This story was delivered to BI Intelligence "Payments Briefing" subscribers. To learn more and subscribe, please click here.In its Q4 and full-year 2016 earnings release, Amex announced results that fell short of analyst expectations, but still pointed in a promising direction.Any upward trend is critical for Amex, which has struggled in a number of key areas over the past several quarterslargely as a result of the sale of its Costco co-branded card portfolio last year. Costco was a big part of Amexs business, and the sale has forced it to look to new segments and innovative ideas to remain competitive. Amex needs to find ways to improve its billed-business performance. In Q4, both revenue and billed business decreased on a yearly basis, by 4% and 3% respectively. Excluding Costco, and on a constant currency basis, those figures improve to 6% and 7%, respectively, but the data still illustrates just how striking the impact of the Costco loss has been on the company. For context, Costco comprised 8% of Amexs nearly $1 trillion in billed business in 2015, leaving the company with a roughly $80 billion dollar deficit that it will be forced to make up for with new initiatives.Amex has been focusing on a number of things, including engaging existing customers, growing its acceptance network through small-business partnerships, and spreading awareness of that growing network. Most important, though, could be the firms customer acquisition initiatives.Amex is finding ways to fill the hole created by the Costco sale. The firm increased marketing and promotions expenditure annually, likely as part of a move to attract this population.Amex is doubling down on customer acquisition efforts. For Amex, the Costco portfolio represented over 11 million cards, many of whom were likely held by users that would not have otherwise owned an Amex product. And though the firm worked to maintain as many of these cardholders as possible by offering them other products, its unclear how successful those efforts were. It has been trying to fill the void with new customers.Those efforts seem to be working. Amex added 1.6 million US cardholders in Q4 2016 without Costco, leading to a quarterly average for the year thats relatively consistent with past trends, though its worth noting that a strong credit appetite should have propelled the firm further than it did. In the firms earnings call, Amex Executive Vice Present Jeff Campbellnoted that the firm has effectively replaced Costco as a distribution channel with its own proprietary activities. And those customers arent substantially different from the past customers that the network has acquired, according to Campbell, which means that we could see continuity in the firms spending and engagement trends as it grows its basea good sign for the firm as it moves away from Costco. American Express is just one part of the broader payments ecosystem, which has grown to include processors, merchants, acquirers, and more.John Heggestuen, director of research at BI Intelligence, Business Insiders premium research service, has compiled a detailed report on the payments ecosystem that drills into the industry to explain how a broad range of transactions are processed, including prepaid and store cards, as well as revealing which types of companies are in the best and worst position to capitalize on the latest industry trends.Here are some key takeaways from the report: 2016 will be a watershed year for the payments industry. Payments companies are improving security, expanding their mobile offerings, and building commerce capabilities that will give consumers a more compelling reason to make purchases using digital devices.Payments is an extremely complex industry. To understand the next big digital opportunity lies, it's critical to understand how the traditional credit- and debit-processing chain works and what roles acquirers, processors, issuing banks, card networks, independent sales organizations, gateways, and software and hardware providers play.Alternative technologies could disrupt the processing ecosystem. Devices ranging from refrigerators to smartwatches now feature payment capabilities, which will spur changes in consumer payment behaviors. Likewise, blockchain technology, the protocol that underlies Bitcoin, could one day change how consumer card payments are verified.In full, the report: Uncovers the key themes and trends affecting the payments industry in 2016 and beyond.Gives a detailed description of the stakeholders involved in a payment transaction, along with hardware and software providers.Offers diagrams and infographics explaining how card transactions are processed and which players are involved in each step.Provides charts on our latest forecasts, key company growth, survey results, and more.Analyzes the alternative technologies, including blockchain, which could further disrupt the ecosystem.To get your copy of this invaluable guide, choose one of these options:Subscribe to an ALL-ACCESS Membership with BI Intelligence and gain immediate access to this report AND over 100 other expertly researched deep-dive reports, subscriptions to all of our daily newsletters, and much more. >> START A MEMBERSHIPPurchase the report and download it immediately from our research store. >> BUY THE REPORTThe choice is yours. But however you decide to acquire this report, youve given yourself a powerful advantage in your understanding of the payments ecosystem.Join the conversation about this story
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