American Express Company (AXP) Q3 2023 Earnings Call
American Express Company (NYSE:AXP) Q3 2023 Earnings Call Transcript October 20, 2023 8:30 AM ET
Company Participants
Kerri Bernstein - Head of IR
Steve Squeri - Chairman and CEO
Christophe Le Caillec - CFO
Conference Call Participants
Sanjay Sakhrani - KBW
Ryan Nash - Goldman Sachs
Bob Napoli - William Blair
Rick Shane - JPMorgan
Don Fandetti - Wells Fargo
Jeff Adelson - Morgan Stanley
Bill Carcache - Wolfe Research
Dominick Gabriele - Oppenheimer
Arren Cyganovich - Citi
Craig Mauer - FT Partners
Mihir Bhatia - Bank of America
Operator
Ladies and gentlemen, thank you for standing by. Welcome to the American Express Q3 2023 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [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, Ms. Kerri Bernstein. Thank you. Please go ahead.
Kerri Bernstein
Thank you, Donna, 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.
Steve Squeri
Thank you, Kerri. Good morning, and thanks for joining us today for our third quarter earnings call. Q3 was our seventh consecutive quarter of strong performance, continuing in the momentum we've built over the last few years and aligned with the growth plan we announced in 2022. It was the sixth consecutive quarter of record revenues which reached $15.4 billion, up 13% year-over-year. Earnings per share of $3.30 was also a new quarterly record.
Based on our performance to date, we remain confident in our ability to achieve full year revenue growth and EPS growth that is consistent with the annual guidance we provided at the beginning of the year. And we are well positioned as we seek to achieve our growth plan aspirations of annual revenue growth in excess of 10% and mid-teens EPS growth in 2024 and beyond in a steady state macro environment.
My confidence is based on several factors, including the many attractive opportunities available to us because of the businesses and geographies we operate in, our unique membership model, which powers a virtuous cycle of growth, the success of the strategic investments we've been making in key areas of our business, and our ability to leverage our differentiated business model, which includes our premium global customer base, integrated payments platform, strong partner relationships, and trusted brand. Together, these factors have driven our strong performance over the past two years, including the continued momentum we saw in the third quarter.
In the quarter, card member spending remained strong, up 7% year-over-year on an FX adjusted basis. Spending was strongest in our US consumer segment, up 9%, and International Card Services segment up 15% on an FX adjusted basis. And US small business spending increased slightly from a year ago.
Millennials and Gen Z consumers continue to be the fastest growing portion of our card member base, with spending from this demographic in the US up 18% year-over-year, and they accounted for more than 60% of all new consumer account acquisitions globally in the quarter. Demand for our products remain robust, particularly for fee-based products, which represented more than 70% of the new accounts acquired in the quarter.
Customers continue to be highly satisfied with our products and services, which drives high levels of engagement and retention. We were rated the number one US credit card company for customer satisfaction by J.D. Power for the fourth consecutive year and the 13th time in 17 years of the study. And our credit metrics remain best-in-class as we continue our focus on growing with discipline and a strong focus on risk management across the portfolio. A key reason for the momentum we're seeing is the investments we've been making in innovating our value propositions to deliver generational relevance across all age groups.
Resy is a good example of some of the ways we're doing this. We acquired Resy and continue to invest in building out the platform because we know that dining is something that all generations of Card Members care about. We've seen that in our results as restaurants continued to be the largest and one of the fastest growing T&E categories in the third quarter. The number of Resy users, restaurants on the platform, and reservations booked all continue to grow significantly. In Q3, reservations on the platform set another quarterly record.
Over the last few years, we've also ramped up the number of exclusive lifestyle experiences, sponsorships, and access to events we offer that appeal to our Card Members across generations and geographies and reinforce the unique value of membership. Our highly popular experiences cut across entertainment, sports, food, art, and fashion. They generate strong on-site engagement with our branded activities and offers, and they help drive interest among prospects. They also continue to attract world-class partners who work with us to add new ways for our Card Members and prospects to experience the power of Amex membership.
Earlier this week, we announced our latest sponsorship, an exclusive multi-year agreement with Formula 1 to be the official payments partner of Formula 1 in the Americas. This sponsorship is our first new sports vertical in over 10 years, and it represents a great opportunity to build on the rapidly growing popularity of Formula 1 racing around the world.
