Two Legs of Growth for American Express: Women and Technology

Founded in 1950, New York based American Express (NYSE:AXP) is a leading global financial services company offering card payment products and travel-related services to consumers and businesses across the globe. It is now the third largest player in the U.S. in terms of card transaction volumes after Visa (NYSE:V) and MasterCard (NYSE:MA). It also competes with other financial institutions that have credit card services like Discover Financial (NYSE:DFS) and Capital One (NYSE:COF).

What differentiates American Express from MasterCard and Visa is its relatively more affluent customer base, which it maintains by offering generous benefits and reward programs. Since American Express brings higher spending consumers to merchants, it can charge a higher commission (known as the interchange fee) on sales. Also, unlike Visa and MasterCard, American Express only issues charge and credit card products but not debit cards, which have been gaining widespread acceptance over the past couple of years. With these critical differences in mind, we explore the opportunities that lie ahead for American Express in an evolving macroeconomic environment.

Our price estimate is $47.16, roughly in line with market price.

Changes in Consumer Demographics

The unemployment rate for women, at 8.9% is almost 2% points below that for men. ^[1] Women also do the majority of spending on household items, beauty and personal care. This relative difference in employment levels presents American Express with a two-pronged opportunity.

First would be a focus on retailers that cater to women such as beauty salons, cosmetics and department stores, perfumeries and home furnishing stores. Second would be include efforts aimed at increasing the proportion of female card members, potentially by issuing customized cards with rewards and benefits catered to women.

See our full analysis and $47.16 price estimate for American Express

Latest Technology Ushering New Payment Process

Technological innovations in payment processing such as Near Field Communication (NFC) technology, which allows financial-transaction data to be transmitted from a consumer’s mobile device by a simple tap on a retailer’s terminal, could replace the plastic credit card as well as banks’ corresponding transaction processing system. Apple is expected to implement this technology on its next generation of iPhone and iPad and Google has also announced efforts aimed at supporting NFC technology in new Android devices. ^[2]

There is still an opportunity here for credit card companies like American Express, however, if they can establish partnerships that utilize their processing platforms for NFC transactions.

1. Go ‘Long on Women’ as Spending Recovers, Bank of America Says, Bloomberg, Jan 28 2011 [↩]
2. iPhone 5 and iPad 2 Could Make Credit Cards Obsolete, Yahoo News, Jan 25’ 2011 [↩]