American Express (AXP) Pairs with Ariba, Extends Delta Deal
American Express Co. AXP and SAP Ariba have entered into a multi-phased partnership. The deal will provide new payment and financing options to buyers and suppliers on Ariba Network, thus enabling to better serve customers globally.
The deal will boost the company’s Global Commercial Services (“GCS”) revenues which were up 5% and 9% in 2017 and 2018, respectively. The GCS segment provides a wide range of card and payment programs, expense management tools, consulting services, business financing and cross-border payments solutions to small businesses, mid-size companies and large corporations around the world.
This new service will add to the company’s existing suite of business-to-business payment solutions for better management of spending and realization other benefits, including process control and efficiency, and improved cash flow management.
With Ariba, American Express seeks to tap the B2B payments, which is a vast market with unmet needs. Per CB Insights, B2B payments hold the biggest total addressable market. It estimates market sizing of B2B payments to be more than $20 trillion market by 2020. B2B payments are often analog, involving paper invoices and long payment cycles. Even though more businesses are embracing the use of electronic modes, digital payments remain only a small share of the total B2B volume.
The market thus offers huge scope of growth. Players such as Visa, Square, Inc. and PayPal Holdings, are looking to expand into B2B payments.
A day earlier, the company also announced the extension of its 23-year old co-brand deal with Delta Airlines. The extension has been made for another 11 years.
This deal will be accretive for American Express revenues, since Delta qualifies as one of its major co-brand partners, and will generate interchange and other fees. Last year, the company won a deal to issue co-branded cards for Amazon. It also has co-brand partnerships with Hilton Worldwide Holdings, Inc. HLT and Marriott International MAR.
American Express has been making concerted efforts to win card deals after parting ways with Costco Wholesale Corp. COST in 2016, which was its largest co-brand partner at the time.
The loss of Costco caused a dent in the company’s revenues but the recent co brand partnerships have helped to regain much of its business loss.
In a year’s time, the stock has gained 18.1% against the industry’s loss of 8.2%. Given the tailwinds, the stock should further continue its rally.
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