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Gen Z and millennials are driving spending, sometimes as premium customers, to the benefit of the credit card company
American Express is increasingly relying on Gen Z and millennial cardholders to sign up for premium cards and spend more money than other customers.
In recent years, the company introduced perks, such as credits toward streaming services, that appeal to younger cardholders. Those efforts appear to have paid off, analysts said in commenting on the company’s second-quarter earnings report last week, giving the company a boost amid economic uncertainty.
Millennials and members of Gen Z charged about $54.45 billion on their Amex cards during the quarter. That amount was the highest ever quarterly total for the demographic, American Express CEO Steve Squeri said on an earnings call with analysts. The figure was up from about $48.96 billion in spending by that demographic in the first three months of 2024, and up from $48.05 billion in the second quarter of 2023, according to the company’s quarterly earnings reports.
People in Gen Z are between the ages of 12 and 27 years old, whereas millennials are between 28 to 43 years old.
Spending by those youngest cardholders amounted to 33% of total spending on Amex cards, which is also the “highest ever billed business from this segment,” Squeri said during the call on Friday.
Amex also saw growth in premium cardholders. Of the 3.3 million new accounts landed during the second quarter, 77% were for premium cards, up from 70% in the same period in 2023, according to the company’s quarterly earnings reports.
In the past several years, American Express has offered perks to premium card members such as $240 toward digital entertainment like streaming services, and a complimentary UberEats pass.
"It's the marketing dollars (attracting younger customers) but also how they structure their rewards," Michael Miller, an analyst with Morningstar, said in an interview. Amex "used to be a travel card, but now you see streaming benefits, perks involving Uber, or UberEats. It appeals to a broader range of consumers."
A rise in spending by younger customers and the addition of more premium cardholders benefits American Express in the long run, William Blair analysts wrote in a note to investors on Monday.
Millennial and Gen Z cohorts “have 2-times the lifetime value and 2-times higher spend growth in the first 10 years,” the analysts said.
Younger customers who have relatively few expenses now will eventually begin to spend more as they hit milestones, noted Bank of America analyst Mihir Bhatia.
"Most people will go through a typical life cycle," he said. "They'll earn more money in their 30s and 40s then they did in their 20s as they get more senior in (their careers). They have life events, they'll get married and have children, and their spending goes up."
The growth in premium cardholders should provide a cushion if consumer spending softens, the William Blair analysts said.
“We believe American Express’s more premium consumer will mitigate a potentially more difficult macro environment,” the analysts wrote in the note to investors.
Squeri made a similar statement in the earnings call. "Our continued strong performance starts with premium customers," he said. "They are high spending, long-tenured and have excellent credit profiles."
The New York-based company also plans to spend more on marketing in 2024, increasing its $6 billion annual marketing budget by $800 million to $6.8 billion, Squeri told investors on Friday.
There are signs that American Express will continue to focus on premium cardholders by offering premium experiences.
Last month the credit card company bought the restaurant reservation platform Tock for $400 million. Tock also offers a hotel reservation system and an event management tool.
Tock works with high-end eateries like Alinea, an upscale Chicago restaurant that doesn’t have prices on its menu. The acquisition should give Amex the chance to dangle more luxury experiences in front of its high-spending cardholders
By Patrick Cooley on July 23, 2024
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