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American Express Company (NYSE:AXP)

Barclays Global Financial Services Conference

September 9, 2013 8:15 AM

Executives

Steve Squeri - Group President, Global Corporate Services

Analysts

Unidentified Analyst

Good morning. Thank you for joining us. We are pleased to have American Express present at the conference today, and we are joined by Steve Squeri, Group President, Global Corporate Services. Mr. Squeri ascertained this role since 2011 and prior to that held various roles including Group President of Global Services, Chief Information Officer, and Head of Corporate Development, where he oversaw the firm's mergers and acquisitions. As you know, Amex is the leading provider of payment and travel expense management solutions for business individual consumers and with cards [enforced to] 104 million and total bill business of approximately $888 billion in 2012.

As you can probably tell from the setup here, today's format is a fireside chat, so in other words, we are going to (inaudible). I have got a number of questions I am going to run through Steve, and towards the end, we will open it up to the audience for any questions that you have.

First question, last February you committed to hold annual OpEx growth to 3% or less for this year and next. I mean, you have delivered strong performance through the first half of 2013, what do you envision the balance of this year to look like?

Steve Squeri

Well I think, as we made that statement and I made that statement at the financial community meeting in February, was really a continuation of what we had started the year before, because coming into 2012, we had some pretty high OpEx, OpEx growth and the reason for that, at that particular point in time is we had provision benefits, we had the Visa-MasterCard money that had come back to us, and we were really trying to catch up from an investment perspective, because in '08 and '09, we really pulled back, and so you saw a lot of investments in things like Enterprise Growth and Loyalty Partner and so forth.

So there is a lot of concern on whether we could get a hold of our operating expense and the statement we made two years ago, is we were going to have OpEx less than revenue, and we delivered on that in 2012, and we came back out this year and said, look in 2013, it was important for us to bring it under 3%, and through the first half of the year, we are pretty much flat year-over-year and I think our plan is to still stay within that 3%, and what we are looking for, is we are looking to really be focused and we are looking to make sure that, where we spend our money, we are going to get good returns and when you say something like you are going to hold your operating expenses under 3%, one of the concerns immediately comes up and you are going to have enough investment capacity, and we believe we do have enough investment capacity and we will look at that between now and the end of the year, to determine just how far up we are going to move from that 0% to 3%. But we are very confident we will hit that goal not only this year, but next year. We are also very confident that it leaves us with enough flexibility and enough degrees of freedom, to not only deal with any compliance issues that may come up, but also deal with investment opportunities that arise as well.

Unidentified Analyst

Okay great. You mentioned you do have investment capacity. Can you talk about how you balance controlling expenses with investing in the business? Do you think the expense goal provides you enough investment capacity in your OpEx for all of your new initiatives?

Steve Squeri

Yeah, I think it does. I mean, on -- right on anything, which we always looked at is, is return. Obviously the return on investment doesn't make the corporate hurdles, and I think what's important to understand is, we did so much investment between Loyalty Partner and Enterprise Growth, that it's important to see those investments through. It's also important for us to ensure that we are investing in our sales organizations, we are investing in GNS, which are all growth businesses for us, and we feel very comfortable where we are right now, that we have enough investment capacity, but we also feel that we are very disciplined in how we are using our operating expenses.

Unidentified Analyst

Okay. Of all the new opportunities that you have made investments in, which do you view as the most scalable?

Steve Squeri

Well I think there is probably two from a new opportunity perspective. Loyalty Partner, which is a coalition partner business that we bought, which was headquartered in Germany. We continue to roll that out in Germany, rolled it out in Mexico, rolled it out in India, and that's -- it's a very symmetrical business for us, because it's really associated very closely with our payments business, rewards and coalition rewards are vey associated with payments, and so we see that as a way not only to do successful business on its own, but to attract more card members into the franchise, we either co-brand relationships or just proprietary card relationships.

And I think the second one, which has gotten lot of publicity here in the United States is our Serve platform, prepaid. And I think prepaid's really -- it's an interesting business -- back in 2010, we acquired Revolution Money and I was one of the people that went out and acquired that particular company, and we did it at that particular point in time is, we were looking for a way to expand our overall card footprint, and what better way to expand your card footprint than to look at the prepaid segment.

