American Express Co

NYSE:AXP

Earnings Call Analysis

Strong Growth in Q1 Driven by Consumer Spending

In Q1 2024, American Express reported revenues of $15.8 billion, an 11% increase year-over-year, driven by robust consumer spending. EPS surged 39% to $3.33. U.S. Consumer Card spending grew 8% while International Card spending jumped 13%. Despite soft spending from U.S. SME card members, new card acquisitions were strong, especially among millennials and Gen Z. The company reaffirmed its full-year guidance of 9-11% revenue growth and EPS between $12.65 and $13.15. Fee revenues grew 16%, and American Express added 3.4 million new cards, driven by demand for premium fee-based products. Credit metrics remained top-notch with ongoing strong customer engagement.

Strong Start to the Year

American Express reported a robust performance in Q1 2024, with revenues rising by 11% year-over-year to $15.8 billion, and earnings per share (EPS) increasing by 39% to $3.33. This strong performance continued the trends observed over the past few years, signaling resilient growth in spending and revenues.

Growth Across Segments

The company's revenue increase was driven by a 7% rise in overall spending on an FX-adjusted basis. U.S. Consumer Card spending grew by 8%, while International Card Member spending surged by 13%. Fee revenues also saw a significant uptick, growing by 16%, supported by strong demand from millennial and Gen Z consumers. Notably, 70% of new account acquisitions were fee-based products.

Guidance Reaffirmed

Based on the strong Q1 performance, American Express reaffirmed its full-year guidance for 2024. The company expects revenue growth between 9% and 11% and EPS in the range of $12.65 to $13.15. This outlook suggests confidence in sustained growth and successful execution of its strategic initiatives.

Trends in Spending

Spending growth was diversified across categories with a 6% rise in goods and services and an 8% increase in travel and entertainment spending. Millennials and Gen Z led the charge, with spending among these groups rising by 15%. Conversely, spending by U.S. small- and medium-sized enterprises (SME) was softer, reflecting unique macroeconomic challenges.

International Growth

International Card Services were the star performers, with spending growth of 13%. This segment saw continued double-digit growth from both consumers and SME clients across various geographies, indicating strong global potential for the company.

Credit Performance

American Express maintained its best-in-class credit metrics. Despite a slight quarter-over-quarter increase in write-off and delinquency rates, the company remains confident in its high credit quality customer base and robust risk management practices. The year-over-year growth in loans and Card Member receivables was 12%.

Revenue Drivers

Total revenues were up 11%, driven mainly by a 6% growth in discount revenue and a 16% increase in net card fees. The company acquired 3.4 million new cards during the quarter, indicating strong market demand for its products. Additionally, net interest income grew by 26% year-over-year, driven by higher revolving loan balances and net yield expansion.

Expense Management

Operating expenses were well-controlled at $3.6 billion, flat from the previous year, showcasing the company’s efficiency in managing costs while growing the business. Variable customer engagement expenses came in at 40% of total revenues, with a $196 million benefit from enhancements in membership rewards redemption models.

Capital and Shareholder Returns

In Q1, American Express returned $1.6 billion to shareholders, maintaining a CET1 ratio of 10.6%. The company continues to prioritize returning excess capital to shareholders while supporting balance sheet growth.

Strategic Initiatives and Outlook

The upcoming 2024 Investor Day promises insights into the company’s long-term growth strategies, including expanding its premium consumer base in the U.S., capturing the SME market, and driving international expansion. The company remains committed to leveraging technology for efficiency and growth while reaffirming its revenue and EPS guidance for the full year.

Earnings Call Transcript 2024-Q1

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome to the American Express Q1 2024 Earnings Call. [Operator Instructions] As a reminder, today's call is being recorded.

I would now like to turn the conference over to our host, Head of Investor Relations, Mr. Kartik Ramachandran. Please go ahead.

[Kartik Ramachandran, executive]

Thank you, Darryl, and thank you all for joining today's call.

As a reminder, before we begin, today's discussion contains forward-looking statements about the company's future business and financial performance. These are based on management's current expectations and are subject to risks and uncertainties. Factors that could cause actual results to differ materially from these statements are included in today's presentation slides and in our reports on file with the SEC.

The discussion today also contains non-GAAP financial measures. The comparable GAAP financial measures are included in this quarter's earnings materials as well as the earnings materials for the prior periods we discussed. All of these are posted on our website at ir.americanexpress.com.