Another way we're delivering generational relevance is by regularly refreshing and adding value to our products on a global basis. These product enhancements are tailored to the interest and spending patterns of our customers of all age groups in each local market. So far this year, we've made enhancements to over 20 premium products across the company, some of the latest of which were refreshes of our Platinum Card products in Japan, our Business Gold Card in the US, and just yesterday, our Hilton co-branded consumer cards.
These examples and many others like them are further enriching our membership model, which helps us attract new premium customers, drive retention and deepen engagement with current customers and add more merchants and partners who provide offers and experiences that deliver additional value. Looking ahead, I feel very good about where we are and where we're going. We'll continue our strategy of investing for growth and adding more differentiated value to our membership model to deliver generational relevance, while continuing to leverage the strengths of our business model, all of which gives us a competitive advantage.
I'll now hand the call over to Christophe Le Caillec for additional detail on our quarterly results.
Christophe Le Caillec
Thank you, Steve, and good morning, everyone. I'm excited to have my first earnings call be one where we discuss our continued strong momentum which is reflected in our record revenue and EPS in the third quarter.
I would like to take a minute at the outset to share my perspective on the company as someone who has been here for a long time and through various business environments. The company is very focused on driving high levels of profitable revenue growth. The key enabler of that growth has been the discipline we use to deploy our resources. As a result, the underlying quality of our business is very strong, and I have confidence in the sustainability of the growth drivers that we are seeing. We have accelerated the pace of our revenue and EPS growth since before the pandemic. That acceleration is a direct result of the strategy that underpins our growth plan, which Steve described. In the quarter, that strategy has driven $27 billion more in billings versus last quarter. The company is also generating almost $2 billion more in revenue and about $600 million more in net income compared to a year ago. This demonstrates the earnings power of our business model.
Now let's take a look at the details of this quarter's performance. Starting with our summary financials on Slide 2. Third quarter revenues were $15.4 billion. They reach a record high for the sixth straight quarter and were up 13% year-over-year. This revenue momentum drove reported net income of $2.5 billion and earnings per share of $3.30, which grew 34% year-over-year.
Let's now go to a more detailed look at the drivers of these results. In our spend-centric business model, that begins with a look at bill business starting on Slide 3. Total billed business grew $27 billion this quarter versus last year, up 7% on an FX adjusted basis as we continue to see the more stable growth rates that we expected. This growth was driven by 6% growth in goods and services spending, consistent with last quarter's growth rate and sustained double digit growth in travel and entertainment spending. This double-digit T&E growth has been driven by continued demand for travel and dining experiences with the restaurant spending, our largest category, up 13% this quarter.
Total network volumes grew 6% year-over-year on an FX-adjusted basis. As you look at these results, I'd note that we exited a small product last quarter that was reported in our process volumes. This is reflected in the Q3 growth rate and expect to see the impact of the year-over-year growth rate continue for the next few quarters until we lap this exit. As a reminder, process volume includes volumes from cards where we play more of a network role and from alternative payment solutions that we facilitate. The revenue associated with these volumes makes up a small portion of our total revenue, which you can see on Slide 11.
As we then break down our spending trends across our businesses, there are a few other key points to take away. Starting with our larger segment on Slide 4. US consumer grew billings strongly at 9% this quarter. Our focus on attracting, engaging, and retaining our premium Card Members is driving growth across all generations and age cohorts. Millennial and Gen Z customers continue to drive our highest billed business growth within this segment with their spending up 18% this quarter.
Looking at commercial services on Slide 5, US SME growth came in at 2% this quarter, consistent with last quarter's growth rate. As Steve discussed on our Q2 call, organic growth in this segment has slowed given unique dynamics seen by small businesses over the past few years. Importantly, we do continue to see strong high-quality demand for new accounts within this segment. Looking forward, we focus on continuing to help SME clients run their businesses. Billings from our US large and global corporate customers were flat year-over-year. As we have said for many years, these customers are not a major growth driver for our business, but they remain an important foundation for the company's business model.
