American Express Business Model: A Comprehensive Review

In this article, we will provide a comprehensive review of the American Express business model and its strategies in the financial services industry. As one of the prominent players in the credit card industry, American Express has built a strong foundation and competitive advantage through its innovative approach and diverse revenue streams.

Key Takeaways:

  • American Express is a leading player in the financial services industry with a strong business strategy.
  • The company’s revenue streams are generated from various sources, including transactions, annual membership fees, and interest income.
  • American Express’s competitive advantage lies in its focus on premium customers and its ability to offer a wide range of cash rewards and benefits.
  • The company’s financial performance is reflected in its robust revenue and net income figures.
  • Market positioning is a key challenge for American Express, as it faces competition in merchant acceptance from Visa and Mastercard.

Overview of American Express

American Express, founded in 1850, began as a freight forwarding and mail services company. Over the years, it expanded its operations into the financial services industry and introduced its first charge cards in the 1950s. Today, American Express is renowned for its credit card services and offers a wide range of digital products.

In 2020, American Express recorded a remarkable revenue of $36.1 billion and a net income of $3.1 billion. These impressive figures demonstrate the company’s strong position within the financial services industry.

As a prominent player in the credit card market, American Express has achieved consistent success by providing exceptional services to its customers. The company’s commitment to innovation and its focus on meeting the evolving needs of consumers have contributed to its enduring popularity.

With its longstanding presence and robust financial performance, American Express continues to shape the financial services landscape. By leveraging its extensive expertise and a diverse portfolio of offerings, the company remains at the forefront of the industry.

Year Revenue Net Income
2020 $36.1 billion $3.1 billion
2019 $43.6 billion $6.7 billion
2018 $43.6 billion $6.87 billion

The table above depicts the company’s revenue and net income for the past three years, showcasing its consistent financial performance.

How American Express Makes Money

American Express, a leading global credit card company, generates revenue through two primary sources – cardholders and merchant partners. Let’s take a closer look at how the company leverages these revenue sources to maintain its financial success.

Revenue from Cardholders

American Express charges various fees and earns interest on outstanding balances from its cardholders. These revenue streams contribute significantly to the company’s overall financial performance. Let’s explore the different ways American Express generates revenue from its cardholders:

  1. Annual Membership Fees: American Express offers premium cardholder benefits, which come with annual fees. These fees provide a consistent and predictable revenue stream for the company.
  2. Interest Income: When cardholders carry balances on their American Express cards, the company charges interest on those outstanding balances. This interest income adds to the revenue earned from cardholders.
  3. Other Fees: American Express also earns revenue from various other fees, such as foreign currency conversion fees and late payment fees. These additional fees contribute to the company’s overall revenue from cardholders.

Revenue from Merchant Partners

American Express has a vast network of merchant partners worldwide, and it earns significant revenue from these partnerships. Here’s how the company generates revenue from its merchant partners:

  1. Discount Revenue: American Express charges merchant fees, often higher than its competitors, for accepting their card payments. Partner merchants willingly accept American Express because the company’s cardholders tend to be comparably affluent and have a higher spending capacity.
  2. Increasing Transaction Volume: American Express employs a “spend-centric” business model, focusing on increasing the number of transactions made on its cards. The company achieves this by offering special cashback rewards, low fees, and attractive benefits to cardholders, thereby driving more spending and increasing revenue from merchant partners.

By capitalizing on the revenue potential of both cardholders and merchant partners, American Express maintains a successful business model in the competitive credit card industry.

American Express’s Cardholder Revenue

American Express generates revenue from its cardholders through various sources, maximizing its profitability in the credit card industry. Let’s explore the primary means by which American Express generates revenue from its valued customers.

1. Interest and Late Fees on Outstanding Balances

One of the main revenue sources for American Express is the interest charged on outstanding credit card balances. Cardholders who carry a balance from month to month incur interest charges, which contribute significantly to American Express’s revenue stream. Additionally, the company earns revenue from late fees imposed on cardholders who fail to make timely payments.

2. Annual Fees

American Express offers a range of credit cards with varying benefits and rewards programs. Many of these cards come with annual fees, which contribute to the company’s overall revenue. Cardholders pay these fees in exchange for exclusive benefits, such as travel perks, cashback rewards, and access to premium services.

3. Other Fees

Apart from interest and annual fees, American Express generates revenue from various other fees imposed on cardholders. This includes fees for foreign currency conversions when cardholders make purchases in a different currency, as well as charges for members who fail to meet their payment obligations.

By capitalizing on these revenue sources, American Express ensures a steady stream of income from its valued cardholders. The company’s focus on providing top-notch services and benefits continues to attract customers and contributes to its financial success.

American Express’s Merchant Revenue

American Express earns a significant portion of its revenue from merchant fees, which are charged to partner merchants. This revenue source is vital to the company’s financial performance and growth. Merchants willingly accept American Express because the company’s customer base consists of premium cardholders who tend to have higher spending power compared to other cardholders. These affluent customers are more likely to make larger purchases, leading to increased revenue for the merchant.

Due to the spending behavior of American Express’s premium customers, the company can charge higher fees to partner merchants. These higher fees reflect the value that American Express provides in terms of attracting and retaining premium customers. While the fees may be higher compared to its competitors, such as Mastercard and Visa, the benefits of accepting American Express outweigh the associated costs for merchants.

By charging higher fees, American Express can invest in providing exceptional services to both its cardholders and merchants. This includes robust fraud protection, dedicated customer support, and valuable marketing insights. These services contribute to the overall satisfaction and loyalty of American Express’s customers, further driving customer spending and merchant revenue.

It is important to note that American Express’s merchant fees vary based on factors such as the type of merchant, transaction volume, and specific contractual agreements. The company offers flexible fee structures tailored to the unique needs of different businesses to ensure a mutually beneficial partnership.

Card Network Merchant Fees
American Express Higher fees due to premium customer spending
Mastercard Standard fees for average customer spending
Visa Standard fees for average customer spending

American Express Future Plans

American Express has charted out several strategic initiatives to shape its future plans and maintain its market leadership. With a focus on expansion, innovation, and customer-centric solutions, these initiatives aim to further strengthen American Express’s position in the financial services industry.

Expanding Leadership in the Premium Consumer Area

American Express aims to enhance its presence in the premium consumer area. By offering tailored products and services, the company aims to attract and retain high-value customers who seek exclusive benefits and exceptional rewards. The strategic focus on this segment will drive revenue growth and elevate the overall customer experience.

Growing the Commercial Payments Segment

The commercial payments segment represents a significant growth opportunity for American Express. As businesses evolve and adapt to digital transformation, American Express plans to offer innovative solutions that simplify and streamline corporate payments. By expanding its commercial payments portfolio, American Express aims to cater to the diverse needs of businesses and tap into new revenue streams.

Improving the Global Integrated Network

American Express recognizes the importance of a robust global integrated network to facilitate seamless transactions and expand its reach across borders. The company intends to invest in enhancing its network infrastructure and strengthening partnerships with acquiring banks and acceptance networks worldwide. By offering a reliable and extensive network, American Express aims to attract more merchants and increase overall card acceptance.

Focusing on Digital Offerings

In response to the growing demand for digital solutions, American Express is committed to expanding its digital offerings. This includes developing innovative mobile apps, digital payment solutions, and personalized customer experiences. By leveraging technology and data insights, American Express aims to provide convenient and secure digital experiences that meet the evolving needs of its customers.

The strategic initiatives outlined by American Express reflect its commitment to staying ahead in a rapidly changing financial landscape. By expanding its leadership in the premium consumer area, growing the commercial payments segment, improving its global integrated network, and focusing on digital offerings, American Express aims to create value for its customers and drive sustainable growth in the years to come.

Key Challenges for American Express

American Express, while a prominent player in the financial services industry, faces certain challenges in terms of merchant acceptance and market positioning. This section explores these challenges in detail.

Merchant Acceptance

One of the key challenges faced by American Express is the lower number of partner merchants compared to its competitors, Visa and Mastercard. As a result, American Express is less widely accepted, limiting its market reach and potential customer base.

Market Positioning

Another challenge lies in American Express’s market positioning. The company’s merchant fees are comparatively higher than some other credit card companies, which can deter potential merchants from accepting American Express cards. This can restrict market penetration and hinder growth opportunities.

However, it’s important to note that American Express’s unique position as both an issuer and a network provides benefits such as a streamlined and reliable service. Despite the challenges, the company continues to find ways to overcome these barriers and enhance its market position.

Challenges Impact
Merchant Acceptance Restricted market reach and limited customer base due to fewer partner merchants
Market Positioning Higher merchant fees can be a barrier to merchant acceptance

Understanding Business Models

In today’s competitive business landscape, understanding different business models is crucial for success. A business model can be defined as a company’s plan for how it will generate revenue and create value for its customers. Let’s explore some common types of business models:


The retail business model involves selling products directly to consumers. Companies in the retail industry set up physical stores or online platforms where customers can purchase their goods. Retailers typically buy products from manufacturers or wholesalers at a lower price and then sell them at a markup to make a profit.


The fee-for-service business model is commonly used in professional services such as consulting, legal, or healthcare. In this model, companies charge a fee for each specific service or task performed. Clients pay for the expertise and time of the service provider, allowing them to access specialized knowledge or skillsets.


In the manufacturer business model, companies produce and sell physical products. They are responsible for all stages of the production process, from sourcing raw materials to manufacturing and distribution. Manufacturers aim to create quality products that meet customer demands while optimizing their operational efficiency.


Subscriptions have gained popularity in recent years, offering customers access to products or services on a recurring basis. Companies using the subscription business model provide ongoing value to subscribers, who pay a regular fee for continued access. This approach often fosters long-term customer relationships and can provide a stable income stream.


The franchise business model allows entrepreneurs to replicate a successful business concept under a well-established brand. Franchisors grant individuals or groups the right to operate their business using their proven model, expertise, and support. Franchisees benefit from a recognized brand, training, and ongoing assistance, while the franchisor expands its reach and collects royalties.


The advertising business model relies on creating revenue by connecting advertisers with potential consumers. This model is commonly seen in media platforms, both online and offline. Companies attract advertisers to their platforms by offering access to a specific audience or a large user base. Revenue is generated through advertising fees or commissions.

Razor and Blades

The razor and blades business model involves selling a primary product (the handle or the initial product) at a low price or even at a loss, while making a profit from the subsequent sale of complementary products or services (the blades or replacements). This model aims to create customer loyalty and recurring revenue.

Creating a Business Model

When developing a business model, it’s essential to consider various elements:

  1. Target Audience: Identify the specific group of customers your business intends to serve.
  2. Value Propositions: Determine what unique benefits your products or services offer to customers.
  3. Channels: Define the distribution channels through which you will reach and deliver your products or services to customers.
  4. Revenue Streams: Identify the different sources of revenue for your business, including sales, subscriptions, licensing, or advertising.
  5. Activities: Evaluate the key activities required to produce, market, and deliver your products or services.
  6. Resources: Determine the necessary resources, such as physical assets, intellectual property, or human capital, needed to operate your business.
  7. Expenses: Analyze the costs associated with running your business, including production, marketing, personnel, and overhead expenses.

By integrating these elements, you can create a cohesive and comprehensive business model that aligns with your company’s goals and generates sustainable revenue.

Creating a Business Model

When building a successful business, it is crucial to create a well-defined business model. This strategic framework outlines the key elements that drive revenue generation and ensure the company’s long-term sustainability. A comprehensive business model takes into account the target audience, value propositions, channels, revenue streams, activities, resources, and expenses.

To begin, identifying the target audience is essential. Understanding the specific needs, preferences, and behaviors of your target customers enables you to tailor your products or services to meet their demands effectively. By doing so, you can differentiate yourself from competitors and create a strong value proposition that resonates with your target audience.

The next step is to determine the most effective channels through which you will reach your customers. This could include online platforms, physical stores, direct sales, or partnerships with other businesses. By selecting the right distribution channels, you can maximize your reach and ensure your products or services are accessible to your target audience.

A successful business model also establishes multiple revenue streams. These include sources of income such as product sales, subscription fees, licensing agreements, or advertising revenue. By diversifying your revenue streams, you can minimize the impact of market fluctuations and potential disruptions in your industry.

Furthermore, defining the core activities necessary for your business to operate and thrive is crucial. This could include production, marketing, customer service, or research and development. By ensuring that you have a clear understanding of the activities required, you can allocate your resources effectively and streamline your operations.

Speaking of resources, it is important to identify and leverage the key resources needed to execute your business model successfully. This could include physical assets, intellectual property, human capital, or strategic partnerships. These resources are essential to deliver value to customers and maintain a competitive advantage in the market.

Lastly, understanding and managing expenses is critical to ensuring the financial viability of your business. Analyze and allocate resources to optimize your expenses, including costs related to production, marketing, distribution, and administrative overhead. This helps maintain profitability and sustain your business in the long term.

Business Model Canvas

Business Model Canvas

Element Description
Target Audience Identify the specific group of customers your business aims to serve.
Value Propositions Define the unique value your products or services offer to meet customer needs.
Channels Determine the distribution channels through which you will reach and engage with your target audience.
Revenue Streams Specify the different sources of income your business will generate.
Activities Outline the key activities your business needs to perform to deliver value to customers and generate revenue.
Resources Identify the key resources required to operate your business efficiently and effectively.
Expenses Analyze and allocate resources to optimize expenses and ensure financial sustainability.

Business Model vs. Business Plan

A business model and a business plan are two different concepts. While both are essential for the success of a company, they serve distinct purposes and focus on different aspects of the business.

Business Model

A business model is a high-level plan that describes how a company will make money and create value for its customers. It outlines the fundamental components of the company’s operations, revenue streams, and value propositions. A business model provides a clear framework for understanding the company’s unique business proposition and how it differentiates itself from competitors.

  • Revenue Generation: A business model focuses on the company’s revenue generation strategies and the various sources of income it relies on.
  • Operations: It outlines the key activities, resources, and partnerships required to deliver the company’s products or services.

Business Plan

A business plan, on the other hand, is a detailed blueprint for how the business will grow and achieve its objectives over a specific period. It includes an in-depth analysis of the market, competitors, and target customers, along with financial projections and funding requirements.

  • Market Analysis: A business plan includes a comprehensive analysis of the market, target audience, and competitors. It identifies the company’s unique selling points and how it intends to capture market share.
  • Financing Requirements: It outlines the financial resources needed to support the company’s growth, including capital, investments, and potential funding sources.

While a business model and a business plan share similarities, their focuses and levels of detail are different. A business model provides a strategic overview of how the company will operate and generate revenue, while a business plan delves into the operational and financial aspects, outlining the steps and resources required to achieve specific goals.

Ultimately, a strong business model and a well-crafted business plan are both crucial for the long-term success of a company. The business model sets the foundation for the company’s operations and revenue generation strategies, while the business plan provides a roadmap for execution and growth.

Business Model Business Plan
Focuses on revenue generation and operations Includes detailed market analysis and financial projections
Provides a high-level overview of the company’s value proposition Outlines the steps and resources required to achieve specific goals
Describes how the company creates value for its customers Identifies funding requirements and potential sources of investment

Adapting Your Business Model

A successful business model is not a static framework but rather an adaptable strategy that evolves with the changing landscape of competition and economic conditions. To stay relevant and competitive in the market, businesses must be prepared to respond and adapt to various external factors. These factors could include emerging competitors, fluctuating customer demands, disruptive technologies, and shifts in the overall economic climate.

When the business environment undergoes significant changes, companies need to reevaluate their existing business model and consider adjustments that align with the new reality. This adaption could involve revisiting the company’s product offerings, pricing strategies, customer acquisition approaches, and distribution channels.

Responding to Competition

Competition is an inherent aspect of any market, and businesses must continuously monitor and respond to emerging competitors. Adapting the business model can help companies gain a competitive edge by identifying unique value propositions, enhancing customer experiences, and differentiating their offerings in the market. This could involve exploring new target audiences, diversifying product lines, improving pricing structures, or investing in innovative technologies.

Changing Economic Conditions

Economic conditions, such as recessions, market fluctuations, or industry disruptions, can significantly impact business operations and profitability. Adapting the business model allows companies to proactively address these challenges and seize opportunities amidst changing economic tides. This may involve optimizing cost structures, exploring new revenue streams, redesigning supply chains, or strategically partnering with other industry players.

By embracing agility and adaptability, businesses can successfully navigate turbulent economic conditions, maintain operational efficiency, and secure their long-term sustainability.

Benefits of Adapting Your Business Model Examples
Improved competitiveness Apple’s transition from a computer manufacturer to a leading provider of consumer electronics
Enhanced customer satisfaction Netflix shifting from DVD rentals to a streaming service
Increased market share Amazon expanding beyond e-commerce to offer cloud computing services with Amazon Web Services (AWS)
Maximized revenue potential Spotify’s evolution from music streaming to podcast production and distribution


The American Express Business Model is built upon providing a wide range of financial and travel services to customers through its credit and charge card offerings. Through its well-established revenue generation strategies, American Express earns income from various sources, including merchant fees, interest charges, annual fees, and foreign exchange fees.

American Express’s targeted focus on premium customers and its diverse range of services have positioned the company as a leader in the financial services industry. By catering to affluent customers and offering exclusive benefits, American Express maintains a competitive advantage over its rivals.

In its continuous pursuit of growth, American Express is actively developing strategic initiatives and adapting its business model. By expanding its leadership in the premium consumer area, growing its commercial payments segment, improving its global integrated network, and enhancing its digital offerings, American Express aims to maintain its market positioning and financial performance in the future.


What is American Express’s business model?

American Express operates by providing financial and travel services to customers through its credit and charge card offerings.

How does American Express make money?

American Express generates revenue through various sources, including merchant fees, interest charges, annual fees, and foreign exchange fees.

What are the revenue sources for American Express?

American Express generates revenue from two major sources – cardholders and merchant partners.

How does American Express earn revenue from cardholders?

American Express earns revenue from cardholders through various means, including interest and late fees on outstanding balances and annual fees for many of its cards.

How does American Express earn revenue from merchant partners?

American Express earns revenue from merchant partners through merchant fees, which are higher than those of its competitors, due to the spending habits of its affluent cardholders.

What are American Express’s strategic initiatives for the future?

American Express has outlined four strategic initiatives, which include expanding its leadership in the premium consumer area, growing its commercial payments segment, improving its global integrated network, and focusing on digital offerings.

What are the key challenges faced by American Express?

American Express faces challenges in terms of merchant acceptance and market positioning, as the company has fewer partner merchants compared to its competitors and charges higher merchant fees.

What is a business model?

A business model is a company’s plan for how it will make money, including its target audience, products and services, delivery methods, and profit generation strategies.

How do you create a business model?

When creating a business model, it is important to define the target audience, value propositions, channels, revenue streams, activities, resources, and expenses. This helps in designing a clear plan for how the business will operate and generate profits.

What is the difference between a business model and a business plan?

A business model is a high-level plan that describes how a company will make money, while a business plan is a detailed blueprint for how the business will grow over a specific period, including projections, market analysis, and financing requirements.

Is a business model set in stone?

No, a business model may need to be adapted over time due to factors such as competition and changing economic conditions. Adapting the business model allows companies to stay relevant and competitive in the market.