We'll begin today with Steve Squeri, Chairman and CEO, who will start with some remarks about the company's progress and results. And then Christophe Le Caillec, Chief Financial Officer, will provide a more detailed review of our financial performance. After that, we'll move to a Q&A session on the results with both Steve and Christophe.

With that, let me turn it over to Steve. Thank you.

[Stephen Squeri, executive]

Q1 was another strong quarter with revenues up 11% year-over-year to $15.8 billion and EPS up 39% to $3.33. The trends we've seen for the past several years continued through the first quarter of 2024. Our double-digit revenue increase was driven by strong spending growth, up 7% overall on an FX-adjusted basis with U.S. Consumer Card spending up 8% in the quarter and spending from International Card Members up 13% on an FX-adjusted basis. Spending by U.S. SME card members continued to be soft but new customer acquisitions, retention and credit on our small business products all continued to be strong.

Fee revenues again grew by double digits, up 16% on an FX-adjusted basis. We continued to attract high-spending, high-credit quality customers to the franchise with new card acquisitions accelerating quarter-over-quarter, adding 3.4 million new cards in the quarter. Our fee-based products accounted for approximately 70% of the new account acquisitions globally, and we continued to see strong demand for millennial and Gen Z consumers who accounted for over 60% of the new consumer account acquisitions globally.

Finally, our credit metrics continued to be best in class.

The ongoing momentum in our business is a result of the great work of our colleagues across the company and the loyalty and engagement of our premium customers around the world. Based on our performance and the trends we've seen through the first quarter, we are reaffirming our full year guidance of 9% to 11% revenue growth and EPS of $12.65 to $13.15. Our first quarter results continued to show that our strategy is working, and we feel good about where we are and where we are heading.

In 10 days, we'll be hosting our 2024 Investor Day. At that session, we'll have a series of presentations from our senior business leaders that, taken together, will demonstrate why we are confident that our long-term growth aspiration is the right one. We will discuss our strategy for growing our premium consumer base in the U.S. through our membership model; our plans for winning the recovery in the U.S. small business space; our runway for growth in International; our progress in expanding merchant coverage and enhancing our network capabilities globally; how we're driving efficiency, growth and service through technology and how it all comes together from a financial perspective. We'll end our Investor Day with a Q&A session.

Christophe will now take you through a detailed look at Q1 performance.

[Christophe Le Caillec, executive]

Thank you, Steve, and good morning, everyone. It's good to be here to talk about the first quarter results, which reflect another quarter of strong results and are tracking in line with the guidance we gave for the full year.

Starting with our summary financials on Slide 2. First quarter revenues were $15.8 billion and grew 11% year-over-year. This revenue momentum drove reported net income of $2.4 billion and earnings per share of $3.33.

On Slide 3. Billed business grew 7% versus last year in the first quarter on an FX-adjusted basis, in line with the overall spend environment we have seen in the past few quarters as we expected.

Looking by category. We saw 6% growth in goods and services spending and 8% growth in travel and entertainment spending. There are a few other key points to take away as we then break down our spending trends across our businesses.

Starting with our largest segment on Slide 4. U.S. Consumer grew billings at 8% this quarter, with growth across all generations and age cohorts. Millennial and Gen Z customers grew their spending 15% and continued to drive our highest billed business growth within this segment. In fact, we see that younger customers use their cards more overall and this is even more pronounced in certain spend categories. For example, customers aged 35 and under use their cards at restaurants over 70% more on average than other customers in this segment.

Looking at Commercial Services on Slide 5. Overall growth came in at 2% this quarter. Spending growth from our U.S. small- and medium-sized enterprise customers remained modest, given the unique dynamics seen by small businesses.

Lastly, on Slide 6, you see our highest growth again this quarter in International Card Services, up 13%. We continued to see double-digit growth in spending from international consumers and from international SME and large corporate customers as well as strong growth across our geographies.

Overall, while we do continue to see a softer spend environment, our spending volumes are tracking in line with our expectations to support our revenue guidance for the full year. And we are pleased with the continued strong engagement of our customers as the number of transactions from our Card Members continued to grow double digits this quarter.

Now moving on to loans and Card Member receivables on Slide 7. We saw year-over-year growth of 12%. As we progress through 2024, we continue to expect this growth to moderate but to still grow modestly faster than billings.