And lastly, on Slide 6. You see our highest growth again this quarter in international card services. We saw strong growth across our geographies and customer types. Spending from international consumers and from international SME and large corporate customers, each grew 15%. Overall, strength in spending growth from our US consumers and Card Members outside of the US continues to see -- offset the softness with commercial services that we've been talking about for the past few quarters. Taking everything into account, our spending volumes are tracking to support our revenue guidance for the full year and our long-term aspirations for sustainable growth rates greater than what we were generating pre-pandemic.
Now, moving on to loans and Card Member receivables on Slide 7. We saw year-over-year growth of 15% as well as good continued sequential growth. As our customers continue to rebuild balances, the interest-bearing portion of our loans and receivables balances continues to grow faster than the overall growth you see. Importantly, over 70% of our revolving loan growth in the US continues to come from our tenured customers.
As you then turn to credit and provision on Slide 8 through 10, the high credit quality of our customer base continues to show in our best-in-class credit performance. As you can see on Slide 8, our Card Member loans and receivables, write-offs and delinquency rates both remain fairly flat to last quarter and below pre-pandemic levels. Going forward, as we've talked about for many quarters now, we continue to expect this delinquency and write-off rates to increase over time and they are likely to remain below pre-pandemic levels in the fourth quarter.
Turning now to the accounting 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 $321 million reserve bill. This reserve bill, combined with net write-offs, drove $1.2 billion of provision expense in the third quarter.
As you see on Slide 10, we ended the third quarter with $5 billion of reserves, representing 2.7% of our total loans and Card Member receivables. This reserve rate remained about 20 basis points below the level we had pre-pandemic or day one CECL. We continue to expect this reserve rate to increase a bit in the balance of year, similar to the modest increases we've seen over the past few quarters.
Moving next to revenue on Slide 11. Total revenues were up $1.8 billion or 13% year-over-year in the third quarter. Our largest revenue line, discount revenue, grew 7% year-over-year in Q3, as you can see on Slide 12, driven by spending trends we discussed earlier.
Net card fee revenues were up 19% year-over-year on an FX adjusted basis, as you can see on Slide 13. This growth remains very strong and is powered by the continued attractiveness to both new and existing customers of our fee-paying products due to the investment we've made in our premium value propositions. As we expected, growth moderated a bit this quarter from the high levels we saw earlier this year, reflecting our cycle of product refreshes. This quarter, we acquired 2.9 million new cards. Importantly, the acquisition levels you see on Slide 13 remain consistent with our long-term growth aspirations. The spend, revenue, and credit profiles of our new Card Members continue to look strong relative to what we saw pre-pandemic.
Moving on to Slide 14. You can see that net interest income was up 33% year-over-year on an FX adjusted basis, driven mostly by the growth in our revolving loan balances.
To sum up revenues on Slide 15, we're seeing broad based revenue momentum across our diversified revenue lines. For 2023, we expect revenue growth to be within the range we communicated in January at around 15% growth for the full year.
Moving to expenses on Slide 16, variable customer engagement expenses came in at 40% of total revenues in the third quarter. Therefore, I now expect these costs to run at around 42% of total revenues in the full year -- on the full year basis. Looking forward, we view this cost as a key driver of our momentum as we continue to innovate our value propositions to deepen engagement with our premium Card Members and to attract new ones as Steve discussed earlier.
On the marketing line, we invested $1.2 billion in the quarter. I still expect to have marketing spend of around $5.5 billion for the full year, fairly flat to our 2022 expense. We feel really good about the quality of our new card acquisitions, which I talked about earlier, and I continue to see great demand for our products across a wide range of attractive investment opportunities. Given this strong set of opportunities, I would expect to increase our marketing spend in the balance of this year and we're confident that our sophisticated acquisition engine will continue to do so in an efficient way.
Moving to the bottom of Slide 16 brings us to operating expenses which were $3.7 billion in the third quarter as we invest in critical areas such as our talented colleague base and technology. Taking this into account, we now expect our full year operating expenses to be around $14.5 billion. Looking forward, we continue to view marketing and OpEx as a key source of leverage.
Turning next to capital on Slide 17. We returned $1.7 billion of capital to our shareholders in the third quarter. This included common stock repurchase of $1.3 billion and $438 million in common stock dividends, all on the back of strong earnings generation. As you can see on Slide 17, we target a CET1 ratio between 10% to 11%. We ended the quarter with a CET1 ratio of 10.7%, which is well above our current regulatory minimum of 7%.
