Last week, American Express (NYSE: AXP) reported its first-quarter earnings. Like many of the other big banks, the company reported a large provision for loan losses in the first quarter, as the COVID-19 global recession took its toll, with a growing portion of American consumers and small businesses unable to pay their credit card bills.
However, American Express isn't primarily a lender. It's also its own card network, earning a discount fee every time a merchant swipes an American Express card. In fact, Amex's discount revenue equated to 60% of total revenue last year, whereas net interest income on loans only made up 19.8% of revenue, with card fees and commissions making up most of the remainder.
Of course, the discount fee business is also going to feel the pain, as people pull back heavily on spending. Worse for American Express, it has a relatively large travel and entertainment book of business, since it's a premium brand that mostly appeals to wealthier, prime or super-prime customers. That usually provides steadily rising discount revenue in normal times, but these are anything but.
Source Fool.com