Turning next to credit and provision on Slide 8 through 10. First, and most importantly, we continued to see strong and best-in-class credit metrics. We attribute this performance to the high credit quality of our customer base, our robust risk management practices and our disciplined growth strategy. As we expected, our write-off and delinquency rates ticked up a bit, increasing very modestly quarter-over-quarter.

Going forward, we expect to see this delinquency and write-off rates remain strong with some continued modest increase in 2024.

Turning now to the accounting of credit -- of this credit performance on Slide 9. The quarter-over-quarter growth in our loan balances, combined with a modest increase in our Card Member loans and receivables delinquency rate, resulted in a $148 million reserve build. This reserve build, combined with net write-offs, drove $1.3 billion of provision expense in the first quarter.

As you see on Slide 10, we ended the first quarter with $5.6 billion in reserves representing 2.9% of our total loans and Card Member receivables. We continue to expect this reserve rate to increase a bit as we move through 2024, similar to the modest increases we've seen over the past few quarters.

Moving next to revenue on Slide 11. Total revenues were up 11% year-over-year in the first quarter. Our largest revenue line, discount revenue, grew 6% year-over-year in Q1 on an FX-adjusted basis as you can see on Slide 12. This growth is mostly driven by the spending trends we've discussed earlier.

Net card fees revenues were up 16% year-over-year in the first quarter on an FX-adjusted basis as you can see on Slide 13. We are pleased with this growth and continue to expect to exit the year with some further momentum, reflecting our cycle of product refreshes.

In the quarter, we acquired 3.4 million new cards, demonstrating the demand we're seeing for our products and the investments we've made. Importantly, acquisition of our premium fee-based products accounted for around 70% of new accounts and the spend, revenue and credit profiles of our new card members continue to look strong.

Moving on to Slide 14. You can see that net interest income was up 26% year-over-year in Q1. This growth is driven by the increase in our revolving loan balances and also by continued net yield expansion versus last year.

We do expect this growth to continue to moderate as we move through the year. And I would remind you that for our business model, we would not expect to see a meaningful impact from the lower interest rate environment this year.

To sum up revenues on Slide 15, the power of our diversified model continues to drive strong revenue growth momentum.

I would note as you think about the CFPB late fee rule that late fees from our U.S. Consumer segment make up a small portion, less than 1% of our overall revenue. While we have no specific plans to mitigate as of now, we are always looking at our pricing and policies in the ordinary course of business.

Moving to expenses on Slide 16. Starting at the top of the page, variable customer engagement expenses came in at 40% of total revenues for the first quarter. As you look at these costs, I would note that Card Member rewards included a $196 million benefit as a result of enhancements to our models for estimating future membership rewards redemption, some of which we reinvested for growth in our marketing line. Looking forward, I still expect our variable customer engagement expenses to grow slightly higher than our revenue on a full year basis as we continue to focus on our premium products and drive engagement from our Card Members.

On the marketing line, we increased investments to $1.5 billion in the first quarter. We continue to be pleased with the strong high-quality customer acquisition and engagement we see as a result of these actions. And we are on track to increase marketing spend in 2024 versus last year.

Moving to the bottom of Slide 16 brings us to operating expenses, which were $3.6 billion in the first quarter, flat to last year's expense and in line with our expectations for the year.

When you look at the components of our operating expenses, salaries and benefits grew modestly versus last year compared to the growth we've seen in this line over the past years. This reflects the discipline with which we manage our expenses and is a great example of how we're able to drive efficiency while continuing to grow our business. We continue to see OpEx as a key source of leverage and are focused on delivering low levels of growth as we have historically done.

Turning next to capital on Slide 17. We have returned $1.6 billion of capital to our shareholders in the first quarter on the back of strong earnings generation. Our CET1 ratio was 10.6% at the end of the first quarter, within our target range of 10% to 11%.

We plan to continue to return to shareholders the excess capital we generate while supporting our balance sheet growth. We do not expect any material near-term changes to our capital management approach.

That brings me to our 2024 guidance on Slide 18. We feel really good about our first quarter results, which are tracking in line with our expectations for the year. These results continue to reinforce that our strategy is working, and we plan to continue to invest to support our momentum.

As Steve discussed, for the full year 2024, we are reaffirming our guidance of having revenue growth of 9% to 11% and earnings per share between $12.65 and $13.15. And we remain committed to running the business for the long term.