As we think about the Basel III proposal, the RWA increase could consume the buffer above regulatory capital requirements if the proposal is adopted as written. Notably, we believe there are clear opportunities for improvements between the proposal and the final rule. In fact, the regulators themselves have posed questions about potential issues in applying these rules broadly and we are actively engaged in that dialogue. We plan to continue to return to shareholders the excess capital we generate while supporting our balance state growth. We do not expect any material near-term changes to our capital management approach.
That brings me to our growth plan and 2023 guidance on Slide 18. As Steve and I discussed in our third quarter results -- our third quarter results, sorry, reflect a continuation of the strong momentum we've built over the last few years, evidenced by our performance across diversified revenue streams. For the full year, we expect revenue growth of around 15%, consistent with the revenue guidance range we provided at the beginning of the year. As I discussed before, we now expect variable Card Member engagement expenses to be around 42% of total revenues on a full year basis, modestly below our original expectation.
On marketing, we still expect to spend around $5.5 billion for the full year. And lastly, we now expect our operating expenses to be around $14.5 billion this year, modestly above our original expectation as we invest in areas critical to our success. Taking everything together, our earnings per share guidance remains between $11.00 and $11.40. Looking forward, we remain committed to focusing on achieving our aspirations of sustainably delivering revenue growth in excess of 10% and meeting EPS growth in a steady-state macro environment.
With that, we'll open up the call for your questions in a moment. A final point which relates to our investor relations teams here at American Express. Steve and I have decided to move Kerri Bernstein to the critical role of Corporate Treasurer. I'd like to thank Kerri for leading the IR function during a period of strong performance for the company. I'd then like to welcome Kartik Ramachandran, our new Head of Investor Relations. Kartik was most recently a key finance lead in our US consumer business and has had a number of finance positions over his 11 years with the company.
Now, let me turn it back over to Kerri to open up the call for your questions.
Kerri Bernstein
Thank you, Christophe. Before we open up the lines for Q&A, I will ask those in the queue to please limit yourself to just one question. Thank you for your cooperation. And with that, the operator will now open up the line for questions. Operator?
Question-and-Answer Session
Operator
[Operator Instructions] Our first question is coming from Sanjay Sakhrani of KBW. Please go ahead.
Sanjay Sakhrani
Thanks. Good morning and congrats, Christophe, Kerri, Kartik. Steve, just a question. We hear a lot about the choppy macro backdrop and its impact on spending. I'm just curious if you've seen any changes, behavioral, over the past quarter that might make you more sanguine on the outlook, or do you feel like your customers are unfazed? And just on a related point, I know the Delta stuff, there's been a lot of headlines on the changes that Delta's made to the Medallion qualification process. I'm just curious if you've seen any impact. Thanks.
Steve Squeri
Yeah, so thanks, Sanjay. Let me start with Delta first. I think, as Delta makes changes, we're in lockstep with them all the way. And, one of the great things about having Delta as a partner is they're a very customer-focused organization. And they made some changes. The team got some reaction and I think they made some other changes which I think will be -- and have been received in a very good fashion. But as far as spending or card acquisition, it has had zero impact. So we haven't seen anything from a card spending on Delta or from a card acquisition. In fact, Delta card spending year-over-year was up almost 20%. So we feel pretty good about that.
As far as the US consumer, and let's just talk about the US consumer and international consumer, it's still strong. We had 9% US consumer spending, 6% growth on goods and services, 13% growth on T&E, and that continues to be very strong off a high base. And from an international perspective, we've seen 15% spending from an International Card Services perspective and strong both from a goods and services and a T&E perspective. And I think it's important that I'll remind everybody, our card base is a really small piece of the overall US economy. And one of the reasons we have such great credit metrics is we have a really high-quality Card Member. And so at this point in time, they have not been impacted by anything.
But the other thing that I would say is, you probably had the same question at this time last year. And I probably gave you the same answer. And right now, look, we can only manage the business for what we're seeing in our business, which is still strong growth. And we use the Blue Chip economic forecast. And that calls for pretty much more of the same. So in a steady state macro environment, I feel really good about, delivering on our plan. As Christophe said, we are well positioned and as I said in my remarks, we're well positioned to continue to deliver on our growth plan.
