American Express Company (AXP) 25th Annual Scotiabank Financials Summit 2024 Conference (Transcript)

American Express Company (NYSE:AXP) 25th Annual Scotiabank Financials Summit 2024 Conference September 4, 2024 11:50 AM ET

Company Participants

Anna Marrs – Group President of Global Commercial Services and Credit & Fraud Risk

Unidentified Company Representative

So, I’m delighted to start our keynote presentation of the day. It’s really a pleasure to call to the stage Anna Marrs, Group President, Global Commercial Services and Credit and Fraud Risk at American Express. And we’re so excited. This is the first time American Express has been at our conference.

Anna, good to see you.

Anna Marrs

Wonderful to be here.

Unidentified Company Representative

Thanks for making the trek up.

Anna Marrs

Not that far.

Unidentified Company Representative

Not that far too. So, yes, a lot to learn from American Express as a global leader. And so, I’m really excited about our conversation. Maybe the first place to start is just to give you an opportunity to talk a little bit about just because I think you have a very interesting background, you joined Amex in 2018. So maybe by way of introduction, you can tell us about the journey that brought you to American Express.

Anna Marrs

Great. Kind of softball to lead in — that’s perfect.

Unidentified Company Representative

That’s right.

Anna Marrs

All right. So first of all, thanks for having us. Scotia is a great partner of Amex’s around the world. It’s great to be here. And as you said, this is our first time at your Financial Summit. So, thank you. And yes, I joined Amex in 2018 right around six years ago. Before that, my last job before Amex, I was at a bank called Standard Charter Bank. It’s an emerging markets bank with presence across Asia, Africa and the Middle East. I ran the commercial banking and private banking business there and also the region of Asian and South Asia.

And before that, for about a decade, I was at McKinsey as a partner in the banking practice. Commercial Services, which I run now, it’s about 25% of American Express’s revenue, about $14.8 billion of revenue last year. And so, when I got the call about Amex, what was it, what made me excited about joining because I had a — I was on the other side of the world. In fact, I was living in Singapore when I got the call, but really, the first thing that excited me about the Company was this commercial services business.

We’re very much a leader in what we do, and we’ll come back to that, I’m sure, through the conversation today. But there were also a lot of opportunities to grow in different directions from that leadership position. So that was very exciting. And then coming from a more traditional kind of commercial bank, what American Express was good at I thought was fascinating. So, a real service orientation, customer marketing spine, so that was exciting.

And then when I joined our new — the new CEO is just taking over, Steve Squeri, and it was a really interesting time for the Company. So, he’s been with Amex for 35-ish years. He brought all this growth, drive and transformation energy. So, I wanted to be a part of that journey, and it’s been a fantastic journey and great to be part of the growth plan. So that’s the background. And now I’m based in New York, not far from here.

Question-and-Answer Session

Q – Unidentified Analyst

No more softballs. Now it’s all hard question here, but obviously, American Express, Hard to think of too many brands with — that are bigger than American Express, especially in financial services globally. I want to start off, but just getting your perspective on where we are from a macro standpoint, you have great insight to this question, I think, on an enterprise level because you’re in charge of credit risk across the enterprise.

But obviously, in terms of your focus on the commercial business, maybe first, sticking on the commercial side and then maybe we can broaden it in terms of — how healthy is the commercial side of the economy right now. And there’s different ways we can cut it.

We can talk about the U.S. We could talk about Canada. But maybe if you could kind of jump into that and give us a little sense of what are you hearing from customers? What are you seeing in the data in terms of how strong the commercial customer of American Express really is?

Anna Marrs

Yes. So, when American Express answers questions about macro, we do often start with billings because we’re very billions in fee centric, spend and fee-centric company. And so, I’ll start to answer the question a bit from that billings lens. If you listen to our second quarter earnings, Steve and our CFO, Christophe, also talked about the overall billions landscape that we’re seeing.

We’re seeing good billings growth against even — and stable billings growth against a more muted macro environment. And we’ve talked about the fact that we — looking ahead, we expect the overall economic environment to continue to be mixed. I think we all have that expectation. But if I take that commercial lens and I go in billings, I’ll talk about it in some subsegments and then if there are ones that left out, we can come back to it.

