American Express looks to grow small business loan revenue

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American Express Co (AXP.N) wants to grow small-business lending to make up for revenue it expects to lose after its credit card partnership with Costco Wholesale Corp (COST.O) ends this year. Last week, American Express said it will pay an undisclosed amount to feature its charge cards on Fundera, an online marketplace. AmEx hopes small-business owners will compare loan terms and rates and choose its cards over traditional loans. The company is bracing for the end of co-branded cards with Costco that accounted for 8 percent of worldwide annual spending on AmEx cards in 2014, and 20 percent of the company’s outstanding loans.

The planned end of the partnership in March has been delayed a few months because it has taken more time to move customers to a new card, the Seattle Times reported last week.

To make up for that lost revenue, American Express has focused on small-business loans, where it already has a foothold. It views small-business cards as an area with room to grow in the near term, unlike consumer spending.

In 2014, American Express cards for small businesses funded $190 billion in purchases, up from $122 billion in 2010. The company considers cards an untapped form of small-business funding, because small businesses tend to rely more heavily on cash and traditional loans. Only 10 percent of small-business spending takes place on cards.

At AmEx’s investor day last year, management highlighted its small-business loan operation as an area of focus.

“One of the very most important things we’re doing as a company is lending and funding,” David Rabkin, AmEx’s senior vice president of small-business customer acquisition, said in an interview. “Putting our cards on Fundera marketplace is part of that.” The charge cards American Express offers on Fundera, called Open, are designed for companies that need to fund large spot purchases of inventory or raw materials, and can pay off the balance in full each month. The Open cards do not charge interest, but carry an annual fee. Spending limits adjust with usage and payment history.

There may be pain ahead as American Express works to grow small-business lending. The credit-card business has gotten more competitive because banks and card issuers view the loans and transaction fees as a relatively stable source of revenue. Also, consumer spending has slowed despite cheaper gasoline. American Express shares have fallen 25 percent so far this year. The company plans to cut $1 billion in costs by the end of 2017.

By Olivia Oran

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