Operator
Thank you. The next question is coming from Ryan Nash of Goldman Sachs. Please go ahead.
Ryan Nash
Hey, good morning, Steve. Good morning, Christophe.
Steve Squeri
Good morning.
Ryan Nash
Look, as a follow up to Sanjay's question, obviously it was good to see the solid revenue growth, given the challenging economic backdrop. And you're still talking about double-digit revenue growth next year, but maybe just talk about some of the pieces or the drivers you expect to see given what's going on in billing's growth and are you leaning more into lending in order to drive this growth? And then just lastly, like, do we need to see billings to improve in order to be able to drive double digit revenue growth? Thank you.
Steve Squeri
Well those are a lot of questions, Ryan.
Ryan Nash
I know. Try to put in one in there.
Steve Squeri
You actually only asked one, you just put it in multiple parts. [Technical Difficulty] Yeah right. We'll leave that one alone. But when you look at our model, there are many ways for us to grow revenue. We grow revenue from a billing perspective, we grow revenue from a card fee perspective, and we do grow revenue from a lending perspective. The current revenue growth that we have, the current billings growth that we have, is in line with what our long-term growth aspirations are. So where we are from a billings growth perspective, we feel really good about that. From a fee perspective, and I like to point this out, is that the major driver of our fee revenue is actually new card acquisition. It's not raising fees, it's really new card acquisition. And we -- look, we've invested approximately $5.5 billion this year. We'll probably step that up next year. So we're very confident in our card acquisition as Christophe said, there are a lot of great opportunities out there for us.
And from a lending perspective, and we've mentioned this multiple times, our book today, we believe, is better than our book was in 2019. And if our Card Members continue to lend responsibly, and our Card Members have various needs at various points in time, and I think it's that model, it's our three-legged stool of revenue, which will continue to provide confidence that we're going to be able to deliver double digit revenue growth next year.
Christophe Le Caillec
And maybe, Ryan, I can add one point on the lending side. As Steve said, we have a premium customer base and we grow in lending of that premium customer base. 70% of the balances are coming from established Card Members that we know well. So, those Card Members we know revolve with competitors' products and historically we under-index on that. We capture a big share of their spend, a smaller share of that lending. And what we're doing here is just deepening the relationship with them and capturing a bigger share of their revolving needs.
Operator
Thank you. The next question is coming from Bob Napoli of William Blair. Please go ahead.
Bob Napoli
Thank you, and congratulations to everyone. Kerri, it's been great working with you and good luck. So question, Steve, on the SMB business. That's a really important business for you. It's only growing 2%. I think there are large opportunities there. But what is -- can you maybe give a little color on what's going on in SMB and your thoughts about SMB as we move into 2024?
Steve Squeri
Yeah, I think this is probably the second quarter in a row it's been low growth. I think a lot of it -- a lot of our high growth was really driven by organic growth and we haven't seen as much organic growth from a small business perspective. I think from an acquisition perspective, we're still very happy about the opportunities that are out there. We're still happy about the lending opportunities that are out there. And I think small businesses went through a very interesting cycle over the last few years in terms of not having a lot of inventory and then stocking up on inventory. And so we're still very positive on small business, albeit the last two quarters were relatively slow, but we share your perspective that it's still a huge opportunity for us. And it's a big part of our business from a billings perspective.
And to remind people, our small business footprint is across a variety of small businesses, whether it's restaurant and retail or professional services and construction and so forth. So we still feel good about it and I think that we'll see just when organic does come back but we're still very positive on small business.
Operator
Thank you. The next question is coming from Rick Shane of JPMorgan. Please go ahead.
Rick Shane
Thanks everybody for taking my question and congratulations, Kerri, we've really enjoyed working with you and Christophe. We are looking forward to more dialogue. I just have one question. There was a comment about raising the reserve rate modestly as we move forward. Obviously that's not a function of changing economic outlook because you don't know what that will be. I'm assuming it's a mix shift issue. Can you talk about that a little bit in terms of what components are shifting in the mix and the different reserve rates for those products?
Christophe Le Caillec
Yeah, yeah. So the trend -- there is like still a bit of normalization going on. So, if you look at our delinquency rates, they're fairly flat. If you squint a little bit, you're going to see a couple of basis points increase. And that's effectively what I meant when I said that you should expect that reserve rate to increase a little bit. There's still a little bit of normalization happening here, but as you know well, those delinquency rates and write-off rates are very strong relative to our historical performance and of course, relative to peers. So there's nothing that gives me concern in that comment. It's just to preempt a little bit what we are seeing.
Operator
Thank you. The next question is coming from Don Fandetti of Wells Fargo. Please go ahead.
Don Fandetti
Hi, good morning. Christophe, on the Basel III endgame, has the message -- is the message still unchanged? I mean, it seems like that's a pretty big increase in RWAs and that maybe you might have to ultimately dial back the buybacks at some point. Just want to get your thoughts on that.
Christophe Le Caillec
Yeah, so this is, as you know, a complicated set of rules, like over a thousand pages. So let me try to summarize it for you and the way we are thinking about Basel III. I think the right starting point is to remind ourselves that, first, we generate a lot of capital ROE in the 30% range. The second element of the starting point is that although our regulatory capital is at 7%, CET1 at 7%, we actually operate with a target of 10% to 11% percent. So that's 300 to 400 basis point north of the regulatory level. And what I meant to say -- my comment was to say that that buffer could be consumed by the Basel III rules if they are adopted as currently drafted. Another way of saying the same thing is that our level of capital today is very healthy given those rules.
I also need to highlight the fact that in the rules themselves, the regulators pause some questions about the applicability of these rules to businesses such as ours, and they reference the charge card, for instance, business. And as you know, over 75%, 78% of our revenue comes from fees, but those fees are stable, visible, such as card fees that we talked about a bit earlier. And we are actively engaged with the regulators to figure out what's the right thing to do here. So we'll see where we land. No one knows. But for now, I don't expect any change to our near-term capital management policies and practices.
Operator
Thank you. The next question is coming from Jeff Adelson of Morgan Stanley. Please go ahead.
Jeff Adelson
Yes, hi. Thanks for taking my questions. Just wanted to focus a little bit on the spend versus account growth dynamics. It looks like your average spending per card or account is flattening out and your account growth is finally slowing a little -- more flat sequentially this quarter, even as you continue to add 3 million new accounts or cards a quarter. And it came against the backdrop of your marketing a little bit lower this quarter, although it sounds like you're going to be leaning back in next quarter to hit that $5.5 billion. So I guess my question is, are you seeing something that's causing you to drive a little bit slower account growth here or is there anything going on with attrition or anything with Delta?
Steve Squeri
No. I think, it comes down to timing. And what happens is quarters happen to cut off on particular days, and that's just the way it is. But no, we're committed to the $5.5 billion overall approximately of marketing. You saw a slight sequential drop. I think we went under the 3 million for the first time in a while. And we look at account growth as, or cards acquired from an overall revenue perspective, but we still see tremendous opportunities out there, which is why we've sort of signaled here, more than signaled, we said we're going to raise our marketing expense for next year as well. So, no, we're not seeing anything at all. That gives us pause. And we will continue to acquire those cards as long as those opportunities are out there. So you will see a higher level of marketing spending in the next quarter.
Operator
Thank you. The next question is coming from Bill Carcache of Wolfe Research. Please go ahead.
Bill Carcache
Thank you. Good morning, Steve and Christophe. Welcome to the call.
Steve Squeri
Good morning.
Christophe Le Caillec
Good morning.
Bill Carcache
Can you share any initial thoughts on the open banking rule that the CFPB recently proposed? There's a view that open banking essentially forces banks to hand over the keys to their customer relationships. I was just hoping you could speak to any opportunities that may present for Amex. And then following up on the capital commentary, Christophe, there's a view that you could reduce your op risk if you treated your rewards expense as a contra revenue. Any thoughts on that would be great, thank you.
Steve Squeri
Yeah, look as far as [Fed now] (ph), I think let's just go to the UK. UK's had open banking for 10 years or so and it's really had no impact on our business either positively or negatively. So I don't really see this as a -- as either a big threat or a big opportunity. And I think what I'd like to take you back, Bill, to is what product we're actually offering. We're offering a membership model product basically, which has lots of different components other than just commodity paying. And our product has so many more benefits from a security perspective, a fraud perspective, a dispute perspective than an open banking product would have. And so I really don't see this, a, as either an opportunity or as a threat to our business, either in the short term or in the long term. I will turn the other question over to Christophe.
Christophe Le Caillec
So on Basel, Bill, there are various things that we're discussing with regulators. I don't think it would be useful to go through the list here this morning on the call. But you raise either an important element here, which is that nothing is really changing in our business, right? We're still doing the exact same thing. And so we need to figure out with regulators what the right level of capital here and not be dependent upon accounting treatment or anything like that. So, too early to discuss this in detail. When we have more clarity, we'll provide you with a ton of out of Basel III detail.
Operator
Thank you. The next question is coming from Dominick Gabriele with Oppenheimer. Please go ahead.
Dominick Gabriele
Hi, good morning. Pleasure to meet everybody. And, Kerri, thanks so much for all the help. I was just curious on your card member rewards as a percentage of billed business. It stepped down quite nicely quarter-over-quarter and year-over-year. I was just curious if you're seeing anything in particular on the utilization of rewards recently or any commentary around that. Thank you so much.
Christophe Le Caillec
Yeah. So, yes, and our total VCE, I called out, was lower this quarter at 40%. So as you know, variable card member engagement and rewards is the biggest number there. It's a very large expense base. So we're constantly looking at when we do product refreshes, when we launch products, we're looking at ways to make sure that these value proposition works best and we price for this. And there's always changes, there's always changes as well in terms of how the Card Members choose to redeem their points from one quarter to another. As you know, we are also adding constantly new redemption partners that change the mix in terms of their weighted average cost per point. So there’s, at any point in time, a lot of variables that will impact that ratio. We are very focused on making sure that we have the right ratio versus revenue and we also have the right value proposition that would be compelling in the marketplace. So it's a little bit lower this quarter. I think we said 42% for the full year because we are seeing it's a bit better as well from a full year standpoint. It's still going to be an area of investments for us. It drives a lot of growth as well. That's one of the key reason why Card Members sign up for the cards and engage with it. And we're going to keep working on those value propositions and make sure that we have the right balance here.
Steve Squeri
The only other point I'll add is that within our value propositions, because of our really premium card base, lots and lots of partners want to work with us and include benefits within our value propositions to reach our Card Members. And so, you know, when you look at the overall value proposition, it's just not rewards-based. It is partner-based, and there are different mechanisms from a funding perspective of how that all works out. So that's part and parcel of our value proposition as well.
Operator
Thank you. The next question is coming from Arren Cyganovich of Citi. Please go ahead.
Arren Cyganovich
Thanks. You continue to outperform on credit, at least very much relative to your peers and below pre-pandemic levels. What are your thoughts on net charge-offs heading into 2024? And maybe you could touch a little bit on how the season-end curves are happening for your recent vintages.
Christophe Le Caillec
Yeah, yeah. So we're not going to give you a lot of details about 2024 on this call. We plan to do that at the beginning of next year when we speak about 2024 guidance. But what I can tell you is that the starting point for us of our credit performance and all our credit decisions is the quality of the products and the fact that it attracts premium Card Members. That's the starting point, right? We have a very talented risk organization. We have a very disciplined execution of our risk decision, but it starts with the quality of the product and that's the key differentiator vis-a-vis our peers and that's what we are focused on. And as you know, we've said this many times on this call, if anything, we are focused even more on the premiumness of the portfolio. We are -- the new Card Members, because you're talking about the vintages, the new Card Members we're bringing in, 70% of those consumer Card Members are joining the franchise on a fee-paying product. That's a big statement to join the franchise. And so, that's what we used to start projecting out. There's still, as I've said before, there's still a little bit of either COVID noise and normalization going on, but we are very pleased with our credit performance that we're seeing. And as you pointed out, the gap versus competitors, if anything, is increasing further.
Operator
Thank you. The next question is coming from Craig Mauer of FT Partners. Please go ahead.