So, the first one I’ll talk about is our U.S. SME business. American Express has a very large share of U.S. small business cards. It’s around a 47% share of all small business card billions that comes through an American Express product. And over the last few years, U.S. small businesses have been through a lot, right? We all had pandemic closures, then we had the boom of spend that followed on the back of a lot of stimulus, inflation, supply chain disruption.

And then in 2023, we saw that spend moderate. We talk about our billions — about new billions acquired, about $1 billion that we attrite, but then about this organic same-store sales line. And that organic line has been really interesting to follow. We had this boom in this moderation into 2023. In the second quarter, our U.S. estimate billions grew at 2%. It was a slight uptick from the first quarter, but it’s still modest. It’s still lower billion score than we saw over the last couple of years. But there’s some other good signs. We continue to acquire customers at very strong rates to retain customers very strongly.

We continue to have best-in-class credit performance very critically in our small business, business. and have actually seen our gap to competitors from a credit perspective widen since the pandemic. So, what we say is we’re ready, right? We have this large franchise. These constants have been through a lot. We’re ready to grow with them, as the economy accelerates. So that’s U.S. SME. You can come back to any of that as you want during the conversation.

Then another slice I’ll take is the global corporate T&E traveler. I look around the room, I traveled here using my American Express Corporate card. Obviously, hopefully, many of you did as well. That part of our business is more T&E focused. We saw good recovery in T&E — after — imagine the Omicron variant, — remember that, that was a long time ago now, but we saw travelers hit the road again in 2021 and 2022 and 2023. And what’s really interesting in that segment of corporate travelers.

As you see, really, almost it feels like structural differences by industry in a post-pandemic world. So, the kind of road warriors, consultants, investment bankers are spending at or above 2019 levels, whereas technology companies, we’ve actually seen them, their T&E investment savoring muted. — as I kind of have gotten more used to a virtual world. But that business is 5% of the Company’s billings overall is strategically important to us. We want all those corporate travelers insisting on using their American Express cards around the world. and we’ll be there as T&E trends develop over the next few years.

But then finally, I want to talk about international, our international for Amex segments outside the U.S., commercial and SME businesses. There, we see very strong growth. So well, we grew 14% billings in the second quarter in that business. We used to grow at 20% pre-pandemic. And so, we’re excited about the long-term growth in that segment. And it’s because it starts from a very different starting position.

So, I talked about the 47% share of U.S. small business outside of the U.S. We’re one of the few players to have really dedicated charge value propositions for small businesses, but we have a much starting smaller share, so sub-5% in many countries. So, it be a long runway for growth outside the U.S. So, that’s how I’d answer it. It’s mixed macro, different growth rates inside the Company, depending on our starting position. We feel good about the long-term trajectory and potential.

Unidentified Analyst

That’s very helpful. Wondering if you can provide any insights into Canada specifically, obviously, a big focus for all of us here in the room in terms of what you’re seeing in Canada. I mean one interesting puzzle and we’ve talked about this with the big bank CEOs here this morning is Canadian macro indicators are definitely weaker than in the U.S., but the business of banking is actually stronger. We’re seeing it particularly commercial loan growth is a lot more robust in Canada than in the U.S. So, I’m hoping maybe you have some insight into that from your perspective at American Express?

Anna Marrs

Yes. And it’s easier for us to comment using that billings lens on the U.S. given how broad it is, right? So, if you have a 47% share of all U.S. small business spend running through your platform, you see a whole lot about how those businesses are spending, where they’re contracting, how they’re paying. Here in Canada, we’re much smaller. Our combined share of this — of Canada debit and credit is around 4%. So, we’re more of a niche player. And like everywhere, we play very much on the premium end.

And so, our focus really has been investing to grow in Canada. As you say, it is an attractive overall landscape. And those investments for Amex often start with coverage. How do we make sure that the card is accepted in more places? And I think what my Canadian colleagues told me is that in 2022, we actually added over 111,000 new accepted merchants here in Canada. We’re investing behind our value proposition. So, if you have American Platinum Card or a small business platinum card, you’ll see new features and benefits on it to make sure we are staying very competitive with what — as you say, is a good set of a great set-in fact of local competitors.

And then we also continue to invest in our brands in all kinds of ways, including like sponsorships. So, if anyone goes to like the F1 in Montreal, you’ll see American Express very present. Because we’re really optimistic about our ability to continue to grow in that premium segment in Canada in the long term. So, we’re going to keep — we’ll keep investing right on through whatever macro is ahead.

Unidentified Analyst

I want to get more into the details. But first, a few more questions just on the macro. Maybe again, focusing on the U.S., where you have that deep insight just in terms of — give us a little bit of insight into travel spend and where it has come back, right? It hasn’t come back, but more broadly in terms of where you really see demand thriving on the commercial side in the U.S. maybe on a sectorial basis versus areas where you’re seeing more and more weakness? And is there anything sort of surprising in that picture that you’re seeing?

Anna Marrs

I think one of the things that was surprising when we saw the kind of belt tightening that I described in 2023 in the small business billings kind of landscape was how broad-based it was. Really, it was an overall belt tightening. And you can imagine the amount of analysis we did into these billings trends. It was very prevalent across small businesses. We cut it by size, by industry, by years in business, all the possible by post code, all the possible permutations.

It was a very broad and very much pointed to this macro kind of taking abreast after all the stimulus and all the post-pandemic growth and being ready to navigate whatever was going to be ahead from a macro perspective. One of the things that I love about our charge card business from a credit perspective is it’s very short-dated credit risk, 30, 45 days. And it means that as you see trends in our modeling infrastructure, we can adjust, whether it’s line sizes or focus areas for acquisition for industries where we see sources of stress. And so as we went — coming out of the pandemic as interest rates increase, we did tighten up, tune up from a focus perspective here and there. But for us, it’s pretty at the margin.

So, I guess an example would be mortgage brokers, right? A super obvious, right? Interest rates are going up in the U.S. in 2022, ’23, people are already financing as much. The mortgage broker segment was constrained. And then another one where we always have is on is construction. It’s obviously a big industry everywhere, also in the U.S. It’s — our portfolio is very diversified, but it’s a piece of our portfolio, and there were pockets of stress and types of construction, take homebuilders for the same reason. So, we always look to tune, but the breadth of the kind of step back points more to broader macro. In particular, the cost of borrowing. It’s much higher than it was pre-pandemic. And as interest rates come down, it will make a difference to confidence and spend.

Unidentified Analyst

I just wanted to mention that Anna will be taking questions from the room. So, we’ll leave some time at the end. So, I just wanted to make sure so you can start thinking of good questions. Just wrapping up this discussion on the macro, again, tying it to your overall enterprise-wide credit responsibility. What are you seeing on the consumer side? Is it very similar to kind of the trends you’ve been talking about on the commercial side? Is there anything different that you would highlight there?

Anna Marrs

It’s similar in terms of always having pockets that you have to keep your eyes on, whether it’s loans or debt settlement companies. One of the things that I put really impressed by when I joined Amex was the depth of our decision sciences and modeling infrastructure. It’s very much how we run the Company. And so, we’ll always be looking for pockets like that. But overall, we continue to have best-in-class credit performance. You’ve seen it as you look at the gap or the outperformance of us versus competition.

And you also see it in the fact that our delinquencies continue to be lower than they were pre-pandemic levels. And small business, for example, our delinquencies as a percentage of loans and receivables today is 1.3%, pre-pandemic was 1.4%. And that’s after a period of a lot of growth. We acquire almost twice the number of new accounts in our small business franchise today as we did pre-pandemic with delinquencies that are very well controlled. So — there’s always little watchouts. I think the phrase we use is constructive paranoia, but nothing holistic that has us concerned. And we’ll stay focused on it clearly.

Unidentified Analyst

I like that constructive paranoia — maybe I’ll use that.

Anna Marrs

I think it was like a book out there. I think someone got there first.

Unidentified Analyst

Sounds good. I wanted to dig into the strategy. I mean, you’re touching on it here in terms of Amex focused on driving growth in the commercial market, SME in particular. And so the question is what makes it such an attractive opportunity. When we think of SMEs, you tend to think of a lot more risk, I think, maybe that’s the first thing that comes into mind. But what’s so attractive here and why the push in terms of SMEs in particular?

Anna Marrs

Yes. And so people often do think of like the corner shop or the local restaurant when they think about small business our definition in the U.S. SME businesses, business is ranging from very small, $1 million of revenue, up to $300 million of revenue. So, you can get into some very sizable companies there. And I think there’s a few reasons why Amex historically and going forward, really like the commercial space.

The first is there are long-term structural drivers of growth in payments in small business. If you look back like 1.5 decades, maybe like 2010, you’ll see an industry payments growth rate of around 9%. And that’s pretty good. That’s almost double digits. That’s a very nice wave to ride on. And some of the things that underpin that payments growth are some really nice structural tailwinds. So small business formation. After the pandemic, small business formation in the U.S. increased by over 50%, and it stayed there over the last couple of years.

So, there’s more small businesses, and they’re paying more and more with digital payment mechanisms. This is a very specific aspect of the U.S. payments market. Back in 2010, 2/3 of all U.S. small business payments were still made with paper check — you are like why in the world, that is amazing. It’s now about 1/3. So you’ve seen that digitization flow through, but there’s still room for digitization to come.

And from a small business perspective, I obviously spend a lot of time with these customers. They like the card. They pay today, they pay us back later, either 45 days later or if they want to revolve longer, they get points, their supplier likes the security of the receivable, so the space is growing. It’s got some nice tailwinds and it’s appealing to customers. So, we like the opportunity area. And then we start with this leadership position, that 47% share. A lot of times, I do get the question like, how is that possible? And then how — over the last couple of years, we’ve actually slightly gained share. So, we were 45.8% share pre-pandemic. Now were 47.1%, like this is like too many decimal points for everybody. But — it is a slight share gain, which is hard to do when you start at 45.8%.

But we do that because our competitive advantages in this space are really relevant. You talk about credit. And yes, we need to make sure we manage our credit risk. We’re very focused on ensuring we have a best-in-class credit performance. But our ability to provide large spend capacity to these customers with all those decision scientists that we keep in the organization, that’s a competitive advantage. It has been for a while because small businesses want to spend at scale. So great opportunity. We start with a leadership position for some good value proposition reasons.

And then the third thing is we’re optimistic on this space in the long term. Yes, 33% of payments are still made by a paper check. It used to be 67%. But why in the world are all or 1/3 of business payments still made with checks like who is it good for? They get lost in the mail, they’re hard to reconcile. So that — those longer-term structural trends, we’re excited about making sure that we continue to invest behind, right, to drive growth over the long term.

And then I’ll just one more on credit. Absolutely, like the strength of the business in part comes from the scale, that 47% share is we have a very diversified base that we’re able to invest behind adjust and not get concentrated in any particular sector as sectors get in distress. So, that it’s a winning combination for us.

Unidentified Analyst

Just going back to the commentary, the comments you made on market share gains coming out of the pandemic. Just wanted to understand that better in terms of was it just a coincidence? Or did the pandemic create some conditions that you’re able to really capitalize on and it’s not a coincidence that you saw that market share gain in that period.

Anna Marrs

Yes. It’s not a coincidence. The meetings that we had when the pandemic was really in full flow in 2020 where I think there’ll be a par business review case study one day about this moment. But it was this year when it was just a vast amount of uncertainty, right? We all experienced that at our institutions.

I was unsure how the write-off and delinquency and reserve lines would perform. We were unclear on revenue growth, the side of the pandemic. All of our traveling customers stayed home. It was a period of tremendous uncertainty. But we, as a leadership team, decided to invest coming out of the pandemic to drive a different kind of metabolic rate of growth.

Steve has labeled it like in a not complicated way of the growth plan, and we invested to drive a different level of growth into the future. And when you look at our numbers, there was — I thought a nice slide that Chris updated investor. It took you back 20 years. just post the global financial crisis, Amex grew revenue at 6% and EPS about the same.

