If you listen to American Express' (AXP -0.60%) conference calls, you'd think the network was one of its greatest weaknesses.

"We expanded our merchant network, adding more than 1.2 million new merchants globally in the past year, with our OptBlue program we're continuing our efforts to move toward parity coverage with the other card networks in the U.S.," said the company's CEO, Ken Chenault, in his prepared remarks.

OptBlue is a program in which the network effectively outsources the recruitment of small merchants to third parties, and has been a cornerstone of the company's marketing efforts for years.

To date, American Express is accepted at 3 million fewer places than Visa, MasterCard, and Discover, which, when taken at face value, suggests that it has a lot of growing to do.

Yet there isn't really all that much business to be won by chasing the small mom and pop shops that do not currently accept its cards. Notably, OptBlue offers discounted rates to smaller merchants, and only those who process less than $1 million in annual volume are eligible.

Once the merchant crosses $1 million in volume, the OptBlue pricing tier disappears -- the merchant must deal directly with Amex, as if it were any other business.

Winning back the spend
American Express has, until recently, enjoyed a premium multiple from Wall Street because of its so-called "spend-centric" model in which it earns the bulk of its revenue from transaction fees, not interest on card balances. By contrast, Discover generates most of its revenue from interest charges, despite the fact it has its own closed-loop network.

The whole goal of OptBlue is to win more of a customer's spending by targeting businesses that do not currently accept American Express cards. At the margin, however, there appears to be very little additional spend to be won.

Consider the following:

  • Amex is accepted at 3 million fewer merchants than its rivals.
  • In all, American Express cards are accepted at fewer than 80% of locations where Visa, MasterCard, and Discover are also accepted.
  • When Amex acceptance is weighted by spend -- not locations, or stores -- a cardmember can use his or her cards to complete 94% of their spending, on average.

The last bullet is the most relevant. The average person who uses an American Express card can complete 94% of their spending (in dollar volume) at a merchant who accepts Amex cards.

At best, OptBlue offers little more than $1 in additional spending volume for every $15 it currently processes. Amex's declining spending volume isn't a problem that can be solved by adding new merchants.