American Express (NYSE:AXP) once again stood at the pole position as J.D. Power and Associates reported the results of its U.S. Credit Card Satisfaction Study.  The survey was based on responses from more than 14,000 customers and ranked card companies on the basis of customer feedback regarding billing terms, rewards program, benefits, payment process and problem resolving ability.
American Express has enjoyed the top spot in the survey for the past six years as it commits to client satisfaction to drive its spend-centric model. This year, the company ranked as the highest in each of the aforementioned categories, edging out Discover Financial (NYSE:DFS).
We currently estimate a price of $62 for American Express’s stock, which is in-line with the current market price.
Just How Important is Customer Satisfaction
American Express charges higher transaction fees from merchants compared to competitors MasterCard (NYSE:MA) and Visa (NYSE:V). The interchange fees charged by the company are about 0.77% higher than that charged by Visa or MasterCard. For example, American Express charges 4.2% for a $30 tank of gasoline in the U.S., versus 2.3% by Visa and 1.9% by MasterCard. 
In return for higher fees, American Express promises to bring affluent customers, who are willing to spend more, to the merchants adopting its network. American Express also allows merchants to surcharge customers as long as they maintain the same policy for other cards in use. With this in mind, customer satisfaction is a key driver for American Express as it does not merely rely on volumes. The company’s lucrative rewards program is instrumental in attracting customers and the latest survey reveals that nearly 80% of its customers completely understand how to earn and redeem rewards.
American Express will look to build on the 6% year-on-year growth in cards-in-force observed in the second quarter of 2012.
Discover Financial also observed healthy, organic growth in the second quarter as card sales volume grew 5% year-on-year to $26.1 billion. The company is looking to grow its business through private-label deals and partnerships such as the affinity card recently launched in collaboration with Ducks Unlimited. (See New Alliance Between Ducks Unlimited And Discover Financial)
Mobile Phone Usage Growing
The percentage of credit card customers using mobile phones to complete transactions has increased from 4% in 2011 to 7% in the present year. Although mobile phone technology is still developing, the market potential is huge. American Express has entered into a collaboration with mobile wallet service, Isis, to capitalize on this market. Visa has launched the Visa payWave, which allows customers to make payments on the go by using the Near Field Communication (NFC) payment facility, whereas MasterCard is ready to launch its digital wallet service, PayPass.
Mobile phone technology affords customers greater flexibility while shopping today. A recent study by Deloitte revealed that shoppers who use mobile phones to complete payments are 14% more likely to convert a purchase than non-mobile phone users.  We expect MasterCard’s transaction volumes to rise through the Trefis forecast period.
You can gauge the effect of a change in forecast by modifying the charts above.Notes: