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    Is More of the Same Enough for American Express?

    AmEx needs more fresh thinking from its new CEO

    Is More of the Same Enough for American Express?
    Photo: Elise Amendola/Associated Press
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    American Express AXP -0.45% has a new leader, but its strategy and message haven’t changed much. That may not cut it in a highly competitive and rapidly changing payments landscape.

    New Chief Executive Stephen Squeri, who replaced long-time boss Kenneth Chenault on Feb. 1, stuck to some familiar themes in his presentation during the company’s annual investor day on Wednesday. He stressed the importance of the company’s integrated, “end-to-end” business model, which includes customer cards, a global payments network and merchant services. He also touted the brand’s reputation for security and customer service.

    Is More of the Same Enough for American Express?

    Over the course of the day, AmEx largely reiterated existing financial targets for 2018. It did, however, downgrade the amount it expects to earn in merchant fees per transaction, reflecting the costs of its drive to sign up new merchants worldwide.

    On the consumer side, AmEx appears to have weathered a competitive assault from big bank rivals like JPMorgan Chase and Citigroup surprisingly well. The relaunch of its flagship Platinum card last year, with enhanced benefits and a higher annual fee, was well-received. The company says it finished 2017 with a record number of Platinum customers who had also spent record amounts. It also renewed co-brand partnerships with Hilton Worldwide Holdings and Marriott International .

    There remain reasons for concern, though. AmEx’s rewards costs have been rising, but they remain low even compared to lower-end competitors. According to Credit Suisse , AmEx’s rewards cost per dollar spent on its cards came to just 0.81% in 2017, compared to 1.1% for Capital One and 1.24% for Discover. This suggests pressure to keep enhancing rewards may persist.

    The company says its strong brand and the “experiential value” of its cards outweigh “commoditized” rewards like cash back and points. But, over the long run, money tends to talk loudest.

    Second, the costs of the company’s drive to expand lending to card holders are coming into clearer view. Total provisions for credit losses rose 36% in 2017, and the company said it expects similar growth this year. Credit Suisse analyst Moshe Orenbuch notes this would put provision expenses at nearly half of pre-tax income this year, compared to just 25% in 2016.

    The company stresses that the U.S. consumer business accounts for less than a third of its total business. Its competitive position in corporate cards, for instance, is much stronger. But the competitive pressures in the U.S. consumer market aren’t going away anytime soon. Leaning on its traditionally strong brand reputation isn’t enough.

    Write to Aaron Back at aaron.back@wsj.com