If you look at 2023, after we executed on that growth agenda and began to invest at differential rates in the business, we grew revenue and EPS at higher rates than 90% of the S&P 500. And so, it’s from that different scale of a base that we now look into the future. And it definitely came down to those decisions to invest a little early into the cycle and drive a different growth aspiration for the Company.

Unidentified Analyst

To ask about — how do you think about fee pools in the space? And where are the attractive fee pools in terms of segment, geography? And kind of a little bit deeper in terms of where you see the real opportunities?

Anna Marrs

Yes. So, fee pools coming into Amex outside from a more traditional bank, that’s right, my strategic head started. And then the very obvious chart that I had someone make was, okay, what share do we have in cards? What else is there that U.S. small businesses need and should we be thinking about expanding beyond that real fortress of our card position. So, we have that 47% share of card. We knew that small businesses really love the brand. The brand resonates with our small business customers. And so, we asked ourselves, what else do they need that we could credibly provide we began to build a series of what we then called beyond the card because we’re a very card-centric organization, capabilities for these small business customers.

And what every small business talks about for those who have had one or shop at one, which is all of us is cash flow. Small businesses, when they go out of business, it tends to be because of mismanaging their cash flow. When they’re receiving receivables and when they’re making their payments, and so we said, really, we want to build for small businesses as a set of capabilities that enable them to better manage their cash flow.

In doing that, we get into adjacent fee pools checking accounts. We launched a checking account. We began to scale it up in 2022. We bought a Fintech called Kabbage, to build a very digitally native, easy-to-use line of credit product. So, we get into the short-dated lending fee pool. And we put it together with a platform we call the Business Blueprint, which lets any small business, even the ones that aren’t our customers yet go on log in, link an external bank account, see their overall cash flow position. If they need, for example, a business line of credit, they can easily access that they have American Express checking account, they can take another card, and so it was designing — it was a strategic idea around fee pools, but also vary in the heart of what small businesses need.

But some of the metrics that I think are most interesting in the platform is some of the engagement ones, right? So, when a small business accesses this business Blueprint platform, nearly 20%, 18% actually taken another Amex product within three months. And I think it’s a real reminder that although it’s a buzzword, the ecosystem strategy is effective. If you make it easy, particularly for a time-constrained small business, they’ll do more with you. So, that’s where we’re continuing to maintain that card leadership position. There’s lots of competition out there that’s after that 47%, but also brought and beyond.

Unidentified Analyst

That’s so I want to ask, in terms of going beyond the car, when you think about it, we start talking about fee pools, but I think it’s a lot more than just the direct fees that get generated from those ancillary services. I think the other benefits, and so you talked about that statistic on a secondary card. I’m wondering if there are other benefits as well in terms of — I don’t know if you have any data on retention or on the credit side.

Anna Marrs

Yes. I mean, it’s, again, back to what the ecosystem play is a good one. There’s a lot of great synergies in there. You get more data. So I mean, you — when you — in a traditional bank, you know when you have the operating account and you can see the cash flow, that’s an incredibly important data source. We’ve built capabilities that let customers let us link in and have a look into their bank account through third-party services in the U.S., but that’s — it’s a great data source, right? So that’s a synergy well beyond just an incremental product, and that helps you also from a credit perspective. Lets you provide a larger line size. You can see cash on the account or a good cash flow. So, that’s a real benefit.

And you also definitely see over time lower attrition because customers do more with you. and then a willingness to do more over time. So, it’s a good strategy. Compared to our card business, which has been around since the ’60s. This is still in early days, but we’re excited about the growth potential and the stickiness. We’re very committed to small business at Amex. We want to make sure we help continue to grow.

Unidentified Analyst

I want to ask about interchange fee pressure. It’s very much a topic. And so how you deal with that pressure and sort of where you see it going from here? And so just if you could dig a little bit deeper into that important topic.

Anna Marrs

Yes. So, when I joined Amex, it was late 2018. We were a few months away from declaring virtual parity in the U.S., which means any time one of our card members takes out a card, any card-accepting location if they accept card, the accept American Express cards, and that was an extremely important milestone outside the U.S. and all of our international businesses around the world working to invest behind coverage because our card members want to use their card at the maximum number of locations.

