Buy now/pay later ‘is not a threat’ to credit cards: Amex CEO

American Express is aggressively pursuing younger consumers, but unlike many of its rivals, it is not making point-of-sale installment lending and cryptocurrency a focal point of this effort.

"Buy now/pay later is not really a competitive threat to us," Steve Squeri, Amex's chairman and CEO, said during Friday's earnings call. "It's targeted at debit card issuers. As a customer acquisition vehicle it's not the game we're playing."

For the quarter that ended Sept. 20, Amex reported net income of $1.8 billion, or $2.27 a share, up 63% year over year as the company continues its recovery from the pandemic's impact on business travel. A Thomson Reuters analyst poll predicted Amex would have earnings per share of $1.80. Amex also reported consumer and small-business spending grew 10% over third quarter 2019 on an FX-adjusted basis (card brands in 2021 have often compared transaction volume to 2019 as a way to measure current performance to pre-pandemic conditions).

Amex reported spending by millennials and Generation Z consumers grew 38% over the third quarter of 2019 on an FX-adjusted basis, and 75% of new Gold and Platinum consumer cards came from those two consumer groups.

"You see that millennials and Generation Z customers are leading the growth in spending," said Jeff Campbell, vice chairman and chief financial officer of Amex.

Analysts asked Squeri about the company's marketing spending, which was $2.3 billion for the quarter, up 5% from the second quarter and 28% from a year earlier. That spending is partly offset by the higher use of fee-based products, Squeri said, and these products are finding traction with young consumers, he said.

Analysts also asked about buy now/pay later and cryptocurrency, and how Amex is competing in those categories to win young consumers.

Fintechs such as Klarna, Afterpay and Affirm grew quickly over the past year as buy now/pay later became one of the hottest trends in financial services, creating demand that is increasingly drawing in more traditional financial institutions such as Goldman Sachs and Capital One.

Amex has offered its own version of buy now/pay later since 2017, and during his prepared remarks at the beginning of the earnings call Squeri called Amex an "early mover" in the business.

Under questioning from analysts about the number of companies pursuing the buy now/pay later market, Squeri positioned Amex's product as a way for consumers to manage their spending.

"It's more flexible than point-of-sale buy now/pay later," Squeri said. "And as for the 'pay in four' [products], our charge card gives you more float and more rewards."

Discover reported during its Thursday earnings call that the buy now/pay later market has not harmed its credit card sales. Discover offers buy now/pay later via a partnership with Sezzle, a Minneapolis-based fintech that uses Discover's network to reach merchants at the point of sale.

"We look at competitors all of the time and evaluate how they impact our customer base," Squeri said. The volume for Amex's premium cards, which were recently "refreshed" and in some cases carry higher fees than before the pandemic, are at record levels, he said.

"Millennials are about access and about the experience," Squeri said. American Express is "seeing a cardholder base that's spending more and it's skewing millennial and skewing toward" fee-generating products, he said.

Squeri was also asked about cryptocurrency. Visa and Mastercard have both used earnings calls to publicly express their interest in supporting stablecoin transactions and working with governments on central bank digital currencies. Visa and Mastercard have also made early plays in nonfungible tokens, or digital assets that are not cryptocurrencies but are typically linked to cryptocurrency wallets.

Squeri expressed a similar interest, saying Amex is thinking about a broad range of cryptocurrencies including stablecoins and central bank digital currencies. But he stopped well short of suggesting cryptocurrencies will become mainstream payments instruments.

"We don't use our cards to buy stock and people won't use our cards to buy crypto anytime soon," Squeri said, noting consumers can use cards on the NBA's digital collectables site Top Shop, and there could be a role for cryptocurrency in the future for rewards redemption. "But I don't at this point foresee any point where crypto is going to be a threat to traditional card payments," Squeri said.

Squeri also commented on potential fintech acquisitions; he did not rule out more dealmaking but noted the price to acquire fintechs has gone up. Record venture capital investment in fintechs during the first half of 2021 have also driven up company valuations.

Amex has made several acquisitions in recent years to diversify its product set, including Resy and Cake to expand its technology for restaurants and Kabbage to add financial services for small businesses.

"Some of these things are very highly valued and the math doesn't work. If something makes sense we'll look at it," Squeri said. American Express has investments in "40 or 50" companies currently and "We're always interested in things that will be accretive," he said.