As a reminder, this guidance and the items related to the full year 2024 that I just walked through do not include the potential impact from the sale of our Accertify business that we previously announced. We expect to realize a sizable gain on the sale and to reinvest a substantial portion of the gain back into our business as we've done with similar transactions in the past. We still expect the deal to close in the second quarter and plan to provide more detail then.

With that, I'll turn the call back over to Kartik to open up the call for your questions.

[Kartik Ramachandran, executive]

Thank you, Christophe. [Operator Instructions] And with that, the operator will now open up the line for questions. Operator?

[Operator]

[Operator Instructions] Ladies Our first question comes from the line of Sanjay Sakhrani with KBW.

[Sanjay Sakhrani, analyst]

I guess a question for both Steve and Christophe. Christophe, you said that you guys are seeing a softer spending environment. I'm just curious, when you look at the data, what's driving that? Is it inflation? Is it just a bit of tapering off after the post-pandemic spending?

And I'm just curious, as we think about what gets that going again, what is it? Obviously, the comparisons get easier as well so that should help. But maybe you could just walk through that.

[Stephen Squeri, executive]

Yes. Let me start and then Christophe can jump in. But when you look at overall spending, our overall spending is 7%, but consumer spending is 8%. And I think consumer spending is relatively strong. And when you look at international, international consumer spending is up 14%. And overall, international is up 13%.

Where you're seeing some softness is in SME. And so SME is up approximately 1%. And so I think as SME comes back, which we look as an opportunity down the road, as SME comes back, that will drive some stronger spending. And I think the good things that we see from an SME perspective is that we're still acquiring cards. Credit looks really good. And even though organic has come down, organic transactions have gone up.

So I think, in aggregate, we see softness and I think a lot of that softness is driven from a commercial perspective. But 8% consumer growth in the U.S. is not too bad.

[Operator]

Our next question comes from the line of Mihir Bhatia with Bank of America.

[Mihir Bhatia, analyst]

I wanted to ask about the Membership Rewards expense. It looks like there's a little bit of a change there with model enhancements and stuff. Can you just talk about that a little more? Did the estimate for the URR redemption rate change from the 96% at year-end? Like should we think of this $196 million benefit as a onetime thing? Or is that going to be continuous?

[Christophe Le Caillec, executive]

Thank you for the question. So you should think about it as a onetime thing. And the URR is 96%. It's still at 96%. What we do is because it's such an important model for us. We, on a regular basis, we redevelop the model. And every time we redevelop the model, we try to enhance the model. So we feed the model with more data and try to refine their URR calculation.

That's exactly what happened. And when we did that in Q1, we came back with a little bit of the benefit. I see a little bit because you have to remember that the entire Membership Rewards bank is about $14 billion -- it's a bit less than $14 billion. So $196 million is very small compared to the size of the balance sheet. And so it's a one-off, and we don't expect something similar anytime soon.

[Operator]

Our next question comes from the line of Mark DeVries with Deutsche Bank.

[Mark DeVries, analyst]

Could you discuss what drove the reacceleration in the new card growth this quarter?

[Stephen Squeri, executive]

Yes. I mean, so we invested more. And I think when you go back and you look at the first quarter, we had 3.4 billion -- 3.4 million, excuse me. $3.4 billion would be a pretty sizable amount of cards to acquire in a quarter. 3.4 million cards acquired. And if you remember at that time, you had the SVB situation and so there was a pullback. There was not only a pullback on our side, there was a little bit of a pullback in the industry and I think there was some consumer trepidation as well. And so as the year went on, we started to build up and it culminated this year with -- in the first quarter of 3.4 million cards. We invested more in marketing as we said we were going to do.

But I'd also like to highlight that a key driver of that acceleration is the product refreshes that we do. We've talked a lot how product refreshes really stimulate demand and how it makes our marketing dollars work a lot harder. And so we had the Delta product refreshes. We had a product refresh in Japan. We had a Hilton small business card. We had a British Airways card. And we're on our way to those 40 product refreshes that we talked about.

And what product refreshes do, they do stimulate demand and it stimulates upgrades and so forth. So that's really what's behind the increase sequentially of cards quarter-over-quarter, but we're sort of back to where we were at this time last year.

[Christophe Le Caillec, executive]

The only thing I would add, Mark, is as we increase the NCA, the percentage of new cards that are coming on a fee-paying product remains stable at about 70%, right? So it talks about the quality of this 3.4 million new cards.

