American Express (NYSE:AXP) has stuck to its strategy of targeting high-income customers for years in its bid to differentiate itself from competitors who largely seek volumes in issuing their Visa (NYSE:V) and MasterCard (NYSE:MA) branded cards. However JPMorgan Chase (NYSE:JPM) aims to give the card company a run for its money by targeting the affluent. The company was recently highlighted in a presentation by AmEx’s Vice Chairman Ed Gilligan at a recent conference. 
We are in the process of updating our price estimate of $51 for AmEx, which is about 12% below the current market price.
- Earnings Review: Operational Discipline Helps American Express Report Higher Margins
- Earnings Preview: American Express’ Fourth Quarter Should Round Off A Tough Year
- Where We Expect American Express’ Revenue Growth To Come From
- How Have Charge-Off Rates For Major U.S. Card Issuers Trended Over Recent Quarters?
- How Much In U.S. Credit Card Purchases Did The Various Payment Companies Process In Q3?
- How Much In U.S. Card Purchase Volumes Did The Country’s Largest Card Issuers Report In Q3 2016?
American Express owes well over 90% of its value to its credit card business with its travel services business making up the rest of its value. The importance of ensuring the long-term sustainability of its card business, therefore, cannot be overstated.
On the other hand, our analysis of JPMorgan shows that the gargantuan banking institution also owes a substantial part of its value (nearly a quarter based on our estimates) to its card business. Incidentally, JPMorgan’s card business is its most valuable business – easily ahead of its retail banking and investment banking businesses. So the bank’s push in growing this business hardly comes as a surprise.
AmEx’s strategy of focusing on the high-income group has clear, distinct advantages – the most notable being the ability to charge merchants more for the ‘distinguished’ customers being brought in. Additionally, the services also come with a high membership fee which AmEx graciously pockets. A clear comparison between transaction fees charged per swipe by AmEx and JPMorgan Chase can be made by looking at the charts above (AmEx) and below (JPM).
AmEx’s fears about JPMorgan’s push on its home turf is understandable, given the significant strength the latter’s employee numbers brings to the stand-off. Moreover, JPMorgan’s extensive network across the country also makes it a formidable opponent.Notes:
- American Express Says JPMorgan Is Credit Card Copycat, The Street, Mar 20 2012 [↩]