Consumer Financial Companies and Reward Expenses

Consumer Financial Companies: A Comparative Analysis PART 2 OF 8

Rise in expenses

American Express (AXP) witnessed a rise in its total operating expenses, which were $2.6 billion in 2Q17, thus reflecting a rise of 39.0% on a YoY (year-over-year) basis. The company has seen a rise of 9.0% in card member reward expenses in 2Q17 compared to 2Q16. In 2Q17, card member reward expenses were $1.9 billion, and in 2Q16, they were $1.7 billion. Total card member engagement spending was $3.1 billion in 2Q17. According to top management for American Express, the company expects to see a fall in marketing and promotion expenses in the second half of 2017 compared to 2016.

Rewards, rebates, and incentives

Mastercard’s (MA) incentives and rebates increased 22.0% on a YoY basis on a currency-neutral basis in 2Q17. That increase came on the back of renewed and new deals as well as higher volumes. In 2Q17, Mastercard’s incentives and rebates were $1.3 billion compared to $1.1 billion in 2Q16.

Consumer financial company (XLF) Visa (V) has seen an increase of 37.0% on a YoY basis in client incentives. Those client incentives in fiscal 3Q17 were $1.1 billion compared to $0.80 billion in fiscal 3Q16.

The rewards rate for Discover Financial Services (DFS) was 1.2%, representing a lower rewards rate compared to the company’s expectation for 2017 of 1.26%–1.28%. However, management expects an increase in its rewards rate for the second half of 2017.

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