[Operator]

Our next question comes from the line of Craig Maurer with FT Partners.

[Craig Maurer, analyst]

So wanted to ask about your assumptions on Page 23 of the deck. It looks like for quarters, the second and third quarter, you're assuming a better macro scenario in the U.S. So just curious with -- in combination of the rewards...

[Kartik Ramachandran, executive]

Please stand by. We are waiting for our operator.

[Technical Difficulty]

[Craig Maurer, analyst]

Okay. Sorry. So what I was saying was with the -- what seems to be firmer macro assumptions for second and third quarter and the rewards benefit, how come EPS guide was held flat? I'm assuming there's probably a bigger buffer in there.

And second, if you could comment on what the trends have been in your loan workout program. Have you been seeing higher or lower additions to that program? And how has progress been in terms of getting consumers on good payment plans and maintaining them?

[Operator]

American Express speaker line. Are you guys there?

[Technical Difficulty]

Ladies and gentleman please stand by. We will continue with the next question in just a moment.

You guys are back. Are you able to hear me?

[Stephen Squeri, executive]

Yes, operator. Thank you. Please go ahead.

[Operator]

Okay. So that last question was from the line of Craig Maurer with FT Partners. Craig, you may have to ask your question again.

[Stephen Squeri, executive]

Yes. We didn't hear it.

[Craig Maurer, analyst]

No problem. So wanted to ask about the assumptions later in the deck. It looks like you're assuming a firmer economic environment for quarters 2 and 3. So taking that with the benefit on Rewards, should we assume there's a larger buffer built into your guide because you didn't raise EPS guide?

And second, along the same lines, I wanted to ask about your loan workout program. Are you seeing any change in terms of the pace of loans being added or loans being worked out and how loans are progressing through that program?

[Christophe Le Caillec, executive]

Okay. Under -- how we think about the balance of your -- so we -- as I said, we're going to stick to our EPS guidance. We're not going to change that range at this point in time. There are still a lot of things that need to play out in the balance of the year and we think that, that guidance best represent what we expect at this point in time.

Specifically about how to think about that URR benefit, as I said in my prepared remarks, I would say that a significant portion of that benefit was reinvested on the marketing line. We knew -- we saw that benefit coming in the quarter and we took advantage of that as well to dial up the marketing. So all in all, it doesn't have a meaningful impact on EPS for the full year.

When it comes to, what we call, the financial relief program and the modified loans, so this is an important program for us. We have, we think, one of the best program in the industry. We have innovated, for instance, we have a short-term program. We are also either in that short-term program enabling the Card Members to retain some spend capacity and usage of the product. So we really think that it's a differentiator to help the Card Members that are experiencing stress.

So that program is working really well for us. It's very effective. And what I can say is that the enrollment in the program has moderated in Q1 and that the performance of the Card Members within this program is very, very strong. We have a ton of metrics. One of the metrics we talked about in the past was we're looking at payment loyalty and how much the Card Members who are either in delinquent status or paying versus paying our peers.

And we like what we're seeing, right? We're typically front of their wallet in terms of repayments. And it's definitely contributing to the strong credit metrics that you've seen.

We think it's also consistent with our brand in terms of being there for our card members and having their back. So that program is working well. But just to be specific on your question, the enrollment in this program is moderating in Q1.

[Operator]

Our next question comes from the line of John Hecht with Jefferies.

[John Hecht, analyst]

Most of my questions have been asked. So I guess I'm going to ask about the Visa and Mastercard settlement, a reduction in interchange rates and then some steering mechanisms. And I know historically, given your premium brand and so forth, those actions haven't had any impact on the business. But we haven't talked about that for a while, so I'm wondering if you guys just have some updated thoughts about that.

[Stephen Squeri, executive]

Yes. Well, it's really hard to say how it's going to play out over time. I mean, this has been going on probably close to 20 years. And it still has to be approved by the courts, and we'll see.

But what I would say is it really doesn't change sort of our strategy in any way. I mean, we're still focused on premium customers. Our customers still engage with the products, will demand to use the products and we'll still maintain our virtual parity.

So we'll see how it all plays out, but we're going to continue to focus on what we control. And the only other thing I would say is that our pricing policies and structures are fundamentally different than the networks.