And when you look at this prepaid segment and there is a lot going on right now with, probably you have all heard about Bluebird, which is sort of our product to really attack debit and checking accounts, and to go after the unhappily, bank if you will, and that we are doing with Walmart, and that we believe is very scalable. Not only here in the United States, we believe it's scalable in international. We also think it's an opportunity for us to offer more products to our GNS partners. And so I think those two opportunities, both our prepaid products, which we launched off the Serve platform and Loyalty Partners are good opportunities for both of us.

Unidentified Analyst

Okay, got it. In addition to your forecast, [to hold] OpEx growth of 3% of less, you said that you want to reduce expenses as a percentage to manage revenue back towards historical levels. Expenses in 2Q were around 69% of revenue, what level do you feel is realistically achievable over the next two years? Is it entirely dependent on revenue growth, or could you see OpEx flatten out between that or below that 3% target?

Steve Squeri

Yeah, well I think we are getting pretty close. I mean, because if you look back at historical levels, it was more 67%, 68%. I don't look at 2008, 2009, where we were 64%, 63%, that's really historical at that point in time like everybody else. You are trying to make ends meet, for the lack of a better word. And I think that that level of 67%, 69% is pretty much where we are from a historical perspective. I think 3% OpEx target certainly helps; I think revenue growth is going to help us as well. So I think it's a combination of both, and I think you will see us within that range going forward.

Unidentified Analyst

Okay. Shifting direction a little bit, what are you seeing in the current economic environment, and what's the effect on spending?

Steve Squeri

Well, if you look at the economic environment today, you see stock market is doing pretty well. Housing is starting to rebound in a number of areas. But you still have GDP growth probably about 0.5. and you know, at that point to have for us is leading to probably high single digit [POD] growth, and when you look historically, for us, if we see 2% GDP growth, it's probably about 9% billings growth and as you start to move up, you get a little bit more.

I think the other thing that's kind of interesting around the commercial corporate part -- payments business, we are not -- we see corporations to be cautious. I mean, you have a lot of -- when you look at corporate TV spending, a lot of those budgets we set, probably at this time back in 2012 and currently not a lot of companies that were increasing their TV budgets. So I think that, corporate spending is -- while we are doing well, we are doing well from new acquisition, we are doing well from expansion, it's a B2B and capturing other spend and putting on a plastic.

So I think that, we are pretty happy with where we are from a billings perspective, given the economic environment, but I think as you see the corporate spending start to rise, you will see a flow through, we believe down to the consumer.

Unidentified Analyst

Got it. Have you actually observed any changes on consumer behavior?

Steve Squeri

Not really. When you look at our segment, which is -- obviously, we are very focused on the premium segment. We haven't seen a shift at all in where they are spending or how they are spending, which contrasts very differently to what you saw in '08 and '09, where we used to have people trading down, right. People that have white tablecloth, wind up at TGI Fridays. You didn't see as many luxury good purchases and things like that. We don't see that happening at all, at this specific point in time.

Unidentified Analyst

Okay. Your long term financial targets have been to grow revenue by 8% plus and earnings by 12% to 15%, with return on equity of 25% plus. Can you discuss your progress towards these targets year-to-date and the various paths that the company could take to achieve these goals?

Steve Squeri

I think, when you look at sort of year-to-date and my guys will correct me if I am wrong here, but we are about 9% EPS growth, probably about 4% revenue, 26% or so return on equity, which we are feeling pretty comfortable. Remember this is on average and over time, and so if you sort of aggregate what we have done last year and what we hopefully look to do in the future, we believe that these targets are very appropriate for where we are and for where we are in this economic cycle.

Unidentified Analyst

Okay. Do you believe that GDP needs to get above 3% and meet the 8% revenue?

Steve Squeri

As I said before, I think the correlation between GDP and billings growth; and billings growth is the big driver of revenue for us, right? I mean, we are made up of transactors. We don't have the same book of lending and the same revolve, that everybody else does, which is what our model is, and which we are very happy about. But when you look at GDP growth historically at about 2, we get to about 9. At about 3 would be within the low double digits, and that would bring us a little bit closer to our revenue target, and I think also the opportunity for some of the other initiatives to kick in, whether its Bluebird, whether it's Loyalty Partner, I think that will help from a revenue perspective as well.