Craig Mauer
Yeah, good morning. Thanks for taking the questions and congrats, Kerri and Kartik on your new roles. The net interest yield on card member loans saw a nice improvement in the quarter of 50 basis points quarter-on-quarter and were -- you're now above Q4 ‘19 and while I understand what rates are doing, the increase was pretty substantial this quarter, so I was -- versus prior quarter. So I was wondering how we should expect that to trend. And secondly, given your visibility due to the accounting treatment of card fees, how should we expect that to trend over the coming quarters considering it's decelerated for several quarters in a row? Thank you.
Christophe Le Caillec
Yeah, yeah. So on the yield, the key thing here, there are many moving parts, right? There are, as you know, in terms of the funding, in terms of their pricing, in terms of their various vintages. But the key, the biggest element that is driving that small increase in the yield is the revolve rate. So the share, the revolving balances, the interest-bearing balances in our total loan balances is actually is increasing a little bit. And that's an outcome of our tenured Card Members rebuilding their balances, which is something we've called out for several quarters now. And I just want to point out again that most of that growth is coming from, most of that growth, i.e. 70%, is coming from tenured Card Members that we know well and we can underwrite well. So that's the key driver behind the yield improvement. When it comes to card fees, you're right. We have good visibility because we amortize those fees over 12 months. So we see that trend. So you should expect that trend to continue a little bit, i.e., the growth rate to moderate. As I said, a key driver to this is going to be the cycle of product refreshes. And it's also going to be a function of us investing more marketing dollars, bringing on more fee paying Card Members. And that dynamic is just going to play out. So you should expect in the next few quarters, a bit of a moderation there, but I need to call out that it's a moderation from a very high level and as we used to say on this call, even during the pandemic, that specific category was still growing so it's still going to grow strongly in double digits.
Steve Squeri
Right. And if you go back to the pandemic, we were growing in the 10% to 11%. And so when you look at the outsized -- what's called the outsized growth rates that we had in Q3 and Q4 of 2022, you did -- you had not acquired cards in really in 2020. And so when you got to that amortization in the third and fourth quarter of 2021, it was lower. So the growth rate was a little bit higher as we got in there. But look, we're pretty happy with 19% growth rate over numbers that continue to get bigger.
Operator
Thank you. Our final question will come from Mihir Bhatia of Bank of America. Please go ahead.
Mihir Bhatia
Hi. Thanks for taking my questions, squeezing me in here. Again, congratulations to Christophe, Kerri, and Kartik. I wanted to maybe switch from talking about the card products that the whole call has been talking about a little bit, and maybe just talk a little bit about the non-card products. I think other loans and receivables is now up over $10 billion in total now. It's obviously been an area where you've spent a lot of time investing in. Maybe just talk a little bit about that, both on the consumer and commercial side. Where are you seeing some of the strongest growth? How do you expect that to trend? How much is that contributing to interest yields, and et cetera? Thanks.
Steve Squeri
Yeah, so let me sort of just hit from a strategic perspective of what we're trying to do and even at $10 billion it's still a relatively small piece. One of the things we try to do from a small business perspective is to make sure that we can provide a variety of working capital needs to our small business customers. And in that case, it can be non-card loans for working capital, it can be shorter term loans for up to two years or so forth. And I think part of that was the overall Kabbage acquisition that we did to be able to do that because what we wanted to do, and it goes along with what we did with sort of our checking account as well, is we wanted to make sure that we could provide for small businesses a host of products and services from having to check a transaction account, having a lending product, having a charge product, and then having working capital loans. And so I think that really fits in. But that's not the driver of growth for us in that segment.
From a consumer perspective, what we've continued to try to do is to really grow our organic footprint with our consumers. And you can go back in history, it started as a charge card and then we put lending and then we put pay-over-time and plan it within the product and came up with a savings account and a debit product and also a small component of personal loans. And so, we've been judicious and careful about how we've gone about that. But I think it's an important add to make sure that our customers are not going to our competitors when they need products and services like that. So that's the sort of strategic sort of backdrop on why we have that.
Kerri Bernstein
Okay. And with that, we will bring the call to an end. Thank you 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 also access a digital replay of the call at 877-660-6853 or 201-612-7415. Access code 13740799 after 1:00 PM Eastern Time on October 20 through October 27. That will conclude our conference call for today. Thank you for your participation. You may now disconnect.
