Amex's Famous "Closed Loop" Has Been Quietly Open for Years. The Moat Was Never the Loop.

Swipe an American Express card at a hotel and the textbook story goes like this: Amex issued your card, Amex signed up the hotel, Amex carried the risk, and Amex sees the whole transaction end to end. One company, both ends of the wire, nobody in between. It's the cleanest "closed loop" in payments, and Amex says so itself - it is "the issuer, network, and a merchant acquirer" all "under one roof," with "direct relationships with both Card Members and merchants."⁴ It's a beautiful description. It's also no longer how most of the merchants got there.

The official story is that Amex is a pure closed loop that owns every relationship at both ends. The truer story is in Amex's own filings: it has spent years quietly opening the loop - handing the small-merchant and international ends to third parties on purpose - because the asset it was protecting was never the loop itself.

The loop Amex describes is real - for the customers who matter most

Start with where the closed loop genuinely holds. For large U.S. merchants on direct agreements, Amex really does sit at both ends: it issued the card, it signed the merchant, it processes the transaction, it sees everything. That slice is small in count and enormous in money - large direct merchants are a fraction of accepting locations by number, but they command the lion's share of the dollars that flow across the network. The loop isn't a myth. It's just been carefully narrowed to the part of the business where owning both ends is worth the cost of owning both ends.

Now look at the long tail, and the picture inverts. To get accepted at the corner cafe and the mid-sized boutique - the merchants who long refused Amex over its fees - the company built OptBlue, a program that lets third-party processors set pricing, onboard the merchant, and run settlement.⁵ At that cafe, the merchant's counterparty isn't Amex. It's the processor. Internationally it goes further still: Amex's own 10-K discloses that its Global Network Services partners "serve as the merchant acquirer and processor for local merchants," "own the customer relationships," and "bear the credit and fraud risk" on the Amex-branded cards they issue.³ That is not a closed loop. That is a franchised one.

Read that last row again, because it's the whole argument. Across every model - direct, OptBlue, GNS - one thing never gets delegated: Amex still sees the spend. It surrenders the acquiring relationship, the onboarding, even the risk, but it keeps the transaction record and the cardmember. The moat was never end-to-end control. It was the data and the customer that control happened to produce.

Why "merchant fees are the cash cow" is a decade out of date

The other myth says Amex is essentially a merchant-fee machine, living on a discount rate it charges shops. There was a time that was closer to true. It isn't anymore. In FY2024 Amex reported $65.9 billion in total revenues net of interest expense and $10.1 billion in net income.¹ The revenue is split three ways, not concentrated in one: $50.4 billion of non-interest revenue, $21.1 billion of interest on loans, and net card fees of $8.4 billion - the fees cardmembers pay just to hold the card, up 16% in a single year.² Merchant discount fees are still the largest single line at $35.2 billion for FY2024, but the old shorthand of calling them the dominant majority of revenue quietly drops the $21.1 billion interest income line and the swelling $8.4 billion card-fee line out of the denominator.¹⁰

That card-fee line is the tell. Unlike open-network card brands that earn no annual fee from cardholders at the network level, Amex earns billions in card fees, because Amex sells membership in the network as a product in itself. The fee buys you into a tier, and the tier buys Amex a high-spending, low-default cardmember whose transactions feed back into the loop. The flywheel runs on spend, not swipes: $1.55 trillion of cardmember spending in 2024, up 6%, and a record 13 million new cards acquired.²⁸ More premium members, more spend, more data, better rewards, more premium members. The discount fee is just one place the wheel touches the ground.

Doesn't opening the loop just turn Amex into a worse Visa?

The fair objection is sharp: if Amex franchises out the acquiring and the risk to processors and partner banks, hasn't it abandoned the one thing that made it special and become a higher-fee version of an open network? If the corner cafe deals with a processor, not Amex, the loop is just marketing. There's real force to that. The directional knock that Amex costs merchants more is documented - its discount fee runs as high as 3.30% per transaction, with a reported floor near 1.43%, and it doesn't publish a single unified rate schedule the way the open networks do.⁶ A merchant could be forgiven for not noticing any difference between "Amex" and "a network."

But the objection mistakes the plumbing for the product. What Amex gave away was operational - who runs settlement, who signs the merchant, who eats a fraud loss. What it kept was structural: it still issues the card, still owns the cardmember, and still records the spend, even when a partner runs the merchant end.³ An open network sees a transaction and a code. Amex sees who bought what, where, at what tier, on which trip - and it can act on that, because it also controls the card and the rewards. Opening the loop was the move that let Amex keep its data advantage while shedding the cost of universal acceptance. It out-located its own purity to protect the thing underneath it.

American Express looks like a company defined by owning both ends of the wire, and for its richest merchants and cardmembers, it still does. But it has spent decades handing the rest of the wire to partners and processors - GNS officially launched in 1997⁹ and OptBlue followed in 2014¹¹ - not because the loop didn't matter, but because the loop was never the point. The point was the cardmember it could keep and the spend it could see. Amex didn't dilute its closed loop. It figured out which thread of it was load-bearing, kept that one in an iron grip, and let go of everything else. The genius wasn't owning the whole loop. It was knowing which part of the loop it could afford to give away.