A spokeswoman from American Express (Amex) has told InvestorDaily it is “decommissioning” its Foreign Exchange International Payments (FXIP) offering for “the majority of customers” by the end of 2023.
Accordingly, the company will no longer provide foreign exchange services for business customers outside of the United States.
“We will contact our customers in Australia to guide them through the local implications of these changes and provide support as they transition to alternative providers,” the spokeswoman said.
The firm said, “for now”, it would continue processing AccessLine payments to domestic suppliers while evaluating the offering.
The closure of its FXIP is expected to impact its Australian workforce, with a wind down process to commence this year.
The company has declined to comment on the scale of staff redundancies but said some employees may be redeployed to other positions with the company.
Amex’s decision follows significant foreign exchange volatility off the back of aggressive monetary policy tightening from the world’s central banks.
The US Federal Reserve has lifted rates by a cumulative 500 bps since commencing its tightening cycle in early 2022, most recently actioning a 25 bps increase to take the funds rate to 5–5.25 per cent.
Amex flagged the risks of interest rate hikes on FXIP earnings in its 2022 annual report, warning “adverse currency fluctuations and foreign exchange controls” could “decrease earnings we receive from our international operations and impact our capital”.
However, the company did not hint at a large-scale revamp of its FXIP strategy but said it would explore options to soften the blow.
“We aim to minimise market risk from these activities through hedging, where appropriate, and the establishment of limits,” Amex stated.
“…The actual impact of interest rate and foreign exchange rate changes will depend on, among other factors, the timing of rate changes, the extent to which different rates do not move in the same direction or in the same direction to the same degree, changes in the cost, volume and mix of our hedging activities and changes in the volume and mix of our businesses.”
Over the course of 2022, approximately 22 per cent of Amex’s total revenues (net of interest expense) were generated via business activities outside the United States.
“We are exposed to foreign exchange risk from our international operations, and accordingly, the revenue we generate outside the United States is subject to unpredictable fluctuations if the values of other currencies change relative to the US dollar, which could have a material adverse effect on our results of operations,” Amex stated in its annual report.
Amex also noted revenue risks associated with government regulation and capital controls, making specific reference to Australia’s focus on interchange fees and the “rules, contract terms and practices governing merchant card acceptance”.
“Regulation and other governmental actions relating to pricing or practices could affect all networks directly or indirectly, as well as adversely impact consumers and merchants,” Amex stated.
In a keynote address to the Australian Payment Networks Summit in December 2022, governor of the Reserve Bank of Australia (RBA) Philip Lowe said Australia needed to “play its role” in making cross-border payments “cheaper, faster, more transparent and more accessible”.
“The cost of international payments is too high,” he said.
“…Progress is being made in this area, but it is slow.
“In part, this progress is coming about because of increased competition, with a number of cheaper digital non-bank money transfer operators entering the market and pushing costs down.”
Governor Lowe noted an improvement in transparency through the use of online calculators, which reveal the total cost, “including all fees and FX mark ups” of international payments.
“There is a lot more to be done here, and we need the assistance of Australia’s financial institutions to make further improvements,” he said.