My colleague who runs the merchant services business always says in good economic times or bad. One thing we know we need is more coverage. And as we talk to those merchants about accepting American Express Card, of course, they talk about price, but they also talk about getting more customers and growing their business. And our conversation with merchants does always come back to our premium membership model and the fact that our average customer spend with these merchants is higher, so how do we continue to invest and innovate to make sure merchants see the value of acceptance beyond price.

And we’re different. It’s this integrated model from a pure network interchange pressure will affect all networks. There’s no doubt about it. But we’ve got to make sure we continue to focus on that differentiation because we know that we need to continue to grow coverage, including here in Canada. I gave you that stat, there’s more to do.

Unidentified Analyst

I wanted to ask about sort of that line between the consumer side and the commercial side, I know for a lot of small businesses and depending on the industry, it could be a very fluid line in terms of using a consumer card really for very much commercial needs. And so, the strategy in terms of pulling from the consumer side to the commercial side, the value proposition of that? And is that a focus? Or are you actually happy with a certain percentage of consumers using their consumer card really for business needs.

Anna Marrs

So, there are many things that Steve did early in his tenure that made a big difference to this growth plan on the agenda that followed. But one was a very strong insistence on enterprise behaviors and looking at things of overall company-wide opportunities. So those of us who work in big companies know that’s not always the case. Things can get siloed. But at Amex, we’re very focused on maximizing the opportunity for our customers and the Company overall.

So over in consumer, there are nearly 5 million small business owners that have commercial — that have small businesses. So, it’s actually $4.9 million. $4.9 million business owners who just have a consumer product. And that’s a lovely prospect base for us. The average FICO is very high. I think it’s around 60, and we’re good with our analysis of billions trend identifying when actually that’s a small business owner. You can see it in their spend patterns.

So going out and offering those consumer customers, a small business card is an ongoing area of opportunity and focus and one that we’re very energized to continue to work through because it’s not like you see a substitution. It’s not like you have a small business owner that just uses this card for everything, for their consumer card for everything and then you have a small business card and so it’s just split. What you see when you have a business owner on a small business product, and they’re underwritten by our commercial models. So, we have a commercial-sized line size.

We actually see more than 60% growth in their spend overall. So, it’s truly a synergy when you can get a customer — we call them duals on both the consumer and a small business product. and we’re going to keep going because it’s also good for the customer. Segregation like that is a good way to manage your business and your personal finances and it’s great for us too.

Unidentified Analyst

Wanted to talk about credit risk. We touched on it, but just maybe first, from just a technology point of view and how American Express uses technology to underwrite new business and to manage credit and how that’s evolved over time? Anything sort of interesting that you can highlight in terms of how you use technology.

Anna Marrs

Yes, I think it’s an undercovered or under-understood part of American Express, just how much analytics and decision sciences are at the core of the enterprise. When you think about the way we continue to invest behind that decision sciences capability, we continue to pilot and innovate new modeling techniques. In fact, the first time American Express used AI in the Company, was back in 2010 in our fraud models.

Now 100% of all our credit and fraud models use machine learning and AI, old-school AI as part of the modeling infrastructure. And it’s a space we’re always tuning, adding new data sources, improving modeling techniques and looking to optimize that — the opportunity for us and our customers, right? Think about fraud. — you disrupt a point-of-sale transaction for a customer and it’s not fraud. It’s a very bad experience.

So we’re always trying to make sure we get that investment in balance right. And then in Decision Sciences resources themselves. So we have a number of Decision Sciences centers in the Company. And we recently opened a new one in Singapore that focuses on AI and GenAI to make sure we have a good series of hubs that can draw on the best decision sciences talent. We need to leverage this data, this rich data we have as a company and continue to drive the financial performance that we’re focused on. So it’s the deep spine of the organization and when do we know because things are evolving, we’re going to have to continue to invest.

Unidentified Analyst

And then maybe more broadly, also on the credit risk side, always struck me — how does American Express manage the risk of no preset spending limits? How does that feature get managed from a credit risk perspective?

Anna Marrs

Well, we can’t tell you actually — it’s a secret sauce. And many competitors are out there trying to copy it in a very upsetting way all the time. It’s a very competitive industry. But I’ll talk to what I’m just kidding. It’s not that secret, but I’ll tell you a little bit about it at a high level.