So as we look to diversify a little bit, and not too far from the core. As I said before, Loyalty Partner and Serve are really not that far from what our core competency is. That will help ensure that we have a little bit more flexibility, and degrees of freedom around the edges.

Unidentified Analyst

Okay. Great. So business growth is driven by both growth of cards of course and average card member spend. What you believe will be the key driver over the coming year?

Steve Squeri

I think it's -- as you look, and I will talk about the individual businesses, but I think it's a combination of both. Let me talk about Corporate Card business first. As I said before, in the corporate card business, what tends to happen is, not a lot of companies are out there raising their travel and entertainment budgets. It's an easy line to control. There are other alternatives that are available to you, via video conference and so forth, and to be quite honest, our value proposition is to help companies control their TV spending and to actually try and reduce their TV spending and get more for less. So when we look at corporate card, we sort of look at that average spend as, not necessarily going up, where we grow our corporate card business as two-fold. We grow it by acquiring new companies, especially in the middle market. We have done a really good job in the middle market, which accompanies probably about under $500 million in revenue. A really good job here. We are really starting to expand in international, with the middle market.

The other thing I talked about is the B2B spending, where we capture indirect goods and so forth. So I think, when we think about the corporate card business, we look at sort of holding average spend, and we look at acquiring new cards to really continue to fuel that business, which is working out very well for us. I think the same thing gets to be said in small business as well. It's a very similar business to the corporate card business. It targets those companies that are really under $10 million, under $3 million in total revenue, and that's the same thing.

When you get into the -- I think the consumer business, I think it's not only new card acquisition, but it's also grabbing that share of wallet, and the way you grab share of wallet is, you grab share of wallet through improved coverage, improved value proposition, and ancillary services that might drive spend, whether it's our travel business and helping card members with travel.

Consumers tend to put their spending in compartments, and you really have to figure out, where the consumer has you in that compartment, and how you go after that spend. So I think there, it's continuing to drive average card member spend. And when you look at our average card member spend, versus the competition, I think we indexed at almost four or five times what the typical Visa-MasterCard will, or Discover cardholder would have, which enables us to drive and maintain that premium discount rate with the merchants.

Unidentified Analyst

Okay. Anything else you'd like to add on kind of what you can do beyond seeing GDP accelerate to kind of help improve card member spend?

Steve Squeri

I think you look at, as I said, individual card member spend, it's opening up more coverage avenues and so forth. I think when you look at overall total billings, I think it's a combination of things. As I said, it's more card acquisition, it's certainly more corporate card acquisition. It's GNS partnerships. Just announced GNS partnership with Wells in the U.S. That's going to drive more card spend for us. And I think when you think about Loyalty Partner and how that's working in Mexico and how that's working in India and Germany, that's going to help drive spend as well, because there will be an association between our card and that coalition, although the coalition is not as dedicated to our particular card.

Unidentified Analyst

Okay, great. What's the incremental cost of acquiring new card members, and at what point do you start to see diminishing returns on these investments?

Steve Squeri

Yeah. So when we look at acquiring cards -- we actually don't look at acquiring cards, we look at acquiring spend, right? So we have our models, we have our targets and so forth, and what we look at as we go after that basket of cardholders, we look at a basket of spending. So for us, we believe there are still opportunities to go out and get new card members. We still do direct mail, it's probably not the most efficient way to acquire card members, but it is still out there, and over 50% of our card member acquisition today is coming through online channels, in these co-brands and partnership opportunities as well.

So we don't look at a traditional cost per card. We really look at the overall spending that those cards bring in, and there are still opportunities out there on the table for us to go after, especially in the premium space.

Unidentified Analyst

Okay. Corporate card business growth trends has been somewhat soft over last several quarters. It sounds like B2B volumes are continuing to grow nicely. What are your thoughts going forward on corporate TV spending as well as the ability to continue to grow B2B aggressively?

