Thursday, September 18, 2008

2B or not 2B? That be "B2B" says American Express.

American Express Views B2B Model as Lower Risk, Higher Returns than Consumer Segment

From an article posted on Commercial Payments the global resource for commercial cards and payments professionals. To subscribe to their weekly newsletter, click here or the graphic to the right.

American Express emphasized its growth and opportunities in the B2B segment at a recent investor presentation. It stated that the B2B model has lower risk, higher returns, higher growth and is more geographically diverse than the consumer model. This was proven by a review of recent results posted by American Express.

In Q2 08 the B2B businesses of American Express generated 31% of its net revenues but delivered 55% of its net income. For all of 2007 these numbers were 29% and 38% respectively.

Source: American Express

The global commercial card product alone billed $122 billion in spend last year across 36 markets. The B2B model also has less of a dependence on the US market, generating 55% of its revenue from this developed market vs. 75% for the consumer segment. In difficult economic times as the US is now experiencing fluctuations in the B2B business will not impact American Express' results as much as those on the consumer side.

Other key indicators, such as ROC and ROE are also more rewarding from the B2B business. For one year the segment ROC was 48% for global B2B against 33% for global consumer. In Q2 08 this showed even a larger disparity with B2B still at 48% compared to 22% for consumer. ROE for the most recent year was 44% for global B2B and half of that, or 22%, for global consumer.

CAGR for the global B2B business was 11% from 2005 – 2007. Specific segments are delivering more of this growth with the corporate card middle market growth above or close to 20% since 2004.

American Express is concentrating on three main strategies to help it sustain B2B performance levels. The first is to penetrate new high growth areas such as B2B payments and emerging markets.

Its second key strategy is to expand its distribution footprint through its proprietary sales force and partner set. The third is to add new products and services through strategic investment and acquisitions.

In 2008 American Express invested in Concur and purchased the
GE Corporate Payment Services business. (see related article below)

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Mexico to be Major Growth Market for Corporate Cards

Mexico Expected to be a Major Growth Market for Corporate Cards
Commercial Payments International reports on the growth of Corporate Cards in Mexico:

Until recently corporate cards in Mexico were limited mainly to senior executives of very large companies. Several changes in this market have occurred recently indication that the Mexican corporate card market is poised for rapid growth:
  • Increasing numbers of mid-sized corporates and SMEs have begun to use some type of corporate payment cards
  • Petrol stations only recently began to accept cards for payment
  • The increased desire for visibility into corporate spend
  • The introduction of prepaid cards which have been successful as salary cards in a market with a large unbanked population.
Currently only four banks and American Express issue corporate cards in Mexico. In early 2008 Citibank, one of the leading global issuers of corporate cards, announced its plans to introduce new corporate card services in Mexico which will improve procurement process efficiency. Through its subsidiary Banamex, Citi already has over 150 corporate clients and have experienced a CAGR of 102% since 1999 indicating the significant opportunity in the market.
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