[Technical Difficulty]

[Operator]

Ladies and gentlemen, thank you for your patience in standing by. Our conference will resume momentarily. We are experiencing technical difficulties. Please remain on the line, and once again, your conference will begin shortly. Thank you so much for joining us.

[Stephen Squeri, executive]

Operator, we can hear you. Can you go ahead and ask for the next question, please.

[Operator]

Sure. Our next question comes from the line of Jeff Adelson with Morgan Stanley.

[Jeffrey Adelson, analyst]

Can you hear me okay?

[Stephen Squeri, executive]

Yes, we can.

[Jeffrey Adelson, analyst]

Okay. Good. Yes, I just wanted to ask on the prior comments you made last quarter about the card refresh plans for this year, 40 card products. I think from a quick count [indiscernible] it seems like you've done 8 so far this year with Delta, Hilton and maybe a card in India. Is that right?

And maybe you could just talk a little bit about trajectory over the rest of the year, cadence over the rest of the year and what the response has been to some of those refreshes so far? I think more notably, the Delta -- the big Delta one you did earlier this year would be interesting to hear the response you've seen from customers so far on that.

[Stephen Squeri, executive]

Yes. So the product refreshes will go out through the year. We don't really talk about exactly when they're going to be released. But you can rest assure that all 40 or approximately 40 will be done. It's a little early to tell on the refreshes as it's still in the early stages here.

But what I would say, from a Delta reserve perspective, it has really, really gone well, probably beyond our expectations. So that is a -- it's a great product. It's a -- we raised the fee $100 and added over $500 worth of -- $560 worth of value. So that's going well.

And as I said, the proof will be in the pudding because refreshes really do help to drive demand. It drives awareness. It not only -- and it drives more engagement with existing cardholders.

And it's been a strategy that has worked very, very well for us over the last number of years, and it's one that we're committed to on a go-forward basis because it's not only important to, again drive demand, but you really you want to reignite and reengage with the base. And what we really do is we look at what our customers really want and make sure that we're adding that value that makes the most sense to them.

[Operator]

Our next question comes from the line of Rick Shane with JPMorgan.

[Richard Shane, analyst]

And Steve, it ties in with what you're just talking about. When we think about the life cycle of a customer, it's acquisition, it's engagement and then ultimately, it's loyalty and retention. And I think the real strength of American Express is on the loyalty retention side.

When you talk about refresh, that's acquisition and engagement. Can you talk about what you're doing investing on the back office side as the portfolio is growing so quickly to make sure that you maintain the loyalty and retention aspect of the business as well.

[Stephen Squeri, executive]

Well, I think it truly is a virtuous cycle. And I think you've got it right. It's important to obviously acquire cards. And then as you acquire a card, you really want to engage them and get those cardholders spending in as many areas as they can. And so you look at this ramp-up period over maybe a 0- to 24-month period, and then at that point in time, what's important is that we are engaging with the customer as a customer who is embedded within the franchise.

And part of our marketing dollars not only goes to acquiring new customers, but we look at how people are spending, we look at how they're spending relative to other people like them and that's where you'll see offers to either upgrade cards, line increases, other products that we have.

And so it's that constant engagement, it's the analytics that go behind it that really leads to the retention. What you cannot do is once you have somebody, you just can't let them be stagnant. And so -- and there's a lot of learnings out of our Commercial business and out of our Merchant business where we have tremendous account managers that work with our clients on a daily basis, weekly basis to help them grow their spend. Now obviously, with tens of millions of Consumer Card members, you can't do that necessarily personally all the time, but you can do that through communicating through the channels that we have.

And another big part of our value proposition and our service proposition is when people do call into us, our customer care professionals are able to look at their spending, look at how they're doing and offer them other opportunities to really to grow with us, either from a, again, from a lending perspective or from a card upgrade perspective. So I think it's really important what happens on that back office as that continues to fuel that virtuous cycle.

[Operator]

Our next question comes from the line of Bill Carcache with Wolfe Research.

[Bill Carcache, analyst]

Although, you mentioned, Christophe, that the rewards benefit was one-off, are you seeing any evidence of customers deriving greater value from experiential and partner funded rewards? Guess I'm just wondering if there's a possibility that pressure on the rewards rate could potentially abate in a sustained way as customers generate greater value in other ways?

[Stephen Squeri, executive]

So Christophe can get a little bit more into the detail, but I think you've hit on a really good point and one that really is part of our value proposition, whether it's embedded value that we get from our partners that's embedded in the value proposition and we're seeing that increase over time. And that's also, as you look at refreshes, you see that within the refreshes.