Steve Squeri

I think as I said a little bit before, when we were talking about overall spending, there isn't anybody out there raising their T&E budgets. So our focus right now on corporate cards is acquisition. We have a tremendous acquisition engine, and that acquisition engine is really feet on the street salespeople that are out there calling on middle market accounts. When you look at multinationals, when you look at large market, we have a tremendous share of that market, and when you look at middle market, that's a segment of the population that is still using personal cards, has not really used a T&E product and so forth, and that's really just feet on the street and having the right value proposition. And the advantage that we have over our competitors is, we can offer middle market customers the exact same services that a multinational will have, because we are leveraging so much scale.

We are bigger than everybody else in this industry put together at this particular point in time, and that continues to grow. And so middle market is huge opportunity for us, and so when you look at our overall corporate card business, we look at organic growth pretty much as being kind of flat, and we look at all the growth from a TV perspective coming from that new acquisition. At some point in time, corporations will spend a little bit more, we will get on, on the road. We will see an organic pickup, and we will continue the acquisition engine. That acquisition engine is not only good for United States, but huge amounts of opportunities internationally to grow that as well.

As far as B2B; B2B is really about process change for companies. What we are really trying to do, is ensure that we put the same kind of control around spending for corporate TV products that we can -- we can put that around indirect products as well. So you might see that as office supplies. It's not direct good. It's not material that we would be using the manufacturing process of an end product, but it is those services within a company that a lot of companies just don't have control over, and so we embed ourselves within the (inaudible) process, and that's a huge opportunity for growth.

We are going after various verticals. One of the big verticals for us is hospitals. Where we go out, we put a program together for hospital to capture all their spending, and we get all of the suppliers. And that's a huge advantage of the closed loop network, where we know where these industries, these particular hospitals are going to spend, and we have our merchant organization go out and do it. So that's why you are seeing a big pickup in B2B spending, and a lot of focus we have on B2B spending.

Unidentified Analyst

Sure. Customer service has clearly been a differentiator for AmEx, as recently evidenced by the company, you have been awarded a J.D. Power award for the seventh year in a row for highest customer satisfaction among U.S. card companies. How have you been able to maintain their competitive advantage in customer service, while simultaneously reducing costs across the organization?

Steve Squeri

Yeah so, I will take you back a little bit here to sort of 2009 or so, when we -- what we decided to do was to globalize our customer service organization, up until then, we used to run service customer international, we ran customer service in the U.S. We ran it for our card business. We ran it for our merchant business. At the end of 2009, we decided to put all that together, and what we realized was, we had tremendous opportunities not only to cut costs, but we had tremendous opportunities to improve service. By pulling investments, by getting our common platforms, by looking at globalized processes rather than doing functions in 20 places to do them in two places.

So ironically, as we have cut costs and become more efficient, customer service has gone up. So it's not one or the other for us, and what we have done is taken out inefficiencies, increased investment and increased customer service evidenced by 7 -- it has only been seven J.D. Power awards given out, and we are seven to seven.

Unidentified Analyst

Okay. Can you talk about your strategies for building global acceptance and increasing your contributions from higher growth markets?

Steve Squeri

So I mean, it's always a bit of a struggle on where you invest money, and to get coverage, you need parts, and we are in I guess 28-29 proprietary markets and we are in other 190 markets through our GNS relationships. And I think when you look at developing markets, GNS is a huge opportunity for us to get coverage, and a great example of this is Bradesco in Brazil. We round up [I/Oing] Brazil probably six or seven years ago to Bradesco. And what we have seen is, billing has gone up, coverage within the market has gone through the roof. We have got other GNS partnerships, and it has become a much better market.

That's a strategy we are taking in a lot of the emerging markets, and what that does, is it really helps our travelling card members. It helps the overall brand, and it gets us the coverage that we need, because the reality is to try and invest in those 100 markets, we just wouldn't have the -- you don't have the focus, you don't have the financing, and you just don't have the overall ability to do that, and there is nobody else that really does it, from an issuing perspective.

Unidentified Analyst

Okay. That's a good segue to the next question. Now that you have got -- in the U.S., this GNS agreement with Wells that has been announced. Can you discuss the appetite for similar agreements with other U.S. financial institutions?