Unidentified Analyst

You have to kill me, but…

Anna Marrs

Yes. If everyone else, will have already heard — so through a series of data assets and models. Some of that data comes from third parties. I think we ingest a lot of third-party data from various bureaus and commercial data sources around the world, probably the deepest in the U.S. that we have these data sources globally. And we combine that with our own data, which comes from, in part, the integrated model. When a card member is a merchant and card member, you see a lot more — and we use that to score.

And any time you swipe your card anywhere around the world, it’s a real-time decisioning engine that decides whether to accept or decline the transaction. And it’s that I guess like the flexibility and the real-time nature of that, that means that we don’t need to grant you a limit. We can look at that transaction relative to your recent transaction history, your overall balance, we know about your industry, we know about you and your personal FICO and say is that transaction a go or a no-go.

And it’s that capability that means that we can — when a small business is thriving and growing, and they’re growing their spend we can grow with them in a very dynamic way. But although I was kind of joking about not telling you it is an area of competitive advantage that we do people trying to copy. They haven’t copied it yet, but it’s great for small businesses. They really — when they have the opportunity to invest and grow, we can be there for them in a way that manages our overall credit risk.

Unidentified Analyst

Wanted to talk about capital deployment and ask where are you deploying capital — where are you deploying capital, geography and sort of any other details you can tell us in terms of sort of the capital focus?

Anna Marrs

Yes. So, Amex is a bit different as more of a pure payments company. We have a 30% return on equity, which means that the capital deployment conversations are less like edgy than they were at my old bank, we generate a lot of capital. And so our overall capital management framework is pretty simple, right? I want to make sure we maintain our capital strength. We want to invest in the business, and we want to give capital back to shareholders, dividends, share repurchases.

But if I think about how we talk about capital deployment and those investment decisions, what are the hot topics and I’ll tell you some of the areas that we talk about a lot. So one area of meaningful capital deployment at Amex is marketing. The Company is going on track to spend about $6 billion this year on marketing investment to attract new customers to deepen our relationship with customers, and that’s up $800 million over last year.

So capital funding into marketing, we spent a lot of time on. I think the thing that I would say, which is very different to a traditional bank is that the marketing capabilities and platforms that the Company has, are tuned to help us do that in an optimal way. So, when you look at any marketing opportunity, a product in the channel, in a country, we calculate the return on investment from that specific marketing investment and it lets us arbitrate across the Company.

So, I can say, in a quarter, it’s better to spend it here on small business than their international or vice versa based on the math that underpins that marketing investment. Another area that all of us will spend time on from capital deployment is technology. This business is a technology business at its heart.

And so we’re continuing to invest behind technology, built to support card member experiences and to continue to transact at the scale and pace that we do. We’ve also been investing in technology as part of our growth plan. I think the numbers were up about $600 million in technology investment over the last couple of years. I think it was about a 40% increase. And we disacknowledge that that we’re going to have to continue to invest to meet customer expectations of ease and integration.

And then, of course, the last area of capital deployment will be M&A. So when do you decide you have that build by partner discussion when do you decide that it’s a buy and you deploy capital towards acquisitions. You will know you’ll see that Amex is not a large acquirer we tend — we’re very confident in the health and opportunity in our core business. So we tend to look at opportunities that are just adjacent. I think additional capabilities they can bolt-on for card members, and that’s where we have invested. It’s in our track record, right.

So I talked about Kabbage, that small business cash flow management platform that we bought on my business. And then recently, we bought two restaurant platforms that we’re very excited about to augment our ability to book restaurants and have more dining inventory and better experiences for our customers. So that’s where we continue to stay focused. But capital deployment. Those are the big areas. I’d say as we look ahead, you asked that question about was it an accident that you got to these different levels of growth, and it’s been through investing in those areas that we’ve driven this. And so, we’re very focused on continuing to invest to grow.

Unidentified Analyst

You talked about Kabbage, a fintech. So, it leads me to the question, which is a common question, but I’m curious, your perspective at American Express in terms of how you view fintechs at American Express. Are they competitors? Are they partners? both? How do you see that from a competitive perspective?