But it's also the Amex offers and how we continue to work with our merchant partners to provide more benefits to our card members on an ongoing basis.

So I think when you take that entire portfolio of the rewards opportunities that we have, the embedded value that comes within the value proposition and Amex offers, all of that together, and it gets back to what Rick's point was, all of that together leads to more loyalty and more retention.

[Christophe Le Caillec, executive]

Yes. And to build that a little bit on the rewards side, we are constantly trying to innovate on the MR side: on the number of partners engaged in the program, the ease of redemption as well. One of their latest innovation that is actually very successful in terms of how many Card Members are using it is the ability just to select the transaction on your statement, your digital statement, and actually use MR points to pay for that specific transactions. And we're seeing a lot of Card Members using that.

So we're constantly trying to make it easier and better for our Card Members, to redeem to make the product -- the MR program competitive and more and more economic as well for us. So it's definitely a place of innovation that is a very dynamic place.

[Operator]

Our next question comes from the line of Don Fandetti with Wells Fargo.

[Donald Fandetti, analyst]

Yes. Christophe, your International billed business growth continues to be very strong. Do you build that into your guidance at this level for '24 revenue growth? And can you give us an update on how your acceptance initiatives are going?

[Christophe Le Caillec, executive]

Yes. So we are -- we -- ICS and International was the fastest-growing segment of American Express pre-COVID and has been for several quarters now as well.

The opportunity is just much bigger for us in International. We have either -- we're also investing, everything else being equal, proportionately a bit more in International. Their brand out in International is probably a bit more premium as well than it is in the U.S.

So there's definitely a massive opportunity for us, and we're going after it and that's baked in our guidance for this year. It's also factored in as we think about our long-term aspiration. Part of the things that we're going to do to deliver on that guidance for this year and that long-term aspiration is actually to grow at a faster pace in international. It's a great opportunity for us, for sure.

[Stephen Squeri, executive]

So we're going to talk more about International at Investor Day, we'll have a separate segment on that. But we're also going to talk about how we continue to grow international coverage. And if you remember, a number of years ago, we talked about our international city strategy. We talked about industries we're going after. And so we'll provide some updates on that.

But the top line is international acceptance continues to grow and continues to improve. And when you look at the International business growing at the rate it's growing and coverage continuing to grow, we see that as a long runway for future growth.

[Operator]

Our next question comes from the line of Gus Gala with Monness, Crespi, Hardt.

[Gustavo Gala, analyst]

Wanted to dig in and ask, can we talk about the opportunities to lower cost of funding?

And similar line of thought here. Can you talk a little bit about the Pay Over Time feature?

[Christophe Le Caillec, executive]

Yes. So the Pay Over Time feature, you mean like how it's performing, how it's growing pay over time?

[Gustavo Gala, analyst]

Yes. Let's talk about the performance and the unit economics, if we can.

[Christophe Le Caillec, executive]

Yes. So Pay Over Time, there is a facility that is available on our charge product. It's a service that a lot of Card Members are taking advantage of. It's the opportunity for them to revolve some of their transactions or part of their balance.

Their performance is very strong. It's actually the segment of our balances that is the fastest growing. And from -- I would say, from a performance standpoint, because that product, that service is attached to our charge card products, so typically premium Card Members, the credit performance is also the best that we have in our lending products. So it's a very efficient way for us to grow balances by extending credit to premium Card Members.

And the first question, I forgot, was funding? So the funding mix is still evolving towards more deposits. And as you know, deposits is, for us, they're the most effective and the most economical source of fund and it's a very stable source of fund as well for us. I think we are at about 92% of our deposit -- direct deposit balances are below the FDIC cap. So it's a stable, resilient, growing source of funding for us. And it's generating a lot of good things for us, including supporting our growth and growth plan and growth aspiration.

And when you look at the yield that I had on the lending slide, one of the drivers behind the yield expansion year-over-year is actually a more effective cost of fund. And it's not a one-off, right? That has been a trend for several years now and there is more to come.

[Operator]

Our next question comes from the line of Moshe Orenbuch with TD Cowen.

[Moshe Orenbuch, analyst]

Great. If you look at your commercial spending, particularly SME growth, it's been particularly weak the last couple of quarters. And noticing on Slide 5, the Goods & Services has basically been flat to down for a couple of quarters.