Steve Squeri

Yeah, we are open to them. So we are out there talking to people all the time. I mean, you have the bank -- we have Bank of America. We have got Citi. We are very-very excited about Wells. We are out talking to other people obviously. I am not going to tell you who we are all talking to, but you can guess. And it's a way for us to continue to grow the business, and I think, when you think about this, you are cannibalizing yourself. And the reality is, no, and historically what has happened and I can cite Singapore, I can cite Australia was we have had GNS opportunities, we have actually increased our market share, and the same thing has happened in the UK as well.

What happens is, through the GNS channel that allows us to get to card members that we wouldn't get to, whether we have a relationship with -- broker's relationship, or whether they just have a very high affinity to their banking institution. These GNS partners have an opportunity to get to high net worth, high premium customers that we may not get to ourselves. So it's a very symmetrical strategy for us, and we are going to continue to pursue it in United States, and we are going to continue to pursue it internationally.

Unidentified Analyst

Okay. You mentioned that you get to customers that you wouldn't otherwise get to, but presumably the economics of getting them through the GNS or in theory, if you could actually get them directly through your proprietary network, how do you kind of lay those?

Steve Squeri

Yeah, that's a great question. They are in theory, and I am not going to go into, whether it's one to 10, one to five. But 100% or nothing is nothing, and 20% of 100 is still 20. So we'd rather take a piece of the pie than nothing, and so you look at who you are going to get on your own, and you look at the customer base and you look at the GNS partnerships. Now we are not out there talking to every single mom and pop bank in the world and in the United States. We are looking at those institutions that are going to give us value, that are going to help to support the brand, but also get to customers that we wouldn't get to on our own. So that has worked out so far.

So well as I said, there are others that were interested in, it's not everybody, and it's those customers and those banks that give us an opportunity to get to those people that we are not going to get to on our own, because we have been trying to get them. I mean, it's not like we haven't tried to get to them and we haven't gotten them. So we can get an eighth of the pie, a fifth of the pie, half of the pie, let's say that, as opposed to zero.

Unidentified Analyst

Okay. You kind of addressed this already, but is there any additional light you can shed on the difference in the economics between the GNS and proprietary?

Steve Squeri

No, they'd shoot me.

Unidentified Analyst

Is it right to observe that the focus on GNS has shifted a little bit more from international to domestic, or you'd be kind of going in parallel?

Steve Squeri

No, we are going in parallel. I mean, you know, we have teams in international, we have teams in the U.S., it's not an even (inaudible). The other point I will say about GNS which I fail to mention is, no credit risk. There is no credit risk for us in that scenario, and there is no capital. We are not allocating capital, and we are not taking a credit risk. So it's a nice model for us. But no, we are still focused on international. We are focused on the emerging markets and we have a team of people that are focused on North America as well.

Unidentified Analyst

Okay. In what geographic locations do you see driving the largest growth in GNS going forward? U.S., Asia, other parts of the world?

Steve Squeri

I think it's -- Asia is still a huge growth opportunity for us. I think you have to look ultimately at Africa. I think there is still opportunities in South America, and obviously, we just got Wells, when you think about the scale of Wells and you think about the scale of the other providers that we potentially get, so I think U.S. is a big opportunity as well.

Unidentified Analyst

Okay, great. At this point we are going to shift to the audience response question. So those of you who want to participate, please pickup the handheld devices, [and probably] you have got a few questions. First one is, what do you think will be the biggest driver for AXP shares over the next year? One, margin improvement/expense control? Two, build business growth; three, buybacks; or four, multiple rewriting?

So pretty overwhelming 70% say build business growth. Next question please?

Do you think the European Commission's cap on interchange rates will pressure AXP's discount rate in Europe? One, yes; two, no.

We are looking at pie charts. 68% yes, 32% no.

Next question please? Over the next six to 12 months, what do you expect will happen to your exposure to AXP? One, increase; two, maintain; three, decrease; or four, remain uninvolved?

So looks like most people are involved; 40% of the audience looks to maintain; 26% increase and 16% decrease. So a fair balance here in the room.

We have one more question. How do you view additional GNS agreements with other U.S. issuers? One, positive; two, neutral; three, negative.

