard have dramatically expanded their global reach through strategic partnerships with local banks and financial institutions. These partnerships have allowed them to build extensive networks in various regions. In contrast, Amex's international expansion has been more cautious and less aggressive. This strategic approach has further contributed to Amex's smaller global footprint.

Brand Perception

American Express is often perceived as a premium brand, which can be both a benefit and a drawback. While high-spending customers are drawn to the premium benefits and services, this perception may also alienate cost-sensitive consumers who prefer more accessible options offered by Visa and Mastercard. This dual perception can complicate Amex's marketing efforts and limit its market appeal.

In summary, while American Express is a significant player in the card industry, its smaller global footprint can be attributed to its business model, target market, acceptance rates, fees and costs, and global strategy. Understanding these factors can provide valuable insights into the competitive landscape of the global payment industry.