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Here’s the real reason why American Express gives out such big rewards



Armed with impressive rewards and a loyal customer base, AmEx is a giant in the credit card industry. The company’s revenue has increased by over 32% since 2017 when adjusted for inflation and the company’s shares have shown resilience and growth in a tumultuous market.

“Discount revenue,” or fees charged to merchants that accept its cards, is the company’s main source of revenue. It brought in more than $30 billion in 2022, contributing to more than 58% of total revenue net of interest expense.

“They charge a premium to their merchants to take their cards,” said Lisa Ellis, a senior analyst at MoffetNathanson. “And merchants are willing to pay that premium because American Express is bringing them the most affluent, biggest spenders.”

Because of its reliance on discount fees, big spenders are AmEx’s most important asset. Recent company reports claim that Amex card members spend, on average, three times as much annually as those who aren’t members.

American Express targets these affluent cardholders through a ‘”spend-centric” model that focuses on generating revenues primarily by driving spending on its cards.


That’s where rewards come in. In just 2022, Amex spent almost $17 billion providing services and rewards to its card members.

“That high spend-centric model is the reason why they can provide such strong rewards that they do and why the customers are willing to pay those higher annual fees,” explained Dominick Gabriele, senior analyst at Oppenheimer & Co. “Because the people that are spending are actually making this up in their spend behavior.”

Watch the video to learn more about how AmEx makes billions in revenue each year.

Source: CNBC

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