All right. So a pretty overwhelming 80 --

Steve Squeri

We know that they should go back and take a look.

Question-and-Answer Session

Unidentified Analyst

84% positive, 12% neutral. Okay, great, we appreciate your participation in that. At this point, I'd like to open it up to any questions from the audience for Steve?

Unidentified Analyst

Thank you. Going back to the prepay platform. You mentioned you'd like to expand internationally. I was just curious what regulatory feedback you've gotten in the treatment? I know that here in the U.S., the consumer financial protection thereof, has been kicking around the idea of perhaps instituting some kind of regulatory regime. But I just wanted to get your thoughts on what the feedback has been from -- in the U.S., and maybe any other international regulators?

Steve Squeri

Yeah. So I can talk a little bit about from the U.S. perspective. From the U.S. perspective, we are looking at this the way you look at any of our card products today, right. Because our belief is this will ultimately be regulated pretty much the same way, as the card business is being regulated today, I mean, the CFPB. If you look at what's going on in prepaid between fees and so forth, whether it has been -- if you don't spend, you get a monthly fee and so forth and so on. We believe that regulators will be on this exactly as they are on the existing credit card products today, especially as you look at -- we are positioning this as an alternative to debit, an alternative to checking. So we think it's going to be as regulated as the credit card business has become regulated. I think it's going to take a while before some of the regulators get involved, but if you look at our Bluebird product, we have FDIC insurance on that today. So it has been regulated by the FDIC.

So we are positioning ourselves a little bit different from the prepaid perspective. I think as we approach international, we are going to approach it the same way, with the same rules and regulations, as we are approaching our card businesses in that market; and the reason for that is, it's probably going to get that way, but it also provides consistency. Consistency in process, whether it's customer service, whether it's whatever you can think about, whether it's card acquisition and so forth. It just makes it easier for us and it will streamline a lot for us as well; because ultimately, I believe it will be regulated the same way.

Unidentified Analyst

Well while you think of other questions, I have got one for you. Going back to that topic on interchange in EU. Although there is a cap, it won't directly affect your proprietary business, do you expect there will be some pressure for European discount rate as (inaudible)?

Steve Squeri

I think, if you look at sort of what's out there and I think the devil's going to be in the detail, when is it going to get implemented and how quickly, they are talking about next May and talking about a two year sort of hiatus, cross border, and so it will take a while to get out there. But just to sort of set the stage, our merchant discount rates are not going to be regulated, because its third party system. We are not going to have our network functions and not going to have to be separated. Corporate card businesses are not impacted at all, and none of our transaction pricing will be regulated.

Having said that, our GNS business will be impacted. GNS is a very small percentage of our overall bill business, it's probably about 2% of our overall bill business in Europe, and Europe is probably -- I guess we have EMEA, that's probably about $100 billion or so of our overall volume. So we think that's going to be a relatively small impact from a GNS perspective.

If you look at what has happened historically in Australia over time, there was some discount rate pressure, and why is it discount rate pressure. We price on value and we price on value that we deliver to card members, value we deliver to merchants. But it's that corridor of value, there is only so much differentiation that you can have. So probably over time, there will be some pressure, but we have been available a premium discount rate in Australia. We have been able to maintain a premium discount rate in Argentina, where there is also some regulation. And we believe as long as we continue to add value, we will have that premium and that value add, and (inaudible) to play out just how much pressure there is. But again, you have to look at just what percentage the overall business EMEA is, and what percentage the GNS is at this point.

Unidentified Analyst

Okay. And if you did see some pressure kind of consistent with what happened in Australia, how much room is there to cut rewards expense to kind of help mitigate the bottom line impact to revenue?

Steve Squeri

Well I think you look at -- I mean, you look at a variety of things. You don't necessarily have to go to rewards, you can go to some of the card member services, and I think in anything, you sort of get down the pecking list and decide what is the most value to the card relationship, and rewards is probably the most valuable piece of this point. There might be some other things that we take off. There are other ways to luckily getting more efficiencies and instead of maybe dropping those to the bottom line, you are able to offset that reduction in discount rate, if there is one, with some of those efficiencies that we get, and we continue to move towards getting more and more efficiency.