Anna Marrs

I think every traditional financial institution just can’t spend enough time with fintechs on fintechs. I think it’s — we have to be very always watching the overall landscape because the answer is in terms of competitor or partners, they’re both. And so, understanding that ecosystem is very important for looking for both.

On the competitor side, what many of the payments fintechs have been very good at, is looking for a very specific user problem and then building a piece of technology that makes it better. So whether it’s onboarding or cash flow availability and point of sale, whatever it is, they’re very good at the spot solution and making it really easy and overcoming kind of user barriers, the traditional players kind of haven’t gotten to.

But then the challenge with many fintechs is how do you scale? So you can scale to a certain point, but how do you get really scale. And that’s when then you begin to see partnerships kick in. A mid staged fintech working with a partner that’s more experienced in payments is more experienced with dealing with regulators like any of our traditional financial institutions are. There’s a good value proposition there for fintech and we see that. But you don’t know when they start out, who’s going to be the winner, right? So time wasting is a problem on both sides.

The fintech and waste a lot of time working their way through a big organization, or weak and waste time and so on that’s not going to end up being a winner. So we’ve built a series of much more turnkey APIs. It’s a program called Sync. I think good marketers. We named it. To make it easier for fintechs to hook in to the American Express payments ecosystem. So like if you want to have the provision of a virtual card in your platform, it’s very easy to do you buy these APIs?

And that’s the way we’re going to have to keep focusing on it. You talked about — I joked you about that what we say is like the paranoia — constructed paranoia. This is also a credit space for that. And this is a space for that too. With a lot of innovation happening out there, and we have to both learn from it and respond to it.

Unidentified Analyst

Room for healthy paranoia on different levels. I think we can open it up to questions. We have a few minutes left. If not, I’ve one or two that I can still ask, but let’s see if there’s any questions in the room. Maybe I’ll — while people are thinking we’ll talk about fraud. You touched on it, but obviously, a very important and fascinating topic. Curious given American Express, given the American Express model, how do you balance sort of security and ease of use, and you touched on it a little bit, right? You definitely don’t want to go too far one way or the other. How do you do that effectively?

Anna Marrs

It has to come with a lot of continuous innovation. Our fraud team, the colleagues in front, I always remark how that they literally all get up every day and think about that tenth of a basis point of fraud loss and how they’re going to work it out or that tenth of basis point of payment disruption rate and it’s just kind of continuous optimizing innovative system, was like culture inside our fraud teams.

And it has to be like that because fraud is a growth industry and it’s incredibly innovative. And GenAI is a tool for big companies to improve security or productivity, but it’s also a tool for fraudsters. And their ability to generate code more rapidly, to spot new attack vectors, all that is increasing.

And so, it has to be a space of continuous innovation and focus. We are super proud of our fraud results. I think it’s 17 — for 17 years, we’ve had the lowest fraud rate in the industry, and it’s about 1/3 of our — of the other networks. But it’s not going to stay unless we continue to innovate and push us day ahead, including with new modeling techniques because fraudsters are — it’s a growth industry.

Unidentified Analyst

And how does geography play into that? Do you see a big difference between the U.S. versus international? Is the problem worse in the U.S. or outside of the U.S.?

Anna Marrs

It’s everywhere. What you more see is like pockets of a particular type of attack or vector, but it can flare up anywhere in the world. I don’t think it’s a geographically specific problem. And I think the ubiquity of new modeling tools will make it continue to be a global, global challenge.

Unidentified Analyst

I don’t know if there’s any questions from the room.

Anna Marrs

I would say though just coming back on that. That is an advantage of being a global financial institution because there are times where we see as attack vector in one country that we can learn from in terms of globalizing into our overall capabilities. So that kind of global learning is an advantage, although it can happen anywhere.

Unidentified Analyst

So, I think that’s a good place to end the conversation. Again, I want to thank you so much for taking the time to be with us. And obviously, a fascinating discussion, we can talk a lot more, but our time is up, and thanks again.

Anna Marrs

Well, thanks for having me. Great to be here. Thanks, everybody. Wonderful thank you.