And you mentioned things that are unique to small business. But maybe could you expand that a little more and talk about what things we might see that would cause that to start to turn?

And how long you can kind of maintain the kind of teens growth in loans while that is kind of flattish. So if you could you talk about those things.

[Christophe Le Caillec, executive]

All right. Let me start and I'm sure Steve will add up to this. So you're right. I mean the SME billed business has been in that 1%, 2% range for a year now. We think that this is macro driven, and we have a ton of data that confirms that. It's not specific to American Express and the rest of the industry is experiencing similar trends.

I will note, as I think we said in the prepared remarks, that on the acquisition side, it's going very strongly. So the demand for the product is there. The quality of the applicant is there as well. And as we've said in the past, it's, I would say, the 10-year base that is moderating their spend. We'll see how it goes, those Card Members, the SME, as we've said in the past, have been going through a lot. They're certainly experiencing as well their compound effect of funding costs for several years now. And they are very careful in terms of how they're managing their cash flows and how they're spending.

This being said, we are very focused at working with them, as I said, engaging with them. And we're confident that we have what it takes to win them back when they are ready to spend more.

[Stephen Squeri, executive]

Yes. I think that, Moshe, when you look at this, the SME has been -- this entire space has been sort of disrupted over the last 4 years or so, maybe 5 years with COVID, where it took a tremendous drop for 18 months or so. And then all of a sudden, you had unbelievable, unsustainable organic growth of like 19% and 20% in given years. It was crazy growth in '21 and '22.

And we saw last year after the first quarter, it really started to wane. And again, a couple -- I think there's, again, a few reasons for that. I think there was a tremendous buildup in inventories. I think interest rates going up did not help from a small business perspective, especially as they thought about purchasing goods and services and buying those goods and services and stocking them in anticipation of another supply chain sort of malady or meltdown.

And what we do like is that our acquisition is still very strong. The transactions, even within the tenured base, continued to go up. It's the larger transactions that we've really seen the organic decline on and a lot of that can be industry-specific, construction, a lot of that can also be not buying big inventories upfront.

So I think what's important for us to focus on right now is to continue to acquire, continue to work with them and engaging with them. And then when they're ready to come back, we're there for them as they want to spend even more.

As far as -- and I started the conversation with this, as far as overall spending, that's what makes me feel really good about our overall spending because we're able to grow 7% with our Commercial business growing very low and small business is only growing at 1%. And it's an important part of the franchise and that's why we feel good because of the credit and of the new acquisition.

[Operator]

Our final question will come from the line of Ryan Nash with Goldman Sachs.

[Ryan Nash, analyst]

So maybe to bring together some of the pieces of revenue growth. I think you were on the high end of the first quarter, and I think, Christophe, you said the expectation that NII was going to slow. Maybe just talk a little bit about how you think about the trajectory of the revenue growth. Do we need to see spend stabilize to remain in the range? Or can we see the impact of refreshes and card acquisitions be enough to stabilize revenue growth within the range on a quarterly basis?

[Christophe Le Caillec, executive]

Yes. So things are in Q1 played out as we were expecting, right? Billed business came in similar to what we had experienced in the previous quarters. Card fee is moderating slightly from 17% to 16% FX-adjusted growth rate, and we're still expecting that it will pick up a little bit in the balance of the year on the back of the things that you said, including the card refreshes and acquiring a lot of premium cards. And NII at 26% is going to keep moderating because balances are moderating.

So the guidance for the full year is still to be between 9% and 11%. We'll see exactly how things play out. There are still a lot of things to find out, how delayed payment charges are going to come in, what's going to happen with the interest rates. So best at this stage, I think, is to stick to the full year guidance of 9% to 11%.

And -- but I would say Q1 validated the trends and the guidance that we gave at the beginning of the year.

[Kartik Ramachandran, executive]

With that, we will bring the call to an end. Thank you, again, for joining today's call and for your continued interest in American Express. The IR team will be available for any follow-up questions. Operator, back to you.

[Operator]

Ladies and gentlemen, the webcast replay will be available on our Investor Relations website at ir.americanexpress.com shortly after the call.

You can access a digital replay of the call at [phone] or [phone], access code 13745493 after 1:00 p.m. Eastern Time on April 19 through April 26.

That will conclude our conference call for today. Thank you for your participation. You may now disconnect.