Unidentified Analyst

Okay. Then on the flipside, assuming you do that to cut a little bit, but you are still able to either maintain or actually expand your value proposition, could you actually gain market share on that?

Steve Squeri

Yeah I mean the other side of it is, you know, we may be a lot more attractive now to co-brand partners; because we will have potentially more economics to give than our competitors did, and an example of that is even in Australia, where we wind up with the David Jones relationship, which I am not so sure we would have that relationship without the regulation. So I think it can cut both ways. So while you may look at margin perspective, your overall margin may go down, your overall net income may go up, and so as I said, I think it's going to be interesting to see how it all plays out, but I think we are going to have an opportunity, there might be more opportunity with even GNS partners, I think a lot of people looking out and say well, is this potential death blow to the GNS business.

Well that premium margin may be enough to even put some more people over the edge at this particular point. So regulation takes time, it takes time to work its way through. European Union is a big entity with lots of people that have to weigh in. So I think it's going to take a while to find a way out, but we feel very confident where we are.

Unidentified Analyst

Okay. Any other questions from the audience? I am going to keep going. At the August Investor Day, you discussed the enterprise growth opportunity in detail, specifically highlighting Bluebird and the long term opportunity in that space. What's a realistic timeline for AXP to focus on prepaid cards to meaningfully contribute to earnings?

Steve Squeri

I think when we look at Bluebird, I think it's going to take some time. I mean, it's going to take some time to contribute meaningful earnings. I mean, you look at $5 billion in net income last year, that's a big number. But I think, I will take you back to GNS; GNS now meaningfully contributes to the company's performance, and that took probably 10 years for that to do that. But it is a key strategic part of our business now, and I think when you think about Bluebird, there were other opportunities with Bluebird and with Serve. I think there is a two-pronged strategy with the Bluebird product -- with the Serve product. Number one, to stand on its own as a contributing entity. Number two, is to shepherd people into the franchise; and what it gives us is an opportunity to get more data, more information on cardholders that just came into the franchise (inaudible) with a very thin credit [fossil]. And so, when we look at this, we look at this a little bit like -- sort of cradle to grave strategy. It's an opportunity to bring people in to the franchise, introduce them to a Serve product, a Bluebird product, trade them up may be to a Revolve product, trade them up then to a premium Charge Card product and to keep them all the way through the franchise for us.

So that's another piece that that plays, and that's a little bit harder to measure.

Unidentified Analyst

Okay, got it. So at the Investor Day, you discussed the idea that prepaid cards could be leveraged to grow traditional cards and (inaudible) type of that. But in your view, how much [cross-sell] do the prepaid card members actually have with the traditional American Express card members?

Steve Squeri

Not a lot. I mean I think the -- if you look at a lot of people that are using prepaid products today, I have given prepaid products to my kids, and it's a way to introduce them to the franchise. So I think what will happen is, a number of our cardholders will use this as opportunities to give this to children or what have you, grandparents are giving it to their grandchildren. So I think it's an opportunity for the actually card base to sell in some of our prepaid products. But I don't think there is -- we are not going to cannibalize our traditional card business, and we are not going to cannibalize that business, you have the rewards component of it, you have higher spending power with the card and so forth.

Unidentified Analyst

Okay. And as that segment grows, is there any color you can give us on what the impact might be on your driver's discount rate?

Steve Squeri

I think prepaid rate is different than what the normal discount rate is, and I think when you are looking at -- we will get pretty close to $1 trillion in billed business next year, we should probably hope that it has that kind of a measurable impact, but it's going to have to be -- the business would really have to go tremendously. And if it does grow, that means we are growing revenue, we are growing our net income, and it's very synonymous to what's growing our volumes in the supermarket industry, or growing our volumes in the drugstore industry, where our discount rate is a little bit lower than some of the traditional industries. But that's just incremental volume and incremental revenue and incremental net income for us.

Unidentified Analyst

Great. Well I think we are going to have to conclude there, but please join me in thanking Steve for his time.

Steve Squeri

Thank you.

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Source: American Express' Management presents at Barclays Global Financial Services Conference (Transcript)
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